Forbes USA - 3 March 2014.bak PDF

COMMODITIZING COLLEGE WEARABLE TECH: BE WARY
MAPCH 3 2014 LD|T|ON

PAYPALS
DAVID MARCUS
WE WANT TO
REDEFINE MONEY
PAYPAL WANTS TO CONTROL EVERY TRANSACTION ON THE PLANET.
SO DO APPLE, GOOGLE, AMAZON
(AND CARL ICAHN).
THE
$
15 TRILLION
GOLD RUSH
RETIRE
RICH!
DODGE
TAXES
TAKE
(SMART)
RISKS
CASH IN
ON MUSIC
PLUS
SECOND-ACT
SECRETS
FROM
SPORTS
LEGENDS
JACK
NICKLAUS,
CHRIS EVERT
AND MORE
SPECIAL
ISSUE

4 | FORBES MARCH 3, 2014
CONTENTS MARCH 3, 2014 VOLUME 193 NUMBER 3
68 | CLASSROOM
CAPITALIST
Randy Bests Academic
Partnerships recruits
warm bodies for
virtual desks.
13 | FACT & COMMENT
BY STEVE FORBES
President Obama: Im the law.
LEADERBOARD
16 | THE $50 BILLION GAMES
Russias oligarchs clean up at Sochi.
18 | NEW BILLIONAIRES
A startup founder, a Facebook executive and
a circus master.
Plus: Scorecard
20 | FORBES MAKEOVER
A new look for Craigslists Craig Newmark.
22 | BIG BUCKS BOLLYWOOD
The top-earning celebs in Indias movie business.
24 | WEATHER WATCH
The worlds rst mechanical meteorology station
worn on your wrist.
26 | ACTIVE CONVERSATION
Patent trolls: heroes or villains?
THOUGHT LEADERS
28 | CURRENT EVENTS
BY PAUL JOHNSON
In contests of strong, decisive policy,
Obama comes up short.
30 | CAPITAL FLOWS
BY AVIK ROY
Refocus conservatism around economic mobility.
32 | INNOVATION RULES
BY RICH KARLGAARD
John Chen speaks: saving BlackBerry.
STRATEGIES
34 | THE INVENTION MACHINE
John Nottingham and John Spirk: the most
successful inventors youve never heard of.
BY DAN ALEXANDER
38 | CREATING A BETTER DRUG
Medidata Solutions believes software can
revolutionize the way Big Pharma develops
new medicines.
BY MATTHEW HERPER
COVER PHOTOGRAPH BY ERIC MILLETTE FOR FORBES
60 | THE MAD DASH TO MOBILE MONEY
PayPal made its mark as the Webs wallet.
Now it must ght of Google and Apple for the
cash spent of ine.
BrandVoice
BY NORTHWESTERN MUTUAL
Women Need to Take an Active Role in
Retirement Planning. 15

CONTENTS MARCH 3, 2014
TECHNOLOGY
42 | THE CASE AGAINST
WEARABLES
Smartwatches and bracelets are all the rage
among the digital elite, but troubles lie ahead
with the mass market.
BY CONNIE GUGLIELMO AND PARMY OLSON
47 | MERCENARY HACKERS
NEXT ACT
Endgame wants to rewrite its reputation as a
cyberwar arms dealerwithout apologies.
BY ANDY GREENBERG
INVESTING
50 | LEGG MASONS SLOW TURN
Joe Sullivan aims to overhaul Legg Mason
from top to bottom. Only patient investors
need apply.
BY HALAH TOURYALAI
ENTREPRENEURS
54 | KING OF THE CRAFT BREWERS
Decades before the boutique beer boom
Ken Grossman tasted opportunity.
Sierra Nevada is now a juggernautand he
might be worth $800 million.
BY BRIAN SOLOMON
58 | FIX-IT RICHES
Break your iPhone? Good news
for AJ Forsythe, who is scaling the
repairman model.
BY J.J. COLAO
THE NEW RETIREMENT
MATH
76 | GOOSING THE GOLDEN GOOSE
In the new retirement, sprinters nish last
while distance runners prevail. And risk is
not necessarily a four-letter word.
BY DANIEL FISHER
82 | ROMNEY IRA SYNDROME
Challenge: Extract the money from an
oversize retirement account without getting
destroyed by the new higher tax rates.
BY WILLIAM BALDWIN
86 | FREEBASING YOUR ESTATE
Time to stop worrying about death taxes and
start worrying about the capital gains tax.
BY DEBORAH L. JACOBS
88 | GENERATION ROTH
Millennials need exibility and a hedge
against higher tax rates.
BY ASHLEA EBELING
34 | THE EDISONS OF THE
MUNDANE
Nottingham Spirk has
brought you everything from
the Dirt Devil to a better
Pepto-Bismol bottle.
42 | WHATS WRONG WITH WEARABLES
Do you really need a smart dog collar?
54 | STOUT STRATEGY
Ken Grossman keeps Sierra Nevada fresh
by never running dry of new brews
or new partners.
38 | SOFTWARE RX
Medidata Solutions has
the cure for runaway drug
R&D costs.
BrandVoice
BY TD AMERITRADE
Investors Look Ahead
(And Like What They See). 79

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CONTENTS MARCH 3, 2014
SPECIAL GATEFOLD
91 | POST-SEASON
How four sporting greats drew on a new play-
book to chart their life beyond the eld.
BY STEVE SCHAEFER
97 | PORTFOLIO STRATEGY
BY KEN FISHER
Big, fat, gross: my kinda stocks!
98 | FOLLOW YOUR BLISS
Twenty-ve top places to retirebased on your
passions.
BY WILLIAM P. BARRETT
100 | GOLDEN OLDIES
Music copyright: an investment that throws of
both cash and good vibrations.
BY ZACK OMALLEY GREENBURG
103 | FIXED-INCOME WATCH
BY RICHARD LEHMANN
The 6% solution.
104 | INVESTOR CHECKUP
BY WILLIAM BALDWIN
Zen investing.
FEATURES
60 | WALLET WARS
PayPal is in the center of two battles: one for
control of every transaction on the planet, the
other for control of its own destiny.
BY STEVEN BERTONI
68 | NO COLLEGE LEFT BEHIND
The easy money in higher education: digitizing
a schools professional programs. Now an entre-
preneurial Texan named Randy Best is rapidly
commoditizing it.
BY CAROLINE HOWARD
LIFE
106 | A SPLASH IN THE GRENADINES
Irish billionaire Dermot Desmond made Sandy
Lane a Caribbean legend. Now hes trying to
turn a cursed piece of paradise into something
even more luxurious.
BY LAURIE WERNER
112 | THOUGHTS
On aging.
76 | STOP PLAYING IT SAFE
The old retirement numbers no longer
add up. Time to bet bigger.
98 | LIVE WHERE YOU LOVE
Find the perfect city for
your post-career pursuits.
100 | BUY A BALLAD
Music to your ears ...
and for your wallet.
SPECIAL GATEFOLD
91 | KEEP MOVING
YOUR FEET
Best retirement advice?
Never stop playing. Just ask
Chris Evert.

Achieve nancial security
with a plan that addresses risk rst.
Create your nancial plan with a Northwestern Mutual
Financial Advisor. Together, well design a disciplined and
balanced approach to protecting, accumulating and managing
your wealth, so you can take advantage of lifes opportunities.
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Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) and its subsidiaries. Securities ofered through Northwestern Mutual Investment Services,
LLC, broker-dealer, registered investment adviser, subsidiary of NM, member FINRA and SIPC. NCAA is a trademark of the National Collegiate Athletic Association.

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Avik Roy OPINIONS
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Tom Davis CHIEF MARKETING OFFICER
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FOUNDED IN 1917
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IN BRIEF EDITOR-IN-CHIEF
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FORBES (ISSN 0015 6914) is published semi-monthly, except monthly in January, February, April, July, August and October, by Forbes
LLC, 60 Fifth Ave., New York, NY 10011. Periodicals postage paid at New York, NY and at additional mailing ofces. Canadian Agreement
No. 40036469. Return undeliverable Canadian addresses to APC Postal Logistics, LLC, 140 E. Union Ave., East Rutherford, NJ 07073.
Canada GST# 12576 9513 RT. POSTMASTER: Send address changes to Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971.
CONTACT INFORMATION
For Subscriptions: visit www.forbesmagazine.com; write Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971;
or call 1-515-284-0693. Prices: U.S.A., one year $59.95. Canada, one year C$89.95 (includes GST). We may make a portion of
our mailing list available to reputable rms. If you prefer that we not include your name, please write Forbes Subscriber Service.
For Back Issues: visit www.forbesmagazine.com; e-mail getbackissues@forbes.com; or call 1-212-367-4141.
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MARCH 3, 2014 VOLUME 193 NUMBER 3
Mobile and Social:
The Future of News
BY LEWIS DVORKIN
Very little catches me of guard in the digital space.
Then Richard Sherman, the Seattle Seahawks defen-
sive back, mouthed of in a postgame victory interview.
Overnight a story about him on Forbes.com achieved
blockbuster status. Millions read it, nearly 80% arriving
from social networks. More than half our total trafc
that day was via mobile devices, predominantly smart-
phones. I witnessed the future: social and mobile unit-
ing to drive the news business.
I shouldnt have been surprised. Check out these
graphics. Our mobile visits (all visits, not just unique
visits) hit 25 million in December (one-third of all site
trafc), moving in
lockstep with social
trafc, at 10 mil-
lion visits. The exact
social split between
mobile and desktop is
hard to break down.
We do know that
two-thirds of Twitter
trafc often comes
from mobile devices.
Social media is the
new portalfriends
relying on friends
to tell them what
matters. A report
from eMarketer, an
industry publication,
sheds some light on
the social/mobile
connection. Nearly 70% of females and 56% of males
ages 25 to 49 engage with social media via smartphones
(both groups spend far less time on tablets). Over the
past three years both groups played a signicant role in
driving our digital audience sharply higher.
The second chart, from a new comScore multi-
platform report, also points to the mobile juggernaut.
The light blue bars represent mobile domestic unique
monthly visitors (for Forbes.com 9 million were exclu-
sively mobile) and the darker blue bars desktop users.
No surprise whats next: the coming mobile ad rush. F
Fast
Company
Wired
Atlantic
Media
CNNMoney
Bloomberg
WSJ
Forbes 11.0
7.4
7.3
5.3
6.0
2.7
1.7
26.0
20.3
19.8
1
14.6
13.4
8.9
4.5
Million Visitors
Millions of Unique Visitors in December
25
20
15
10
5
0
Jan-2013 Jun-2013 Dec-2013
Mobile Total
Social Visitors
Mobile Visitors
The Forbes Audience
SOURCE: GOOGLE ANALYTICS.
1
BLOOMBERG.COM AND BUSINESSWEEK.COM.
SOURCE: COMSCORE.

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Investment Services, LLC, broker-dealer, registered investment adviser, subsidiary of NM, member FINRA and SIPC. NCAA is a trademark of the National Collegiate Athletic Association.
Follow nancial principles, not fads or trends.
Create your nancial plan with a Northwestern Mutual
Financial Advisor. Together, well design a disciplined and
balanced approach to protecting, accumulating and managing
your wealth, so you can take advantage of lifes opportunities.

Together, well create a
blueprint to guide your nancial life.
Get the guidance you need to navigate the nancial world.
At Northwestern Mutual, we take a disciplined and balanced
approach to nancial planning. Together, well help build your
nancial future on time-tested principles, not market trends.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) and its subsidiaries. NCAA is a trademark of the National
Collegiate Athletic Association.

trations Big Government agenda.
To add insult to injury, the new
IRS commissioner has decreed that
the agency will pay $62 million in
bonuses, declaring, I rmly believe
that this investment in our employ-
ees will directly benet taxpayers
and the tax system.
The unending changes the White
House has unilaterally made to Obama-
Care have been well documented.
The ways in which the EPA has
waged its jihad against the eastern coal indus-
try has also been well documentedand sci-
ence be damned. Forbes.com columnist Larry
Bell cites a agrant example of the EPAs ignor-
ing inconvenient science: A group within EPAs
own Science Advisory Board (SAB) determined
that the studies upon which that regulation
[setting CO
2
-emission limits for new power
plants] was based had never been responsibly
peer reviewed and that there was no evidence
that those limits can be accomplished using
available technology.
The EPA is also set to ban production and
sale of 80% of current wood-burning stoves.
Who knows what aroused its ire against these
innocuous devices? But this will impose a real
hardship on people who live in remote areas,
such as much of Alaska. The EPA has arbitrarily
decided that stoves cannot emit more than 12
micrograms of ne particulate emissions per
cubic meter of air. To put that silly limit in per-
spective, Bell notes that secondhand tobacco
smoke in a closed car can expose a person to
3,0004,000 micrograms per cubic meter.
By what authority did President Obama
decree an increase in the minimum wage for
workers on federal contracts? A clause in a 1931
MARCH 3, 2014 FORBES | 13
FACT & COMMENT STEVE FORBES
FORBES
PRESIDENT OBAMA
IM THE LAW
BY STEVE FORBES, EDITOR-IN-CHIEF
With all thy getting, get understanding
ONE QUESTION congressional
and presidential candidates should
be asked is how we should go about
restoring the rule of law to our fed-
eral government. Not even during
the world wars of the last century
was the executive branch as brazen
in assuming sweeping and unlegis-
lated powers, changing laws without
the consent of the legislative branch
and ignoring laws it didnt like.
Lawsuits are certainly one pos-
sible avenue to take, but a slow onewhich is
what the White House is counting on. It will do
what it wants, and by the time an unfavorable
decision is handed down, it will have done many
other things. It will also nd ways to circumvent
such a decision or just ignore it altogether.
How will the Administration act when, as is
likely, the Supreme Court delivers an adverse
ruling concerning the Presidents appointment
of members to the National Labor Relations
Board when the Senate wasnt technically in
recess? Obamas appointees went on to make
rulings that were harmful to business. Of course,
the Administration will promise to comply and
will then pull who knows what cards it has up its
sleeve to make an end-run around the decision.
The IRS got caught singling out conservative
groups for harassmentand nothing was done.
The President, with a straight face, told Fox
News Bill OReilly that there wasnt a smidgen
of evidence of any corruption, and the Justice
Department has made clear its deep-sixing any
serious probe. But even worse is the fact that
the IRS is readying regulation that will make it
legal to deny tax exemptions to predominantly
conservative groups, while it turns a blind eye
to organizations more friendly to the Adminis-

FORBES
FACT & COMMENT STEVE FORBES
Is George Orwell At
The White House?
Is Dolan A Doyle?
The Last Dead Girl
by Harry Dolan
(AMY EINHORN BOOKS/PUTNAM, $26.95)
Restaurants: Go, Consider, Stop
Edible enlightenment from our eatery experts and colleagues Richard Nalley, Monie Begley, Randall Lane and Chef Jef Lamperti,
as well as brothers Bob, Kip and Tim.
z The Seafre Grill
158 East 48th St. (Tel.: 212-935-3785)
This deservedly popular, handsome Midtown
seafood restaurant also ofers a full range of
meats. The atmosphere and efcient service
make dining here a delight. Favorites: lobster
bisque, fresh oysters, tuna nioise, giant prawns
in romaine, endive salad with curry vinaigrette,
the key lime tart and the tiramisu.
z Arte
21 East 9th St. (Tel.: 212-473-0077)
Two working replaces add to the ambience
of this romantic Italian spot. For a treat try the
grilled baby octopus on a bed of greens. The Dover
sole and the branzino, both deboned at table side,
are cooked to perfection, and the pastas are deli-
cious. Do save room for the tartufo (enough for
two) or the wonderfully rich ganache cheesecake.
z Rtisserie Georgette
14 East 60th St. (Tel.: 212-390-8060)
This stylish new bistro is packed. The consomm
de volaille is the perfect starter on wintery days.
The poulet rti is juicy, avorsome and perfectly
roasted, and the frites are as good as any
found in Belgium. For dessert, if you want
refreshing go for the chilled citrus and mint; for
decadence order the chocolate pot de crme.
piece of legislation that innocuously
stated that the President should
ensure that federal contracts are ad-
ministered efciently!
While we can take heart from the
upcoming NLRB case, the courts are
going to have to be more aggressive
in going after executive branch abus-
es. Since the late 1930s federal courts
have been very solicitous regarding
acts of the federal government. An
egregious example was the courts
acquiescence to the raw, politics-lad-
en way the Administration unilater-
ally handled the bankruptcy of GM
and Chrysler, shafting bondholders
and giving sweetheart deals to the
United Auto Workers union.
Federal judges should also con-
sider throwing out such laws as
Dodd-Frank, in which the language
is so vague and ambiguous that it
puts immense power in the hands of
imperious regulators who are the ones
deciding what the rules really mean. A
healthy start would be to rule uncon-
stitutional the new Consumer Finan-
cial Protection Bureau, which has no
accountability to Congress and can
throw out regulatory thunderbolts,
with very restricted opportunity for
any judicial review. The agency gets
its money not from Congress but from
the Federal Reserves printing press.
Following the 2014 elections the
Senate, which will then be Republi-
can-controlled, can hold serious hear-
ings on what this White House has
been doing and can slash the budgets
of recalcitrant departments and agen-
cies (the GOP will also increase its
majority in the House).
The election losses the Democrats
will sufer will chasten a good part of
the party, and many will work with
Republicans to punish these breach-
es of trust by the White House. After
all, wise Democrats will know that
Republicans may well win the presi-
dency in 2016, and they wont want
the new Chief Executive bending the
rule of law the way President Obama
has done out of habit.
The late, famed English author of
1984 and Animal Farm would be as-
tonished that the 1984 phenomenon
of Newspeakfreedom is slavery;
ignorance is strengthis thriving
today, not only in authoritarian/
totalitarian regimes, which is what
he expected, but also in the worlds
leading democracy, the U.S.
Politicians are always trying to
put the best face on unpleasant oc-
currenceswhat we call spin. But
nothing comes close to the White
House response to a study from the
Congressional Budget Ofce that by
2024 ObamaCare will cost the econ-
omy the equivalent of 2.5 million jobs.
Hallelujah!, proclaimed White
House mouthpiece Jay Carney. This
is great news because it means peo-
ple wont be in jobs they dont really
like. Now they can dream of better
things and, possessing health insur-
ance thats being paid for by working
taxpayers, can search for something
better without having to worry about
access to medical care.
Unemployment is liberating!
Employment is wage slavery!
Its no surprise that the New York
Times obediently parroted this piece
of Obamaspeak, declaring, That
is mostly a good thing, a liberating
result of the law. Of course, Republi-
cans immediately tried to brand the
ndings as devastating and stark
evidence of President Obamas health
care reform as a failure and a job kill-
er. It is no such thing. The [CBO]
report is about the choices workers
can make when they are no longer
tethered to an employer because of
health benets.
Maybe the Times can mull these
possible Newspeak slogans: The
Internet is good for newspapers!
No newspapers means liberation
for forests! More forests means less
global warming!
I hadnt read Harry Dolan before, for
which Im thankful, as this is a pre-
quel to his previous two mysteries.
Now I can read about David Malone,
who apparently later changes his
name to David Loogan, in chronolog-
ical order. Dolans writing is excel-
lent, and readers can look forward
to his future eforts the way millions

F
of us look forward to the ever more
superb novels of Harlan Coben, Mi-
chael Connelly, Jonathan Kellerman
and Sue Grafton.
David Malone operates a home-
inspection business for prospective
buyers in Rome, N.Y. Engaged to a
med student whom he discovers has
two-timed him, Malone walks out
and soon chances upon an auto acci-
dent. Before you know it, he is living
with the driver, a beautiful law stu-
dent, at her spartan apartment. She
has a nasty bruise on her face and
wont tell Malone how she got it.
Days later the law student is
brutally murdered, and Malone
becomes a suspect. He stays at the
dead womans place and nds himself
investigating the killing to the intense
annoyance of the lead detective.
Malones seeming meddling earns
him a savage blow to the kidneys from
a friend of the detective. Other kill-
ings soon occur, and suspects mul-
tiply. These
are a vividly
memorable
lot, among
them the de-
tective; two
cousins, who
reek of evil; a
professor, who
works to free
prisoners be-
lieved to have
been wrong-
fully convicted; the creepy, horny
grandson of the dead girls landlady;
and a stool pigeon, who won his get-
out-of-jail card by claiming to have
heard the confession of an arrested
schoolteacher suspected of murder-
ing his wife. Other characters are also
distinctly drawn.
The twists and turns ow efort-
lessly, including Malones ex-ance
trying to win him back. Most of the
book is Malones rst-person nar-
rative, but interspersed are chilling
chapters from the killers perspective
as he goes about his bloody work.
FORBES
Women Need to Take an Active Role
In Retirement Planning
W
hen you envision retirement, what do
you see? If youre a married woman,
you probably picture your life in
retirement as part of a couple, enjoying many
years together. However, in reality, most women
will spend a portion of their golden years
without their spouse.
Even if women think theyve done
a good job of planning for retire-
ment as part of a couple, their plan
may not be designed to nancially
support them as a single person in
retirement, says Rebekah Barsch,
Northwestern Mutual vice president
of market strategy. And unfortu-
nately, thats something most women
will have to face, since the vast majority of
women who remain married into retirement
are likely to outlive their spouse.
Whether by choice, divorce or the death of a
spouse, Barsch says women can better prepare
themselves now for the nancial challenge of
being single at some point in the future by
taking these steps:
Actively participate in planning: If youre
currently married, dont delegate retirement
income planning to your spouse. Establish a
relationship with your nancial advisor and
become familiar with the details of your
retirement income plan.
REBEKAH BARSCH
VICE PRESIDENT OF MARKET STRATEGY
NORTHWESTERN MUTUAL
Understand your assets: According
to Barsch, women going through
divorce tend to underestimate the
future value of assets. A nancial
advisor can help ensure your assets
are shared equitably. Married couples,
particularly those with life insurance
and dened contribution retirement
plans like 401(k)s, should carefully
consider their options for creating
income in retirement.
Plan realistically for expenses:
While it might seem like a retired
single womans expenses would
be less than those for a couple,
you may actually incur additional
expenses for things like health care
or professional services.
Make arrangements for long-term
care: Couples need to plan ahead
for long-term care to avoid becom-
ing dependent on their children
or other family members. The
best present my parents ever gave
me was planning ahead for their
long-term care needs, says Barsch.
When their health began to decline,
I dont know how I would have sup-
ported them emotionally, physically
and nancially. But because their
nancial and health care needs were
being met, it was possible for me to
concentrate on what I was uniquely
qualied to doprovide love and
support as a daughter.
By becoming an active participant in
nancial planning early, women can
free themselves to focus on whats
really important: the people they care
about most.
BrandVoice
BY NORTHWESTERN MUTUAL
The vast majority of
married women are likely
to outlive their spouse.
REBEKAH BARSCH
VICE PRESIDENT OF MARKET STRATEGY
NORTHWESTERN MUTUAL
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ADLER
SOCHI

MONEY MEN
LEADERBOARD
KEEPING SCORE ON WEALTH & POWER
The Sochi Olympics are the most expensive ever,
and some of Russias oligarchs are cleaning up.
These nine billionaires have parlayed their links
to the Russian state into huge construction jobs
and massive cost overruns.
THE $50 BILLION GAMES
BASED ON REPORTING BY FORBES RUSSIA. ALL DOLLAR AMOUNTS ARE FORBES ESTIMATES AS OF PRESS TIME.
O
O
O
O
ARKADY ROTENBERG
Chairman, SMP Bank
Net worth: $4 billion
Vladimir Putins
childhood judo partner
received $7.4 billion in
state contracts.
DZHUBGA-SOCHI
PIPELINE
Cost: $940 million
ADLER THERMAL
POWER PLANT
Cost: $855 million
FORMULA 1 TRACK
Cost: $365 million
VLADIMIR POTANIN
President, Interros
Net worth: $12.6 billion
Started the push for a
Sochi Olympics and has
invested $2.5 billion in it.
OLYMPIC UNIVERSITY
Cost: $420 million
ROSA KHUTOR ALPINE
CENTER
Cost: $2.5 billion
OLEG DERIPASKA
Chairman, Basic Element
Received $1.7 billion in state
contracts but is suing the state
for poor planning and a lack of
port facilities.
SOCHI IMERETI FREIGHT PORT
Cost: $185 million
MAIN OLYMPIC VILLAGE
Cost: $700 million
SOCHI INTERNATIONAL
AIRPORT
Cost: $715 million
O
O
O

KRASNAYA
POLYANA
ESTO-SADOK
Total infation-adjusted cost for
the host country, in billions.
MOST EXPENSIVE OLYMPICS
O
O
VIKTOR
VEKSELBERG
Chairman, Renova
Group
Net worth:
$17.1 billion
He borrowed at least
70% of the $500
million he spent on
hotel development.
AZIMUT HOTEL
COMPLEX
Cost: $500 million
ISKANDER
MAKHMUDOV
President, Ural Mining &
Metallurgical Co.
ANDREI BOKAREV
Board member, UMMC
The pair originally said their
hockey arena would cost
$60 million.
SHAYBA ARENA
Cost: $105 million
VAGIT ALEKPEROV
President, Lukoil
His company has spent just
$15 million, but it also has
avoided scandals and not
missed deadlines or inated
costs.
KRASNOPOLIANSKAYA
HYDROELECTRIC STATION
Cost: $15 million
ALISHER USMANOV
CEO, Gaz PromInvest
Holding; main
shareholder, MegaFon
MegaFon is a
$130 million Olympics
sponsor as well as a
big investor in telecom
infrastructure.
MEGAFON TELECOM
CONSTRUCTION
Cost: $95 million
GENNADY TIMCHENKO
Board member, Novatek
Net worth: $15 billion
His company SK Most
Construction got a
$1.8 billion contract to
help build the Adler-Alpika
railroad.
ADLER-ALPIKA SERVICE
RAILROAD
Cost: $8.7 billion
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LEADERBOARD
Mark
Zuckerberg
+$2.1 BILLION
NET WORTH:
$27.6 BILLION
Facebook beats quarterly
expectations on the
strength of its surging
mobile ad business,
pushing shares to an
alltime high.
Mark
Pincus
+$110 MILLION
NET WORTH:
$1.1 BILLION
Zynga posts its biggest
one-day stock jump
after announcing the
successful acquisition
of NaturalMotion and
likelihood of protability.
Kevin
Plank
+$480 MILLION
NET WORTH:
$2.4 BILLION
Under Armours shares
jump 23% after it posts
strong full-year earnings
and its 15th consecutive
quarter of at least 20%
sales growth.
Jef
Bezos
$3.5 BILLION
NET WORTH:
$32.8 BILLION
Shares of Amazon.com
tank after both
revenue and earnings
growth fail to meet
Wall Streets
expectations.
Evan
Williams
$600 MILLION
NET WORTH:
$3.1 BILLION
Despite strong nancial
results, Twitters high-ying
stock dives after the social
media platform reports a
sharp slowdown in user
growth.
Leonard
Lauder
$510 MILLION
NET WORTH:
$7.4 BILLION
Este Lauder, known
for its Clinique and MAC
cosmetics brands, posts
narrower margins, citing
a slowdown in sales
in Asia.
WINNERS
LOSERS
SCORECARD
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FIGURES REFLECT THE CHANGE IN VALUE OF PUBLICLY TRADED HOLDINGS FROM JAN. 16 TO FEB. 6.
SOURCES: INTERACTIVE DATA VIA FACTSET RESEARCH SYSTEMS; FORBES.
1.5 MILLION
Worldwide sales of Sheryl Sandbergs book,
Lean In, since it was published a year ago.
NEW BILLIONAIRES
DROPBOXS
DREW HOUSTON
In January Dropbox closed a round of funding
that valued the cloud storage company at just
under $10 billion, and FORBES estimates that its
cofounder and chief executive, 30, owns more
than a 10% stake in the company, which makes
him a billionaire. He told us in 2011 that he started
Dropbox when I wanted to live the dream and felt
stuck eating Hot Pockets.
FACEBOOKS SHERYL SANDBERG
She became Facebooks chief operating ofcer six
years ago after turning down Mark Zuckerbergs
rst job ofer because a relative told her any man
would hold out for a better deal. Now, at 44, she is
one of the youngest female billionaires in the world
and one of only a handfullike Tory Burch, Oprah
Winfrey and Spanxs Sara Blakelywho made it
themselves rather than inheriting it. Its her equity,
not her $300,000-a-year salary, that has made
her so rich. At the time of Facebooks May 2012
public ofering she owned more than 38 million
restricted stock units, about half of which have
been converted to stock. To date shes sold of
more than 9 million of those shares.
RINGLING BROS. KENNETH FELD
He grew up under the big top and took over his
familys company, which owns Barnum & Bailey
Circus, in the mid-1980s. Since then he has
transformed it into a juggernaut that presents
Disney on Ice and monster truck rallies; it had an
estimated $1 billion in revenue last year. At 65
he becomes the worlds second circus-industry
billionaire, after Cirque du Soleils Guy Lalibert.

The LS F SPORT. You open the door and the show begins as soon as you see the
hand-stitched, leather-trimmed interior; front sport seats; and aluminum accents. Then the
spotlight turns to performance, and the 19-inch forged alloy wheels,
1
Brembo
front brakes,
2
driver-adjustable sport-tuned air suspension, and eight-speed transmission with race-
inspired paddle shifters begin to shine. The LS F SPORT. All of it together demands an encore.
THE WORLD IS YOUR STAGE. MAKE IT A
#LexusLS
1. 19-in performance tires are expected to experience greater tire wear than conventional tires. Tire life may be substantially less than 15,000 miles, depending upon driving conditions. 2. High-friction brakes
require periodic inspection and measurement as outlined in the Warranty and Services Guide. The pads and rotors are expected to experience greater wear than conventional brakes. Pad life may be less than
20,000 miles, and brake rotor life may be less than 50,000 miles depending on driving conditions. 2013 Lexus.
Options shown.

LEADERBOARD
713
Total number of Craigslist sites
worldwidefrom Ashtabula, Ohio,
to Zamboanga, the Philippines.
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FORBES MAKEOVER
CRAIGSLISTS CRAIG NEWMARK
Our experts give the father of online classifed ads a classy new look.
JOSEPH ABBOUD: The award-winning designer and
entrepreneur got his start at Louis Boston before serving
as director of menswear design for Ralph Lauren.
He launched his namesake brand in 1987 and is currently
the chief creative director for Mens Wearhouse.
KATHY IRELAND: The supermodel turned supermogul
is the chief executive and chief designer of kathy ireland
Worldwide, a design and marketing rm she launched
in 1993. Womens Wear Daily has named her one of the
50 most inuential people in fashion.
THE VERDICT
KI: He now exudes sophistication
and style betting a man of his
accomplishments.
JA: Even his face looks better,
and his glasses, too, though its
the same picture. Amazing what
clothes can do for you.
Before After
SUIT
KI: Its length is too long, its sleeves are too short,
its shoulders are too wide. It makes his arms
seem short.
JA: Its very ill-tting. Even though he has a
certain body type it doesnt mean he cant wear a
slightly trimmer garment.
JACKET
KI: The narrow t on his shoulders looks
custom, and it accentuates his physique.
JA: Theres shape to the jacket, and its
shorter than before, with a very graceful
peak lapel and a nice detail in the sarto-
rial pocket.
ENSEMBLE
JA: The color makes him look younger.
Fashion tip: A man can never go wrong
wearing blue on blue.
KI: The rich blue striped jacket with asym-
metrical pockets and the plaid shirt are an
excellent combo for a casual dress look.
THE AFTER IMAGE IS A SIMULATED IMAGE OF WHAT CRAIG NEWMARK WOULD LOOK LIKE IF HE HAD ACTUALLY PARTICIPATED IN THE FORBES MAKEOVER, WHICH HE DID NOT. NOR DOES HE ENDORSE ANY PRODUCTS PICTURED HERE.
SHIRT
JA: Everyone thinks
an ecru or eggshell
shirt is great, but if
you dont pick the
right colors with it,
it tends to be very
washed out.

F I N D O U T W H A T C O R N E R S W E D O N O T C U T , E V E R / 8 7 7 J E T 2 8 0 6 / N E T J E T S . C O M
Tr us t cannot be bought ,
B U T I T C A N B E E A R N E D.
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Relying on the integrity of
another is something that evolves
over time when theres a good
reason to in the first place. Thats
what only the highest investment
in safety and the reputable
backing of Berkshire Hathaway
can do for you.
f or bus i nes s , f or f ami l y, f or l i f e

LEADERBOARD
$5,000
Nightly price of the Grand Del Mars
Grand Villa, a 4,500-square-foot,
three-bedroom suite (Wi-Fi included).
SHAH RUKH KHAN so dominates the Bollywood
box ofce, they call him King Khan. In 2013 his
movie Chennai Express became Indias highest-
grossing lm ever. He also has 19 brand endorse-
ment deals, and all his activities together brought
him earnings of $35.5 million last year. Thats about
what Tom Cruise made but still far less than Amer-
icas top-earning celebrities. Only one of Indias top
ve is not a Bollywood star.
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The Broadmoor
COLORADO SPRINGS
The Broadmoor has maintained
its ve-star rating unbroken since
1960. Founded in 1918, it sits on
3,000 acres at the foot of the
Rocky Mountains and has seven
restaurants and three golf courses.
Mandarin Oriental
MIAMI
Set on Brickell Key at the top of
Biscayne Bay, the Oriental ofers
quiet and a private beach but also
easy access to downtown and South
Beach. Every one of its rooms has a
balcony with a view over the bay.
The Grand Del Mar
SAN DIEGO
Although its in southern California, it
feels Mediterranean, and attractions
range from horseback riding to a
Tom Fazio-designed golf course to
chef William Bradleys ten-course
contemporary French dinners.
Mandarin Oriental
LAS VEGAS
Its 23rd-oor restaurant, Twist,
is Michelin-three-star-chef Pierre
Gagnaires only American outpost,
and its 1930s Hong Kong-inspired
spa has hammam and rhassoul
baths and a laconium hot room.
Montage
Laguna Beach
LAGUNA BEACH
The Craftsman-style hotel sits atop a
rugged clif above four white beaches.
At its Studio restaurant the doors and
windows are often thrown open to let
in the southern California breezes.
The Cloister
SEA ISLAND
Chef Daniel Zeal serves his Southern
cuisine on hand-painted Bernardaud
china, and the 65,000-square-foot
spa has a stream running through its
atrium for when you tire of the
5 miles of pristine Georgia beaches.
CELEBRITY 100
FORBES TRAVEL GUIDE
BIG BUCKS
BOLLYWOOD
AMERICAS SIX PERFECT RESORTS
North, south, east and west, meet the only destinations in the U.S. that received fve stars across the
board from the 2014 Forbes Travel Guide. For more on them, visit forbes.com/5stars.
1. Shah Rukh Khan
ACTOR, 48
EARNINGS: $35.5 MILLION
2. Salman Khan
ACTOR, 48
He has appeared in more than 80 Hindi lms
as well as the long-running reality TV show
Bigg Boss (spelling correct).
3. Mahendra Singh Dhoni
CRICKET PLAYER, 32
EARNINGS: $25 MILLION
With 23 endorsement contracts, the Chennai
Super Kings star is the most marketable
person in India.
4. Amitabh Bachchan
ACTOR, 71
Indias Who Wants to Be a Millionaire star
has the countrys largest Twitter following,
8 million.
5. Akshay Kumar
ACTOR, 46
He starred in three movies in 2013, including
Special 26 and Boss.

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of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York. Worldwide Headquarters | 1932 Wynnton Road | Columbus, GA 31999
Z131176 11/13

LEADERBOARD
29%
Share of Americans who say they know
someone who has found a spouse or
long-term partner through online dating.
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Brian Schechter and Aaron Schildkrout HOWABOUTWE
Childhood friends and former high school teachers Schechter and Schildkrout, both 34, launched HowAboutWe
in 2010. Its big idea: Find a mate by suggesting a specic ofine activityvisiting a jazz club or a ea market, or
going skydivingand seeing whos eager to do the same thing. The service is now available in 30 countries and
16 languages and has pulled in $22.3 million in funding. In January it launched lifestyle network HowAboutWe
Media, upon acquiring Nerve.com.
Justin McLeod HINGE
McLeod, 29, wanted to create a dating site that took full advantage of the centrality of Facebook and mobile
devices in modern life and in 2011 came up with Hinge, a social network that creates matches by mining
users extended social networks. Relaunched as mobile-only in 2013, Hinge has 100,000 users, is available in
seven major cities and has picked up $4 million in funding so far. McLeod says hes keeping it free because
he and his team just want to make the world dance.
Shayan Zadeh and Alex Mehr ZOOSK
Calling itself the Amazon of dating, Zoosk, launched in 2007, uses an algorithm to try to match you with
people who have a high probability of responding positively. The 35-year-old Iranian cofounders have com-
puter science backgrounds; Mehr once worked on coding for NASA moon missions. (Says a spokesperson,
You have a rocket scientist finding you love.) Some 25 million people now use the service, which has pulled
in $61.6 million in funding.
MATCHMAKERS
UP-AND-COMERS
These startups want to start up your romantic life.
How many hours do you usually sleep?
ASK 50 BILLIONAIRES
HEALTHY, WEALTHY, WISE
WEATHER WATCH
A STANDOUT RECENTLY at Genevas prestigious SIHH
watch show, the Breva Gnie 01 is the worlds rst mechan-
ical weather station worn on your wrist, using tiny aneroid
capsules made of a patented nonmagnetic memory metal,
for both a barometer and an altimeter. One winding lasts
65 hoursuseful when youre stuck atop the Alps without
cellphone reception. Breva is selling just 55 of them, for
$170,000 apiece.
38.3%
4 TO 6
HOURS
53.2%
6 TO 8
HOURS
0%
LESS THAN
4 HOURS
8.5%
MORE THAN
8 HOURS
RESPONSES TO AN ANONYMOUS POLL OF
50 MEMBERS OF THE FORBES WORLDS BILLIONAIRES LIST.
TOYS

LEADERBOARD
TROLLS AS
HEROES
FORBES, FEBRUARY 10, 2014
5,754 VIEWS ON FORBES.COM
Columnist Rob Arnott of-
fered a defense of pat-
ent trolls, widely loathed
businesses that buy up
little-known patents and
sue their unwitting viola-
tors. He said they serve
a genuine need as the
buyer of last resort of an
inventor who cannot af-
ford to develop his or her
invention into a product.
Wow, thank you for a
rational article about
patents, wrote commenter
dbhalling. Doug Wenzel
strongly disagreed: A
patent is supposed to be
awarded for a nonobvious
invention that adds value
and advances the state
of the art. ... most patent
trolls look for products
unknowingly using their
technology and sue after
the fact. This raises two
questions: How nonobvi-
ous was the invention, and
how did the patent holder
or aggregator advance the
state of the art?
WHO PAYS FOR FREE
AIRPORT WI-FI?
@NICOLEOZER
Theres no such thing as free
Wi-Fi. ... You are paying with
your personal info.
@STATUSPEOPLE
Seriously, how does America
even work without free Wi-Fi?
AMERICAS NEW RAIL BOOM
@KOPPANAP1
Its easy to be optimistic
about the industry right now.
@THECOUCH999
Revamping the entire
infrastructure [is] good for
green space, jobs and new
levels of progress.
@EMERGINGALPHA
Governor Jerry Brown barely
wanted to mention rails in his
[state of the state] speech. ...
The will isnt there in CA.
STEVE FORBES: CHINA IS
DEPENDENT ON THE U.S.
@THEAZUKA1
Everybody is more dependent
on everybody in this time
and age. So its really not
surprising.
@MRPETEROGDEN
Good. Maybe we will have
better position to pressure
China now on Tibet.
NIX THE KNICKS
FORBES, FEBRUARY 10, 2014
86,704 VIEWS ON FORBES.COM
FORBES ranked the New York Knicks, worth $1.4 bil-
lion, as the NBAs most valuable team for the second
straight year. Some readers saw a big irony there.
Chris OShea at MediaBistro headlined his response
FORBES Names Terrible, Awful, Dammit, What the
Hell Are You Doing New York Knicks Most Valu-
able NBA Team and wrote, It really doesnt matter
that the Knicks are constantly outcoached, give zero
effort on defense, repeatedly complain to referees
and have more in common with a bad soap opera
than the rest of the NBA. It really doesnt matter,
because the Knicks are number one. The New York
Post piled on: Dont worry, Knicks fans. While the
teams on-court play is stinking up the Big Apple
... owner Jimmy Dolanby increasing ticket prices
and jacking up the cost of a courtside hot doghas
seen the value of the team jump 27% in just one year.
Congratulations! NY1 News observed, None of
the teams in the top five currently have a winning
record. Meanwhile ESPNs Web page devoted to the
Milwaukee Bucks noted that The Bucks are the least
valuable team in the league. ... This is all no surprise.
The Bucks are annually the least valuable team. The
biggest takeaway ... is that the Bucks are actually be-
coming a viable business. ... This is actually the first
time since 2009 Milwaukee had a positive operating
income, according to FORBES.
FAVORITE
TWEET
@pmarca
(Marc Andreessen):
Four biggest K-12 education
breakthroughs in last 20
years: (1) Google; (2) Wiki-
pedia; (3) Khan Academy;
(4) Wolfram Alpha. T
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ACTIVE CONVERSATION
62%
Share of all U.S. patent lawsuits in 2012 brought
by patent trolls, according to an Obama
Administration reportup from 29% in 2010.

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THOUGHT LEADERS
PAUL JOHNSON CURRENT EVENTS
THE PROBLEM for President Obama,
now a lame duck, is that hes increas-
ingly compared with Vladimir Putin
and found wanting.
In theory Mr. Obama ought to
hold all the cards. Russia is a back-
ward state, whose vodka-soaked
population is teetering on the verge
of decline. It lacks a modern indus-
trial base, though its vast territories
contain ample natural resources, par-
ticularly those used for energy. These
nance the country and its massive
armed forces. But Russia lacks the
means and skill to raise its peoples
standard of living, and every year the
gap between their lifestyle and that
of the prosperous West widens.
Obama ought to be sitting pretty.
The U.S. economy is recovering rapid-
ly from the worst recession in modern
history. Unemployment is falling, with
millions of new jobs being created.
Fracking is giving an immense boost
to energy supplies and should make
the U.S. energy-self-sufcient before
the end of the decade. Yet Obama is
not getting credit for these welcome
developments. Normally a Presidents
stock rises when the economy pros-
pers, but Obamas ratings continue to
stagnate or, on occasion, fall.
Whatever one may think of Putins
moral posturewhich is deplorable
he is regarded as strong, decisive and
vigorous, pushing Russias interests
at all times, with considerable suc-
cess. In contrast, Obama is written of
as weak and irresolute, with no clear
short- or long-term aims. He gets high
marks for rhetoric but scores zero for
action. In short, hes a windbag.
Two critical areas highlight the
diferences between these two lead-
ers. In Syria Putin has backed the
man who is clearly winning: Presi-
dent Bashar al-Assad. This cynical
and merciless ruler is likely respon-
sible for the deaths of more than
100,000 Syrians, but his troops con-
sistently gain ground, and he oper-
ates with growing condence. Putin
has supported Assad with arms,
diplomatic assistance and all the
resources of the old Soviet-style agit-
prop machinery, which have gradu-
ally prevailed.
Obama hasnt even gotten credit
for playing the moral card, because
his actions have been dithering, con-
tradictory and inefective. His policy
on supplying arms to anti-Assad
groups, if it exists, is unclear. He
gives the impression that he doesnt
care greatly one way or the other,
that his emotions arent engaged.
With the unrest in Ukraine, Putin
has again shown strength and consis-
tency, albeit for the wrong side. He
is determined to keep Ukraine a part
of Russias sphere and thus backs its
government wholeheartedly. The
majority of Ukrainians clearly want
to become a part of the European
community, which to them represents
freedom and progress. In the grow-
ing division between government and
people Putin will support govern-
ment, even to the point of civil war.
With Ukraine Obama has the op-
portunity to align himself with popular
sentiment in a key country of eastern
Europe. Doing so successfully would
enormously strengthen the forces of
democracy in Europe, while giving the
European Community a much needed
idealistic cause around which to rally.
It would also deal a deadly blow to
Putins foreign policy. But Obama
doesnt seem to grasp the importance
of the issues at stake or why American
support is so vital to the democratic
forces in eastern Europe. Its not even
clear that Obama actually has a policy.
Ukraines populist leaders claim that
all their eforts to move Obama to take
action have failed to evoke any kind of
decisive response from Washington.
SECOND-TERM TRAGEDY
President Obama is missing two
crucial chances to take a stand for de-
cency and humanity against the forces
of evil and is handing Putin an easy
victory. History has placed Obama in
a position in which he can be held re-
sponsible for the freedom or servitude
of two peoples. Putin has far fewer re-
sources but has been using them with
skill, consistency and determination.
Its terribly sad that at this juncture
the U.S. is led by a man with so little
regard for his nations role in uphold-
ing and extending freedom and that
the forces of evil should be winning
battles with so little efort.
IN CONTESTS OF STRONG, DECISIVE POLICY
OBAMA COMES UP SHORT
PAUL JOHNSON, EMINENT BRITISH HISTORIAN AND AUTHOR; DAVID MALPASS, GLOBAL ECONOMIST, PRESIDENT OF ENCIMA GLOBAL LLC; AMITY SHLAES, DIRECTOR, THE 4% GROWTH
PROJECT, GEORGE W. BUSH INSTITUTE; AND LEE KUAN YEW, FORMER PRIME MINISTER OF SING APORE, ROTATE IN WRITING THIS COLUMN. TO SEE PAST CURRENT EVENTS COLUMNS,
VISIT OUR WEBSITE AT WWW.FORBES.COM/CURRENTEVENTS.
F

THOUGHT LEADERS
AVIK ROY CAPITAL FLOWS
THE OTHER DAY White House
Press Secretary Jay Carney said some-
thing that can, and should, dene
the debate between conservatism
and progressivism for years to come.
The Congressional Budget Ofce had
published a report estimating that
ObamaCare would shrink the size of
the U.S. labor force by 2.5 million full-
time-equivalent workers. Carneys
response? That this was good news.
As part of this new day in health
care, Americans would no longer be
trapped in a job, said Carney, and
would have the opportunity to pursue
their dreams.
Carneys quip was no of-the-cuf
gafe. His argumentthat America is a
better place when taxpayer subsidies
can help people drop out of the work
forcehas been uttered repeatedly
by Democratic partisans and progres-
sive pundits in the ensuing days. Its
an argument that brings into sharp
relief the moral and political oppor-
tunity for conservativesshould they
choose to take it.
Free-market capitalism has been
the single greatest cure for human
poverty that the world has ever seen.
So why is it that its the left, not the
right, that gets credit for its eforts on
behalf of the poor?
The reason isnt that progressive
policies are better for the poor. Its
that 80% of life is showing upand
when it comes to the topic of how to
address poverty, its the left, not the
right, that shows up with a concrete
policy agenda.
Why things evolved this way is a
long story. But a proximate reason
is that Republican voters tend to be
middle-class employed and retired
people who feel like theyve paid
enough in taxes and dont see why
more should be asked of them to
shower government benefits on
others.
And theyre right. We spend
more than enough money already
to provide a true safety net. Take
education. We spend $15,000 a year
per pupil on educationmore than
any other country in the worldand
yet our educational outcomes trail
those of our peers. U.S. government
per capita spending on health care
exceeds all but three other countries,
and yet we have 40 million people
without health insurance. We spend
nearly a trillion dollars a year on
means-tested antipoverty programs,
and yet the ofcial poverty rate has
barely budged in 50 years.
An emerging movement within
American conservatismwhat some
call reform conservatismseeks to
tackle these problems. Its a philoso-
phy that goes back to former New
York congressman Jack Kemp. He
described the American idea this
way: Everyone should have the
same opportunity to rise as high as
their talents and eforts can carry
them; and while people move ahead,
we should endeavor to leave no one
behind.
Conservatives, of course, have long
held a sheaf of policy ideas to address
the real problems that low-income
Americans face. Far too often, though,
the conservative approach to poverty
and social mobility is left to collect
dust in think tanks, while Republican
politicians focus on cultivating the
people who already vote
for them.
Politics is about priori-
ties. In any given congres-
sional session or presi-
dential term, leaders have
time to push three or four
major ideas into law. Tax
cuts and spending restraintworthy
goals to be surehave been the top
priorities for the GOP. But those aims
can best be achieved if conservatives
rst judge each policy initiative by
this benchmark: How much better
of will it make the poor?
Welfare reform was signed into
law by a Democratic President be-
cause he was convinced by conserva-
tives that the old welfare program
harmed the people it was meant to
help. For conservatism to become a
national movement again, it must
speak rst and foremost for those at
the bottom looking up.
REFOCUS CONSERVATISM
AROUND ECONOMIC MOBILITY
AVIK ROY IS FORBES OPINION EDITOR, A SENIOR FELLOW AT THE MANHATTAN INSTITUTE FOR POLICY RESEARCH
AND THE AUTHOR OF HOW MEDICAID FAILS THE POOR.
F
CONSERVATISM MUST
SPEAK FIRST AND
FOREMOST FOR THOSE AT
THE BOTTOM LOOKING UP

Katia Beauchamp & Hayley Barna, Birchbox
Tory Burch, Tory Burch LLC
Moira Forbes, ForbesWoman
Catherine Fundafunda, Oemph! Media
Lynn Lewis, J3
Susan Wojcicki, Google
Anne Sweeney, Disney Media Networks
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THOUGHT LEADERS
RICH KARLGAARD INNOVATION RULES
but not wanting apps? Theres a
huge market segment out there for
any regulated industry. Governments,
nancial services, health care. I think
we can go capture those and become
a winner. I have two companies in
Europe now that have reversed their
policies on letting people bring their
own devices to work. It presents too
much of a security risk. After An-
gela Merkel was hacked she moved
straight to a BlackBerry.
Assuming BlackBerry survives
the short term, what are your long-
term plans? The devices will change,
but the need for security, productiv-
ity and communication will continue
to grow. These are the three building
blocks of all things Internet and all
things connected. Security is more
than an exercise in avoiding snoop-
ing or being listened to or copied. Its
also about data security. You cant
aford to have somebody steal or
change your data.
How big is the market for users
who put productivity and security
ahead of communication? Regulat-
ed industries share of IT spending is
30%. I assume the same percentage
JOHN CHEN SPEAKS
SAVING BLACKBERRY
RICH KARLGAARD IS THE PUBLISHER AT FORBES. HIS NEXT BOOK, THE SOFT EDGE: WHERE GREAT COMPANIES FIND LASTING
SUCCESS, WILL BE OUT IN APRIL. FOR HIS PAST COLUMNS AND BLOGS VISIT OUR WEBSITE AT WWW.FORBES.COM/KARLGAARD.
STEVE JOBS DID IT at Apple. Lou
Gerstner and Sam Palmisano did it at
IBM. But tech turnarounds are rare.
John Chen, CEO of BlackBerry since
November, is trying again. BlackBerry
is Chens second major turnaround
attempt. His rst was Sybase, a data-
base pioneer that had been crushed
by Oracle. Chen came in, found a
niche in mobile data and sold Sybase
to SAP in 2010 for $5.8 billion.
I had lunch with Chen in January to
talk about his plans to x BlackBerry.
Why attempt this? I thought
the world would be better of with
a strong BlackBerry. You know, the
company has 44,000 patents. And I
thought it might be a xable thing. It
will be a difcult challenge, but if it
were going to be easy, why do it?
Android and Apple own the mo-
bile market. Even mighty Micro-
soft struggles. Can a small player
survive? Sure. Take the automotive
industry; its not all about volume.
What do you call Porsche? What do
you call Lamborghini? Porsche is
doing extremely well. Now, Porsche
serves a particular segment of the mar-
ket, doing well for its shareholders and
owners. It always serves the market for
a purpose, which is the whole point.
In the short term there are
enough users of serious computing
meaning this is what they do for their
living, this is how they operatethat
want a keyboard. You have CEOs of
major companies who whip out their
BlackBerrys because of the keyboard.
They dont care about apps. And, by
the way, from a security point of view
Im starting to worry about where
these apps are actually coming from.
How many potential customers
t that prolewanting a keyboard
for telecom spending30%.
Why are tech turnarounds so
hard? Because the amount of time
you have to execute your plan can be
dramatically changed by your com-
petitors. Theres no time to recover
from mistakes. You have to be right
most of the time.
Do you need a strategy, or are
fast reexes enough? You must
have short-, medium- and long-term
strategies. And a lot of time you have
to put the medium-term strategy in
play. I had to do that at Sybase many
times. Wed go down these paths,
and some would work and some
wouldnt. But we had laid out a long-
term plan, a medium-term plan and
a short-term plan. However, if the
short-term plan wasnt working, the
medium-term plan would kick in. A
lot of companies have only one plan.
Thats great if things go perfectly, not
so great if things blow up.
What makes a great turnaround
team? Urgency. And an obsessive
focus on the things that matter. You
build a team by picking the right peo-
pleit all comes down to the right
peoplewho understand this. Then
you make those people accountable.
The CEO and the team need to know
the details. You cant know the min-
ute details about everything, but you
need to know the details. In an emer-
gency room the doctor is hands on,
whereas in a teaching hospital the
doctor could just, you know, act like
a professor and talk someone else
through the procedure. Turnarounds
are diferent; theyre like an emer-
gency room, and you cant be afraid
of blood.
F

Spinbrush, Dirt Devil vacuum and near-
ly 1,000 other patented products. No, noth-
ing as momentous as the lightbulb or the
phonograph, but in their nearly anonymous
wayeven in Ohio, almost no one has heard
of themNottingham and Spirk have proven
themselves as good at making money as the
Wizard of Menlo Park himself.
T
he closest thing in America
to Thomas Edisons New Jer-
sey laboratory is a decommis-
sioned Christian Science church
in Cleveland. Its here that John
Nottingham, John Spirk and their team of 70
inventors, tinkerers and support staf have
cooked up the Swifer SweeperVac, Crest
REINVENTING AMERICA
The Invention Machine
BY DAN ALEXANDER
John Nottingham and John Spirk are the most successful inventors youve never
heard of, with a cant-lose business model that would make Edison blush.
Two guys and a
very nice garage:
Inside a former
Cleveland church John
Nottingham (left) and
John Spirk reinvent
the everyday.
STRATEGIES

Were probably responsible for more pat-
ents than any other company our size, says
Nottingham, 64, who in 1972 set himself up
in a garage with a college buddy, John Spirk.
The most innovative thing about them: their
model. Rather than invent products and then
gure out how to sell them, la Edison, the
Nottingham Spirk Innovation Center invites
corporate behemothsfrom Procter & Gam-
ble to Marsto come to it with its product
quandaries. Nottingham and Spirk then in-
vent the solutions and give clients a choice
of how to pay. They can either fork over cash
up front, as much as $120,000 a month, or
pay a royalty fee down the road, up to 5% of
sales. Its a sliding scalethe more cash at
the start, the lower the royalty fee later. Ive
dealt with a million industrial design rms,
lots of agencies, lots of p.r. rms, and theyre
the rst ones that really approached us with
that model, says Adam Chafe, who spear-
headed Sherwin-Williams efort to devel-
op a screw-top paint can. They had already
made money, so they were looking to do big-
ger things, more revolutionary. With prod-
ucts like the paint can, the math can get huge:
Since 1972, Nottingham Spirk claims, prod-
ucts it developed have generated more than
$45 billion in sales.
Nottingham Spirk has proven willing to
take equity stakes as well. Its biggest score:
Dr. Johns, which sold electric toothbrush-
es for $5 (based on a spinning lol-
lipop design) when the going rate
was $50. Procter & Gamble bought
Dr. Johns for $475 million in 2001
(Nottingham and Spirk each walked
away with an estimated $40 million
on that one). Heady stuf for a guy
like Nottingham who, as a college in-
tern, ate lunch by the pond of the
General Motors Technical Center,
envisioning a corporate life for him-
selfuntil one of the companys top
designers disabused him. He said,
John, this is the greatest R&D cen-
ter in the world, Nottingham re-
calls. Im just drinking it in. Im just
saying, Wow, Im in heaven, feeding
the ducks. Then he dropped a bomb
on me. He says, Its amazing that
the most innovative ideas that Gen-
eral Motors has come up with have
come from the outside, small compa-
nies. And I stopped in my tracks, the crumbs
going to the ducks stopped in midair. And at
that point my life changed. I said if Im going
to be efective, its not going to be inside Gen-
eral Motors. Its going to be outside.
He returned to school for his nal year at
the Cleveland Institute of Art, where he told
his rst-year hall mate John Spirk about his
new dreamreinventing the worlds largest
companies rather than joining one of them.
After graduation GM came knocking with a
job opening for Nottingham, and Hufy Bicy-
cles had one for Spirk. They rejected the of-
fers and became co-CEOs of their own shop
instead.
Theres a famous Bill Gates quote. They
asked him where does he worry about com-
petition from, says Spirk, 65. Theyre think-
ing all these high-tech, you know, and he says
I worry about two guys in a garage. So what
do we do? We graduated school, and two
guys moved into a garage.
Their big break came when they ap-
proached Rotodyne, an Ohio manufactur-
er that mainly made bedpans using a cheap-
plastic shaping process called rotational
molding. Nottingham and Spirk helped the
company use its rotational molding process
to make not only bedpans but also cheap toys
for children. The bedpan company shifted its
focus and created a new brand: Little Tikes,
whose indestructible red-and-yellow cars
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National Register of Historic Places.
But what excited Nottingham and Spirk
most about the space was something more
practical than its beauty. The basement Sun-
day school space could be renovated into
a prototyping factory, which would allow
them to merge two facilities into one, bring-
ing their entire innovation process under
one roof.
The process starts in a research lab in the
churchs basement. Designers, engineers and
prototype builders crowd into a small room
on one side of a two-way mirror and watch
through the glass as consumers
use products like, say, a bottle of
Pepto-Bismol. They take notes
on potential problems, such as
how sick people usually take two
teaspoons instead of the suggest-
ed two tablespoons, underdosing
themselves.
The designers then go to
work on a solution: for instance,
a dosage cup that ts onto the
top of the Pepto-Bismol bottle.
The product is built in an ex-
pansive prototype workshop,
complete with industrial-grade
saws, paint rooms and 3-D print-
ers. Clients walk away with a
patent plus a prototype they can
send straight to a manufactur-
er. Sales climbed 30% in the year
after Pepto-Bismol introduced
a cap that measures dosage, and
the design is now ubiquitous on
medicine bottles.
Nottingham anticipates big-
ger results (billion-dollar po-
tential, plus, plus, plus) from
the rms latest play: HealthSpot,
a kiosk that comes with pull-
out medical instruments and a
high-denition screen that al-
lows for remote, yet face-to-face,
medical appointments. It would
be the kind of product that Ed-
ison would approve ofa game
changer for a huge chunk of the
world. And it would all emanate
from a Cleveland church base-
ment. Says Nottingham: I see a
sea change coming back to the
Midwest.
have become inescapable landmarks of tod-
dler culture in backyards across America.
Nottingham and Spirk moved out of the
garage and took up residence in two facilities,
one in an old brownstone where they came
up with their ideas and another in a factory
where they manufactured them. Eventually
they outgrew those facilities, too, and started
shopping for a new home. In 2005 they found
it: the Christian Science church just down
the road from their old art school. Architec-
turally signicant with its rotunda sanctuary
and 5,001-piece organ, the building is on the
REINVENTING AMERICA STRATEGIES
EXECUTIVE
SUMMARY
THE KIDS ARENT
ALL RIGHT

Sure, investment banking
can bring you money and
power. But its just as likely
to destroy your dreams, ruin
your relationships and widen
your waistline. At least thats
the lesson we get from Kevin
Rooses Young Money: Inside
the Hidden World of Wall
Streets Post-Crash Recruits
(Grand Central Publishing).
Roose spent several years
tailing eight naive (and
mostly unlikable) college
graduates as they shackled
themselves to spreadsheets
and BlackBerrys for a shot
at nancial greatness after
the panic. Most burned out
before breaking out. Young
Money is a must-read for
any budding bankeror any
parent whos pushing his kid
in that direction.
Steven Bertoni
DIRT DEVIL
VACUUM
CUSTOMER: Dirt
Devil and Hoover,
owned by Techtronic
Industries
YEAR TO MARKET:
1984
Vacuums had
always been
too bulky. Not-
tingham Spirk helped
Dirt Devil come up
with a handheld one,
and the company sold
23 million of them.
PEPTO-BISMOL
BOTTLE
CUSTOMER: Procter
& Gamble
YEAR TO MARKET:
1985
Sick people were
underdosing them-
selves, using 2 tea-
spoons rather than
the recommend-
ed 2 tablespoons,
until Nottingham
Spirk came up with
the now-ubiquitous
dosage cap.
PURELL
PACKAGING
CUSTOMER:
GOJO Industries
YEAR TO MARKET:
1995
GOJO had developed
a goo that would
clean hands, but it
wouldnt sell. Not-
tingham Spirk added
air bubbles and clear
packaging, helping
turn GOJOs Purell
brand into Americas
hand sanitizer.
SPINBRUSH
CUSTOMER: A spinof
company bought by
Procter & Gamble
YEAR TO MARKET:
2001
After making a spin-
ning lollipop for a
candy company, Not-
tingham Spirk put
bristles on a stick in-
stead of candy and
created an industry-
changing $5 electric
toothbrush.
TWIST & POUR
PAINT CAN
CUSTOMER:
Sherwin-Williams
YEAR TO MARKET:
2002
The metal paint-can
cylinder was hard
to open and easy
to spill, but it didnt
change for 100 years.
Then Nottingham
Spirk made a plastic
can with a spout and
screw-of lid.
SWIFFER
SWEEPERVAC
CUSTOMER: Procter
& Gamble
YEAR TO MARKET:
2006
The vacuum that
looks like a mop
gained access to
grocery-store aisles,
generally of-limits
for appliances. Now
its one of the coun-
trys most popular
vacuums.
Nottingham Spirks Greatest Hits
F

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giant Oracle for dominance of this growth-rich
health care niche. Drugmakers welcome Medi-
datas software platform, which now allows
them not only to enter data but also to moni-
tor studies on a large scale, potentially slashing
runaway costs. Medidata keeps track of 8 billion
clinical records for half a million patients, with
1,400 more patients entered into its systems
every day. We believe where theyre going as an
organization supports the new trend in the in-
dustry to really change the way clinical trials are
done, says Kim Grebel, senior director of strate-
gic business improvements at Janssen Pharma-
ceuticals, a unit of Johnson & Johnson.
This whole concept of creating value in
drug development is starting to take hold,
says Sherif. How do you reduce your costs
but increase your value with better drugs
that get paid for?
Sherif, the chief executive, stands 6-feet,
6-inches tall and speaks softly and philosophi-
cally; de Vries, the president, who hand-coded
Medidatas original software, is a born sales-
man, constantly talking in big, visionary jags
and ashing a megawatt smile. In their ul-
T
arek Sherif, a small-time fund
manager, plopped his cathode-
ray-tube monitor and desktop
computer on an ofce chair and
wheeled it a mile down Park Av-
enue from his funds ofces into a small room
and toward the desk that he would share
with a young tech entrepreneur hed met
through his college roommatea tech entre-
preneur named Glen de Vries.
From this inauspicious start in 1999, the two
men built something astounding: a 1,000-em-
ployee, $277 million (sales) technology company
called Medidata Solutions. They make software
that drug companies use for running and track-
ing clinical trials in the cloud, taking on tech
HEALTH CARE INNOVATION
Creating a Better Drug
BY MATTHEW HERPER
Medidata Solutions believes software can
revolutionize the way Big Pharma develops
new medicines. It has Oracle in its sights.
Glen de Vries and Tarek
Sherif: bringing Big
Data to Big Pharma.
STRATEGIES

Ranked number one in the nation

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We have the largest cancer clinical research program in the nation. And many of todays most innovative
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scratch. Sales tripled to $106
million between 2005 and
2008. In the space of a year
head count went from 50 to
170, and that doesnt include
about 50 employees who
left. I always point to it as
the time when I went gray,
says Sherif.
In 2009 the company
went public. Ikeguchi, who
had resigned as chief med-
ical of cer, quit the board
to make room for more out-
side directors; he is now a songwriter who
posts compositions on YouTube. Since the
IPO the stock has risen 527%; on an annual-
ized basis, sales have grown 18% and net in-
come 23%. Phase Forward, still its closest
rival, stumbled and in 2010 was bought by
Oracle. But Medidata says it has continued to
gain market share and is shooting to become
a billion-dollar company. Oracle declined to
comment for this story.
But even J&J, Medidatas big customer,
admits to growing pains in using the com-
panys technology. When backlog looked
light in the fourth quarter, the stock dropped
9%. They have a great, great business model.
Its just a wildly expensive stock, argues
Gene Mannheimer, an analyst at B. Riley &
Co. Six of the seven other analysts covering
Medidata disagree and still say buy.
To keep growing Medidata is going to do
more than just keep track of the data en-
tered into a new clinical trial. Its going to
help drugmakers that spend billions of dol-
lars in R&D for each new drug gure out
where they are wasting money. Among the
new feats claimed by Medidata: allowing re-
searchers to be trained only once, instead of
having to get re-educated for each study; cut-
ting the time it takes for doctors to electron-
ically sign each clinical document, saving
9,000 hours a year over its client base; re-
ducing the cost of preventing bad or fraudu-
lent data in a late-stage drug study by an esti-
mated $30 million; and using FitBits or other
wearable devices to collect data instead of
dragging patients into an of ce. Sherif and
de Vries insist it is just the beginning.
We were naive in a very good, useful
way, says de Vries. It wasnt a zero-sum
game. The enemy was paper.
tramod 140,000-square-
foot downtown Manhat-
tan headquarters, they still
share an of ce, and at a re-
cent company party dressed
as Batman and Robin look-
alikes. In separate inter-
views the two men gave the
exact same quote: Weve
never had a ght.
De Vries rst decided to
create a startup to digitize
the process of conducting
clinical trials in 1994, short-
ly after earning a degree in molecular biolo-
gy from Carnegie Mellon. He went to work
in a lab at New Yorks Columbia-Presbyte-
rian Hospital and was assigned to help de-
sign a small clinical trial. He was shocked by
the mountains of paper and lack of computer
tools. He and a urology resident, Ed Ikeguchi,
also a procient programmer, decided to start
a company. We really were looking at Am-
azon, de Vries says. If you can get to Ama-
zon.com and buy a book, presumably thats
secure, its ef cient, why cant we be doing
clinical trials that way?
Sherif joined in 1999, as they restarted as a
new rm. Initially he was just a potential inves-
tor, but he became so fascinated that he and de
Vries wound up working side by side. Initial-
ly all three men were partners without titles.
But in 2002 they did a $1 million venture round
and Sherif became CEO. The fact that clinical
trial docs and nurses liked the trios software
led to early deals with small biotechs. Medida-
ta was cash ow positive, but in 2004 Sherif and
de Vries did a $10 million nancing with Insight
Venture Partners in Manhattan so Medidata
could claim it was the second-biggest electronic
data capture rm, after Phase Forward, leaving
a dozen or so other competitors in the dust.
Medidatas software was diferent from its
rivals because it is what is known as soft-
ware as a service, similar to the model pio-
neered by Salesforce.com. The company pro-
vides fewer direct services for its clients and
focuses on creating subscription-based soft-
ware that clients can use themselves. Em-
ployees at drug companies use Medidata soft-
ware to set up clinical trials without Medidatas
help. This model caught onand did partic-
ularly well with Japanese drug companies,
with which Ikeguchi built relationships from
HEALTH CARE INNOVATION STRATEGIES
7
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$60
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What the 63 million
Forbes.com users are talking
about. For a deeper dive go
to FORBES.COM/BUSINESS
TRENDING
SEND IN THE CLOUD
MEDIDATA SOARED AS BIG PHARMA
SUBSCRIBED TO ITS SOFTWARE.
SOURCE: INTERACTIVE DATA VIA FACTSET RESEARCH SYSTEMS.
MEDIDATA SOLUTIONS
STOCK PRICE
PERSON
JANET YELLEN
Will she or wont she? The
Mar. 1819 Fed meeting is
its most crucial in years, as
the new chief takes the reins
for real.
THING
KEYSTONE XL
America needs it, a govern-
ment environmental report
okays it, but will Obama
approve it? Dont hold your
breath.
COMPANY
JOHNSON & JOHNSON
Little-reported decision to
allow outside researchers
access to its clinical trial data
is a stunning win for open
science. With luck, others
will follow.
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the market. Big and unresolved questions re-
main about pricing (too high), battery life
(too short), utility (too limited), looks (too
ugly) and privacy (too scary). Were a ways
away from the Borgication of the consum-
er, says Bill Briggs, chief technology ofcer
of Deloitte Consulting, which is predicting
that 10 million wearable devices will be
sold this year in a market valued at about
$3 billion. (Compare that with 1 billion
smartphones sold in 2013.) Were going to
need to see new categories emerge and exist-
ing categories evolve.
Wearers of Google Glass augmented-
reality spectacles, which can record video
discreetly, have already been banned from
some restaurants, casinos, movie theaters,
strip clubs and hospitals. Last years much
ballyhooed Samsung Galaxy Gear smart-
watch has been panned for its lack of apps,
uninspiring design and $300 initial price tag
for a device that relies on smartphones that
sell for about the same or less.
Many of these devices are going to be like
New Years resolutionstheyll get a lot of at-
T
his is supposed to be the year
wearable computers go main-
stream. Hundreds of wire-
less, battery-operated devices
were unveiled at the Consum-
er Electronics Show in January: smartglasses,
watches, jewelry, tness bands, even a pair of
Web-connected underpants. If you buy the
hype, well soon all be connected 24/7 from
the inside and out, emitting streams of data
on our heart rate, sleep patterns, steps taken,
sex, toothbrushing and UV exposure.
The problem: The hype is years ahead of
TECHNOLOGY
GADGETS
The Case Against
Wearables
BY CONNIE GUGLIELMO AND PARMY OLSON
Smartwatches and bracelets are all the rage among
the digital elite, but troubles lie ahead with
the mass market. (Problem one: Theyre ugly.)
HEALTH & FITNESS MONITORS GLASSES
SMARTWATCHES
FITBIT FORCE
8 OUT OF 10
Nice enough
tech, but the real
story is that its
making tness
social by letting
friends share
stats and spur
one another on.
($130)
FILIP 8
Tracking de-
vice for kids that
also makes calls.
Its a bit on the
chunky side but
will put parents
minds at ease.
($200)
PEBBLE 6
Kickstarter suc-
cess now ofers
the Steel, with
a Rolex-style
strap, but lack of
new tech could
see it fall behind
whats coming
from Apple and
Samsung. ($249
as shown)
JAWBONE UP24 7
New version nally adds wireless synch-
ing over Bluetooth. Wins fashion points
for colors like Onyx
and Persimmon.
($150)
GOOGLE GLASS 5
Optical display in front of your eye keeps you plugged into the Matrix; has a built-in
camera that can get you kicked out of the movies. Expect stares. ($1,500 or less)
NIKE+ FUELBAND 7
Battery drains if synched and checked all
the time. Slick design means you (proba-
bly a man) can wear it as a bracelet if you
tire of all the tracking. ($149)
IHEALTH 7
Glucose monitors and pulse oximeters
with a dash of decent design show how
special medical needs can be tracked.
(from $60)

tention and joy for the rst few weeks before
ending up in a drawer, says Scott McGregor,
CEO of Broadcom, which manufactures low-
cost integrated chips that help make wear-
able tech possible.
Samsung, the worlds largest smartphone
maker, moved into wearables early to prove
it could be faster to market than archrival
Apple, which is expected to release its ru-
mored iWatch this year. The Galaxy Gear
synchs to a handful of Android smartphones
via Bluetooth and noties the wearer of texts,
calls and e-mails. But critics dont like the
one-day battery life and wartlike camera lens
on the strap.
It could look better, admits Young-hee
Lee, head of marketing for Samsungs glob-
al mobile business. Lee, whose wrist dan-
gles with a blingtastic, cream-colored Gear
encrusted with ten sparkling diamonds, is
charged with getting consumers to fall in love
with Samsungs wearable gadgets. That may
include smartglasses this year.
Samsungs biggest challenge, which ev-
eryone in the category faces, is balancing en-
gineering and design, an issue of greater im-
portance for a bracelet or glasses than a
smartphone that stays in your pocket. Sam-
sung is talking to fashion houses and jew-
elry companies such as Swarovski to help
make its smartwatch look as good as Lees. At
CES a startup called Pebble launched a Ro-
lex-style Steel smartwatch for $249, while
health-tracking-bracelet maker Fitbit recent-
ly teamed up with designer Tory Burch on
a superchic tness accessory due out this
spring. Having sold a bit more than 1 million
units since launching the Gear in Septem-
ber, Samsung will have a new version out this
spring when its next agship Galaxy phone
is released. Though battery life will remain
a paltry 24 hours, the next Gear will be slim-
mer, lighter and put its camera on the watch
face so customers can change the band.
Crucially, its also expected to have its own
SIM card for making and receiving calls, a
function lacking in most wearables and one
that may hold back the bigger market until
its in place.
Until now the only mainstream smart-
watch to make calls is the Filip, a colorful
plastic band embedded with a tiny SIM card
and aimed at children. It can call up to ve
preset numbers. Essentially a GPS track-
ing device, it was created by Norwegian en-
trepreneur Sten Kirkbak in 2009 after his
young son was lost for 30 heart-stopping
minutes in a shopping mall. Kirkbak engi-
MISCELLANEOUS
DOG MONITORS
SAMSUNG
GEAR 6
Bulky smart-
watch synchs
with a Samsung
phone to show
notications at
a glance. Bat-
tery lasts only a
day, but a new
Gear is due out
this spring. (from
$250)
META PRO GLASSES 6
Hitting store shelves this summer,
augmented-reality specs let you swipe
through projected images that hover in the
air. Early tech for home use. ($3,650)
JUNE BY NETATMO 6
Bracelet bling that tracks sun exposure
has fashion appealbut may lose favor
if UV sensors became standard in other
kinds of wearables. ($99)
VOYCE 5
The bulky collar can track your dogs
activity for a week, but its not cheap.
($300)
WHISTLE 7
Measures Rovers
exercise and sleep stats
so that the master can rest easy.
Rivals such as FitBark are nipping at
its heels. ($130)
CSR SMART NECKLACE 4
A collaboration between Bluetooth en-
gineers and a U.K. jeweler yielded a light
that changes color to match an outt.
Looks nice. Best for the truly bored. (NA)
PROTEUS 8
FDA-approved ingestible sensor is part of
a digital feedback system that keeps tabs
on medication and activity. ($TBD)

friends its customers add, the more theyll
use the device. The other value hook is saving
money. Since early 2010 Fitbit has sold soft-
ware to thousands of companies that want
to monitor employees as part of preventive
health and corporate wellness programs. On
average 20% of workers join corporate well-
ness programs; more sign up when Fitbit is
involved, says Amy McDonough, who helps
run the programs.
Oil giant BP gave free Fitbits to employ-
ees who agreed to walk 1 million steps in
2013. More than 23,000 employees enrolled,
and nearly three-quarters achieved that goal,
winning them 500 wellness points. Getting
1,000 points in a year made them eligible for
BPs premium HealthPlus Plan, which was
half the price of the standard health plan.
BP claims its wellness program helped cut
health care costs by 3.5%. McDonough ex-
pects to eventually see insurers work directly
with consumers who use the Fitbit to adjust
individual premiums.
The downside: Companies may start using
bracelet data to punish rather than reward.
Grocery chain Safeway has a voluntary pro-
gram for nonunion employees that charges
a heftier premium if they fail certain aspects
of a biometric screening test, with their drop
in health costs being hailed in Congress. Im
really hoping to get some standards set for
these guys, says Pam Dixon, a privacy advo-
cate who has testied before Congress about
data brokers. Consumers need to have a re-
ally clear choice about information thats
shared outside the company, even if its an
employer program.
The biggest challenge for wearables is
what denes them in the rst place: how
they look. The Fitbit and Nike+ FuelBand
have gone for the spartan plastic-band look,
with only the Jawbone Up holding some
degree of style. In Silicon Valleys engi-
neering circles success is still largely mea-
sured by number of units sold or how accu-
rate a trackers step count is, says consultant
Chawla. Few have focused on taste and the
behavioral insights that are fundamental to
the business of selling stuf you wear.
Thats why all eyes are on Apple. While it
wasnt rst to market with a smartphone or
tablet, Apples design sense and ability to in-
tegrate gadgets, apps and online services set
the standard others follow.
neered the watch to not only track kids but
also make and receive calls using a preset
list of ve numbers. AT&T started carrying
the device in November for $199 with a $10
monthly plan.
It took two years of engineering to build
a product small enough to contain sepa-
rate voice and data connections and stylish
enough to be worn, says Filip Technologies
CEO Jonathan Peachey. Among the chal-
lenges: building an antenna that can curve
around the wrist and nding a power mod-
ule that doesnt overheat. Even so, the Filip is
large and bulky.
For all the seeming variety of wearables
available today, sales are almost entire-
ly derived from one category, fitness moni-
tors, which account for nine out of ten de-
vices sold, according to Accenture. The
dominant bracelet brandsFitbit, Nike and
Jawbonehave access to plenty of cap-
ital (Fitbit raised $43 million in venture
funding in August) and have crammed all
kinds of sensors into their wristbands, but
theres very little protecting them from
competition from an unknown startup with
$10,000 raised from Kickstarter. The bill of
materials for a wearable can be $10 or less,
thanks to chips that now integrate a pro-
cessor, connectivity and memory, versus a
bill of materials of about $100 or more for
a smartphone, says Broadcoms McGregor.
Anybody with an idea can basically build
a prototype with less than a years worth of
work from one engineer. Its a petri dish
of innovation.
Of course, just because they build it
doesnt mean consumers will want to wear
it. After three months only 40% of people
still wear these things, estimates Chander
Chawla, a tech consultant who has advised
scores of venture capitalists and manufactur-
ers on bringing wearables to market. If the
problem youre solving is that I dont have to
get my phone out of my pocket, Im not sure
thats a huge enough incentive to spur the
market, says IDC analyst Jonathan Gaw.
For health-tracking bracelets especial-
ly, people will see real value in wearing one
only if they put it on every day. Manufactur-
ers have to provide a fun and addictive social
experience for wearers. Fitbit lets you follow
and compete with friends through its mo-
bile app, and Fitbit has found that the more
GADGETS TECHNOLOGY
TRENDING
What the 63 million
Forbes.com users
are talking about.
For a deeper dive go to
FORBES.COM/TECHNOLOGY
PERSON
BILL GATES
He says hell spend a third
of his time at Microsoft as a
technology advisor to its new
CEO, Satya Nadella. You could
do worse, as advisors go.
COMPANY
FACEBOOK
Its new Paper app is winning
rave reviews and ofers a fresh
way to read real news and your
social feeds. FiftyThree (creator
of the iPad app of the same
name) is not amused.

IDEA
DIGITALIZATION
Mere digitizing is old hat. This
new buzzword adds two extra
syllables to denote doing
business entirely online and in
the cloud. Its every IT execs
dreameven if the word itself
sounds a little silly.
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were going to build a top-tier security rm,
we have to do things diferently. ... This is one
of those happy circumstances where business
realities, reputational concerns and my per-
sonal feelings aligned.
The company now touts itself as a Big
Data analysis rm, selling vulnerability in-
telligence software that alerts clients to dig-
ital risks. Its tools pull together information
from sources ranging from a customers anti-
virus program and intrusion detection system
to its human resources and physical securi-
ty data, and pairs the information with End-
games own research on malware and black-
listed IP addresses. Integrating those feeds
into a slick user interface, its software shows
any anomaly that might represent a securi-
ty threat such as a hijacked computer send-
ing source code to Pakistan or a rogue IT em-
ployee badging in at midnight to print the
nance departments sensitive documents.
Endgames new business direction helped
I
n the classic hacker career
narrative a juvenile genius
breaks into the Internets
most sensitive networks,
gets caught and then set-
tles into a lucrative corporate gig
selling his skills for defense. Nate
Fick is trying to pull of the same
story with an entire company.
Fourteen months ago Fick took
over as chief executive of End-
game, perhaps the most contro-
versial name in Washington, D.C.
cybersecurity contracting. For
years Endgames elite hackers
worked in the shadows of the Belt-
way to build zero-day exploits, an
industry term for malicious code
that abuses a previously unidenti-
ed vulnerability. As a contractor
to military and intelligence agen-
cies, including the NSA, it enabled some of
those customers most intrusive spying prac-
tices by selling ways to break into software
from the likes of Microsoft, IBM and Cisco
for millions of dollars.
Ficks daunting task now is to shed End-
games reputation as the Blackwater of hack-
ing and shift his rms focus to the far wider
market in commercial defense products.
The 36-year-old CEO, a former elite Marine
reconnaissance captain who served in Iraq
and Afghanistan before developing a person-
al distaste for violence, hints at a motivation
beyond prot. An ethical cloud still hangs
over Endgame for its track record in under-
mining the Internets security.
Ficks rst move: taking Endgame out of
the zero-day exploit game. The exploit busi-
ness is a crummy business to be in, says Fick,
sitting at a cofee shop near Endgames un-
marked ofce in Arlington, Va., which has
never before allowed a reporter inside. If
TECHNOLOGY
SECURITY
Mercenary Hackers Next Act
BY ANDY GREENBERG
Endgame wants to rewrite its reputation as a cyberwar arms dealerwithout apologies.
Endgame CEO Nate Fick
is exposing (a piece of)
his shadowy company
to the sunlight.

doing, the burdens on you.
Critics cant deny, however, that Ficks
Endgame is diferent from the one he inher-
ited from his predecessor Chris Rouland. In
the early 1990s Rouland tried out rogue in-
trusion as a young hacker under the han-
dle Mr. Fusion before putting his skills to use
for the feds. He eventually became the CTO
of Internet Security Systems and spun End-
game out of the company in 2008 after ISS
was acquired by IBM for $1.3 billion. The
company used to ofer an extensive package
of zero-day exploits for $2.5 million a year,
boasting of targets such as Russian oil re-
neries and the Venezuelan Ministry of De-
fense. We dont ever want to see our name
in a press release, Rouland wrote to a col-
league in early 2010.
That clandestine business came to light
only when the hacker group Anonymous
penetrated Endgame partner HBGary Feder-
al and published thousands of the companys
e-mails, including HBGary Federals proposal
to attack donors and supporters of WikiLeaks
on behalf of Bank of America. While other
companies associated with the hacked rm
apologized, Endgame became even more se-
cretive, taking its website of ine and scut-
tling its early commercial oferings. Going
dark was emphatically the wrong approach,
says Fick. If youre not telling your own
story, people tell it for you.
Fick, who worked at Bessemer Venture
Partners and a Washington think tank after the
military, was brought in by Endgames board to
change that story, and began hiring executives
with commercial-software backgrounds. He
considered changing the companys name but
decided it held too much branding value. The
names cool, Fick says.
Endgame has never apologized for its his-
tory, and Fick refuses to start. Apologize
for what? he asks. He claims that even be-
fore his time the company never sold exploits
to any customer other than the U.S. govern-
ment. And Fick also acknowledges that End-
games reputation provides a recruiting edge
hes reluctant to give up. The guys who are
really good at vulnerability research dont
want to go play in the sandbox and do pene-
tration testing. They want to do it for real.
Exactly what doing it for real entails, Fick
isnt saying. Until he does, the hacker-gone-
straight story will have a major plot hole.
the company raise a second round of -
nancing last year, led by homeland-securi-
ty-focused Paladin Capital, bringing its total
investment to $60 million after earlier invest-
ments by Bessemer Venture Partners, Klein-
er Perkins Caueld & Byers and others. By
FORBES estimate the company earned
$20 million in revenue in 2013; Fick aims to
more than double that number in 2014 and ip
the balance of sales so that the majority within
two years comes from the private sector.
But Ficks friendlier face for Endgame isnt
the full story. Its board still includes former
NSA chief Kenneth Minihan, and its chaired
by Christopher Darby, director of the CIA-
backed venture rm In-Q-Tel. Though Fick
says Endgame no longer sells exploits, the
company doesnt deny that it still sells tools to
the federal government that can be used for
ofensive hacking. After all, the same vulner-
ability intelligence that nds chinks in a cus-
tomers armor can also be used to discover
them in a surveillance target.
Inside Endgames of ce an engineer
shows me an older product code-named
Bonesaw. (Were trying to come up with less
interesting names, quips Chief Strategy Of-
cer Niloofar Howe.) Bonesaw pulls Internet
data to show what software runs on which
machines, like a Google Maps for hackers.
With a few clicks a user can zero in on a com-
puter and see its vulnerabilities along with a
list of publicly available techniques to hack it.
Fick wont say what Endgames govern-
ment customers might do with that tool. He
wont comment at all on the specics of End-
games government business, citing secrecy
agreements. In a year in which the NSA has
been accused of out-
of-control spying,
that lack of transpar-
ency leaves critics to
assume the worst.
It sounds to me
like theyre trying to
put a rose on a pig,
says James Bamford,
author of three books
on the NSA and a
vocal critic of End-
games practices. If
youre saying youre
on the right path but
wont say what youre
SECURITY TECHNOLOGY
The guys
who are
really good at
vulnerability
testing dont
want to go
play in the
sandbox. ...
They want to
do it for real.
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Sitting at the back of the room listening intently
while dining on a luncheon of eld greens and
roast chicken were two of Leggs biggest share-
holders, activist investor Nelson Peltz and fellow
billionaire Mario Gabelli of Gamco Investors.
Of course, the root of Leggs problems have
little to do with anything Sullivan had con-
trol over. For any asset manager, performance
is critical. Legg went from being among the
best-performing money managers in the world,
thanks largely to Bill Miller and his Legg Mason
Value Trust, to being one of the worst when
Millers big-cap growth and value stock strategy
stopped working.
After 15 consecutive years of beating the S&P
500 and gracing the cover of dozens of invest-
ment magazines, Miller had amassed some
$70 billion in his unit by early 2007 but also
had made big bets on housing and nancials.
When the housing bubble deated, Millers
fund dragged Legg Mason into a downward
spiral that it has yet to fully recover from. Inves-
tors abandoned Miller and Legg Mason, and as
stocks have rebounded, the bulk of Leggs other
assets were tied up in xed-income-oriented
subsidiaries like Western Asset Management,
which has experienced tens of billions in out-
ows since 2009. To add insult to injury, Miller
was booted to his much smaller fund, Legg
Mason Opportunity Trust, and despite a stellar
67% return in 2013 and a 40% return in 2012, it
still has $2 billion in assets.
Peltzs $8 billion hedge fund, Trian Partners,
began scooping up Legg shares in 2009 at the
bottom when its stock was trading in the high
teens. He parlayed an eventual 10% stake into a
seat on the board and later forced Legg to oust
chief executive Mark Fetting in 2012 after just
four years.
Peltz backed Sullivan, 56, who had cut
his teeth in capital markets building Leggs
W
hen it comes to fail-safe
business models, few rival
money management. The
dirty secret of the busi-
ness is that once youve
accumulated assets above a critical mass, even as
little as $1 billion under management, its pretty
hard to screw things up. Asset management
generates annuity-like feesfrom 1% of assets to
20% of protsand thrives on the inertia of its
investors. Most fund holders are loath to switch
rms, so even the worst money managers can
linger for years.
Take the case of Legg Mason, the once great
Baltimore investment house. Legg posted net
asset outows every year since 2008 totaling
$368 billion through March 2013; in 2009, a
remarkably bad year, assets fell 33% from $950
billion to $632 billion. That same year the rm
reported a $1.9 billion loss. The rms total assets
irted with $1 trillion back in 2007 but hover
around $680 billion today. This despite the fact
that most big asset managers have more than
made up for the losses incurred in 2008.
Leggs stock traded as high as $136 in 2006.
Today it trades at $42, or down 70% from its
peak, compared with an 89% gain for rival rms
like Afliated Managers Group and 107% for
T. Rowe Price over the same time period.
So it was no wonder that on a warm sunny
September day dozens of analysts gathered
in a banquet room at the W hotel in midtown
Manhattan to hear Legg Mason Chief Execu-
tive Joseph A. Sullivan explain himself. Sullivan
and his CFO, Peter Nachtwey, walked the crowd
through a detailed PowerPoint presentation:
We were wondering how it could be that
one of the best analysts that covers us still didnt
quite get it, said Sullivan of the decision to hold
the event.
Its not just stock analysts who are concerned.
Legg Masons Slow Turn
BY HALAH TOURYALAI
Joe Sullivan aims to overhaul Legg Mason from top to bottom. Only
patient investors need apply.
MUTUAL FUNDS
INVESTING

W
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F
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Both rms ofer their afliates distribution
and marketing in exchange for a share of rev-
enues. Legg keeps an average of 42% from each
afliate, though some hand over as little as 25%.
Pasadenas Western Asset Management is its
largest afliate, with more than $450 billion in
assets, or 66% of Legg Masons total. However,
municipal bond business in the
early 1990s and later spent time
in the upper ranks of St. Louis
brokerage rm Stifel Nicolaus.
In 2008 Legg Mason founder
Raymond A. Chip Mason lured
Sullivan back to become a part
of Fettings management team.
Sullivan distinguished himself as
head of sales and distribution, a
key role at any asset management
operation.
Legg Masons board unani-
mously voted in Sullivan as per-
manent CEO in February 2013,
but despite the vote of condence,
he is still struggling. To his credit
Leggs asset bleeding has been
stanched, and it swung from a big
loss a year ago to a prot of $216
million for the rst nine months
of its 2014 scal year ending in
December 2013. However, Legg
Masons $1 trillion high-water
mark is still a long way of.
Sullivans biggest problem
may not be lousy performance
but rather the corporate struc-
ture he inherited from founder
Mason, who, starting in 1995,
expanded the brokerage rm into
money management by acquiring
boutique asset managers such as
Brandywine Asset Management,
Batterymarch Financial and Royce
& Associates.
Among money managers Legg
Mason is ranked 26th in the world
by assets, but unlike Pimco and
Fidelity it is organized as a holding
company of nine wholly owned
afliated money management rms operating
autonomously. Structurally, its closest competi-
tor is $544 billion (assets) Afliated Managers
Group, based in Beverly, Mass., which owns
rms like Yacktman, Artemis and Tweedy,
Browne but trades for 38 times earnings com-
pared with 21 times for Legg Mason.
Legg Mason Chief
Executive Joseph A.
Sullivan: $1 trillion in
assets or bust.

MUTUAL FUNDS
cial advisors over luncheon presentations and
golf. A good wholesaler can be the diference be-
tween outows and inows. Currently only 29%
of Leggs assets come from nancial advisors.
However, this retail market makes up 45% of
the rms total revenue.
Sullivan is revamping Leggs wholesaler
footprint. The belief is that the only way to do
this business is belly to belly, working out of the
trunk of your car with fact cards and walking
through of ces, buying lunch. I just dont believe
that, he says.
So Sullivan created a new position at Legg
Mason, a so-called cross channel wholesaler
assigned to suburban and rural areas, outside of
traditional urban territories. Cross channelers
spend only 25% of their time on the road and are
expected to be more entrepreneurial in min-
ing and prospecting the rms nancial advisor
database. Sullivan has created 18 cross channel
wholesaler jobs since 2012 (there are still 49
traditional wholesalers), and last year U.S. gross
sales grew 24% to $43 billion.
Legg has a big opportunity in retail distribu-
tion, says Wells Fargos Harris. You need good
people to sell your products, but you also need
good products.
Thats a sore point that Sullivan acknowl-
edges. Expanding the rms product oferings
will mean acquisitions. Given Leggs low stock
valuationit sells for one times book valueSul-
livan will have to rely on the rms $800 million
in cash on its balance sheet and its $750 million
credit line for acquisitions. Sullivan also says he
would, if necessary, go into the debt markets to
nance a deal, depending on how much cash
ow he was buying. Sullivan says he has options.
Plenty of them.
Options, yes, but perhaps not as much time as
hed like.
Activists like Peltz arent known for their
unending patience. No doubt one reason Peltz
and other investors piled into Leggs stock is
the billions of loss carryforwards and amortized
goodwill that it has on the books. Its enough
to shelter $3.6 billion of future income over
the next ten years. So far the cash savings from
Leggs tax benets have been used for some $90
million in share repurchases per quarter.
Activists like buybacks, but what they really
want are the kind of stock gains that come from
turnarounds. Says Harris: Leggs had a num-
ber of years of outows, and theyre now in at
ows. Now its time to grow. Amen.
because Western is a bond manager and charges
lower fees, it accounts for only 37% of Leggs
revenue, according to estimates by Wells Fargo
analyst Christopher Harris. Meanwhile, small-
cap-equity manager Royce has $40 billion under
management but generates an estimated 14% of
Leggs revenue. This mix hurts Leggs valuation,
as does the way it accounts for payments to its af-
liates. Legg considers such payments compensa-
tion expense, which means an operating margin
of 24% compared with 31% at AMG.
AMG leaves a slug of equity with its af li-
ates, so it reduces its compensation expense. If
we had done that and all our af liates kept 20%
of the equity, then our margins would be in the
high 30s or 40%, says Sullivan. Were the rst
ones to acknowledge that AMG has the better
model.
Of course, this was never a problem for Legg
Mason when the stock market was rising. Then
markets turned and revenues dropped, but given
af liates top-line focus they had little incentive
to become more ef cient and tighten belts.
The multi-af liate model isnt decient by
its nature, but it is decient if there is not an eq-
uity piece left with the managers, says Sullivan,
who is now on a mission to restructure all of
Leggs af liate deals, cutting prot-share deals
with each within the next 18 months.
Already Sullivan has managed to give its
fund-of-hedge-funds af liate, Londons Permal
Group, a 15% equity stake using a new merger
with BNP Paribas Fauchier Partners as an op-
portunity to restructure.
Chuck Royce, the founder of Royce & As-
sociates, who sold his rm to Legg Mason for
$115 million plus earn-out payments in 2001,
looks forward to restructuring his deal. Equity
would not only create a liquidity option for retir-
ing stafers (Royce is 73) but also be useful as a
talent-retention tool. Currently AMG af liates
are able to sell equity stakes back to the hold-
ing company for a multiple of seven times cash
ow. A simple revenue-share model provides
income, but real wealth creation is in the equity,
says Citigroup analyst William Katz.
Leggs structural problems dont end at the
corporate level. Sullivan is also revamping Legg
Masons sales force. For most asset managers,
so-called wholesalers can be the key to a rms
asset-gathering success. Wholesalers are the
door-to-door salesmen of the fund business,
spending their days on the road often racking up
thousands of miles per week chatting up nan-
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largest brewery in the country, with its sig-
nature Pale Ale sold in all 50 states, thats not
an option. Grossman is facing the same chal-
lenge that has stymied companies from Micro-
soft to General Motors: Once youve graduated
from insurgent to incumbent, how do you keep
growingand keep the fan base happy?
Sierra Nevadas answer is to stay close to its
roots, constantly innovate and co-opt tiny com-
petitors by partnering with them.
Growing up in the San Fernando Valley
among divorced parents, Grossman developed
the characteristics of a proto-entrepreneurin-
ventiveness bordering on larceny. He stole the
motor out of a neighbors lawn mower to build
a go-kart, used a rudimentary plastic explosives
recipe to blow up every mailbox on the block
and dropped homemade stink bombs in his ju-
nior high. The day before his 12th birthday he
was caught shoplifting a small bag of circuit
board clips from the local RadioShack.
Then he started channeling his creative urges
toward photography, bike repair and (pre-legal
drinking age) distilling. His rst batch used a gal-
lon jug of Welchs grape juice he hid in the closet.
Grossman met his future wife, Katie, while dab-
bling at Cal State Chico. He ultimately dropped
out to manage a bike store, then opened a home-
brewing supply shop. While that went nowhere,
Grossman couldnt shake the dream. Bike shop
I could do, but Id probably be bored in a few
years, he says. Brewery seemed a lot more fun.
Riskier, too. He and partner Paul Camusi,
a home-brew customer, sank all their savings
(about $15,000) into Sierra Nevada, and turned
to family and friends for $85,000 after banks
said no. It took more than two years of grinding
from start to production. In a prescient move
they planned for a ten-barrel brewery, the size
of Sierras current pilot brewery but many
times larger than other home-brew-turned-
commercial-startups then.
Grossman had to scrounge for parts, scav-
enging stainless steel tanks, pumps and piping
from closed dairies and salvage yards across the
West Coast. The old bottling system he bought
proved useless. Katie, at home with their young
K
en Grossman has survived his
share of froth and burst bubbles
in the 35-plus years since he co-
founded Sierra Nevada Brewing
Co. Now 59, he still oversees the
nations largest private craft brewery, producing
nearly 1 million barrels of beer a year and ring-
ing up more than $200 million in sales. Leaning
back in his ofce chair, dressed in a plaid shirt
and black zip-up vest and surrounded by empty
beer bottles and photos of grandkids, Grossman
seems the very image of a self-satised patriarch.
Hes not. Back in 1978, when Sierra Nevada
was created, there were only 45 independent
breweries in America, following a long decline
after Prohibition. Today the $100-billion-a-year
industry (U.S. sales) is dominated by the likes of
Anheuser-Busch InBev and MillerCoors. But
there are also 2,700-plus breweriesmore than
a third popping up in the last ve years. Making
higher-priced craft beers like hoppy pale ales,
dark rich stouts and fringe avors, these small-
er producers are growing by double digits, from
nothing to 7% of the total U.S. market by vol-
ume and 12% by dollars spent. But there are only
so many taps at the local bar, only so much shelf
space in the supermarket aisle.
Its a grow or die mentality, says Grossman
in his low, unappable voice. If our brand isnt
growing, somebody elses will. You can have a
business model where you put the brakes on
and only sell 30 cases of this really exotic, re-
ally expensive beer. But weve grown way past
that. Now that Sierra Nevada is the seventh-
CRAFT BREWING
King of the
Craft Brewers
BY BRIAN SOLOMON
Decades before the boutique
beer boom Ken Grossman tasted
opportunity. Sierra Nevada is
now a juggernautand he might
be worth $800 million.
ENTREPRENEURS

daughter, questioned the whole venture, as Ken
was spending 12-hour days doing the bulk of
the welding and fabrication himself, while also
working a second job to provide a living. Brew-
ing nally got started in November 1980, though
the rst ten batches of pale ale were sacriced
producing something t to drink.
We were pretty condent we could sell
1,500 barrels a year, says Grossman, with scant
evidence for hope. But from bars in Chico to
restaurants in San Francisco and eventually to
distributors across the country, word spread
about the new brewerys intense avors and
commitment to quality ingredientsas in their
refusal to use anything but whole cone hops.
Barely protable, the company built out pro-
duction to 12,000 barrels a year by 1988. It also
hired a few employees, including Steve Dresler,
still head brewer 31 years later. (His description
of the early work environment: A very small
group of creative, motivated peopleand high-
ly self-medicated. My rst day I was putting
bottles into boxes when everyone took their
midmorning break to get stoned.)
But not too whacked-out to meet the insa-
tiable clamor for craft beer. To handle growth
Grossman oversaw the purchase and cross-At-
lantic shipping of a 100-barrel copper brew-
house from a failed German company and in-
stalled it at a new Chico location in 1988. Four
years later Sierra Nevada was already pushing
the limits of that system, which Grossman even-
tually built up to 300,000 barrels per year, ve
times the original intended capacity. Another
expansion brought the site up to its current size,
and since late 2012 the companys production
has once again been completely constrained,
with revenues squeaking up only 2% in 2013.
Grossman says the current round-the-clock fac-
tory pace isnt sustainable with only one plant:
Historically we took a few weeks of every year
to x and rebuild. Last year we shut down for
Christmas and Thanksgiving only.
While multiple on-the-y reconstruction
jobs took their toll, problems festered behind
the scenes. Grossman weathered a grueling ve-
year ownership battle with the less hands-on
Camusi. Finally, in 1998, Grossman assumed un-
disclosed debt to buy out his 50/50 partner. In
the aftermath Sierra Nevada cut back on inno-
vation. By 2007 it had been 13 years since the
company released a new beer on a national scale
and, as a result, lost market share as a second
generation of microbrewers ooded in.
But Grossman, who admits hes hands-on to
a fault, was burned out and seriously explored
a sale. Only the surprise enthusiasm of his three
children to keep Sierra Nevada in the family
stayed his hand. I never got in it for the money,
so if they want to have that legacy and carry it
into the next generation, lets make that hap-
pen, he says. Today his oldest daughter, Sier-
ra, runs the Torpedo Room, a bar in West Berke-
ley for sampling limited new releases. Youngest
child Brian, 29, is overseeing a new East Coast
brewery in Mills River, N.C. The plantwhich
the company says will ultimately cost well over
$100 millionwill open in August and slow-
ly ramp up to 800,000 barrels per year, relieving
C
O
D
Y

P
I
C
K
E
N
S

F
O
R

F
O
R
B
E
S
Hip hops: Cofounder
Ken Grossman produced
55 new beers in 2013,
but his rst, Pale Ale, is
still the best seller.

CRAFT BREWING
ing from the now mainstream Sam Adams lager
(which spent much of its rst decade being
produced by larger breweries). His Angry Or-
chard cider line is a hit in a lower-margin but
fast-growth category. But the new Rebel IPA
sparked erce words in December from La-
gunitas Brewing founder Tony Magee, who
accused Boston Beer of imitating his hit IPA
and of pressuring distributors to replace it on
bar taps. Koch denied the charges, but the in-
cident highlighted growing tension between
small brewers and Boston Beer, which, at 3 mil-
lion barrels a year and a $2.6 billion market cap,
many now consider a craft brewer in name only.
By contrast, Grossman has grown through
collaboration with smaller breweries, even at
the expense of prot. Sierra Nevada will host
a participatory Beer Camp Across America
traveling festival this summer to highlight its
place within the broader craft-beer movement.
Dreslers team has spent the last few months
working on the special-edition variety 12-pack,
coproducing each beer with a diferent region-
al brewery, like Allagash, Russian River and
Ninkasi. (Its incredible to be around someone
who knows every single detail about whats
going on, muses Jamie Floyd, Ninkasis found-
ing brewer, on a recent visit to Grossmans op-
erations.) The project allows Sierra Nevada to
trade in some of its operational know-how and
national exposure for
ties to younger, hipper
brands. Together theyre
donating the prots to
fund hops research.
Its hard to nd
many detractors of Sier-
ra Nevada, says Harry
Schuhmacher, publish-
er of Beer Business Daily.
Its so beloved and re-
spected both in the in-
dustry and among con-
sumers. Grossman may
be worth an estimat-
ed $800 million. But his
challenge is keeping a
good thing going in an
industry where hype is
as important as hops. As
someone who jokes hes
in the alchemy business,
he cant aford to lose his
golden recipe.
pressure on Chico as well as slashing transporta-
tion expenses: Cross-country refrigerated ship-
ping costs Sierra Nevada more than $4 per case.
With its 2,000 solar panels, the new plant
is also a showcase of green productionas
distinctive to the companys identity as the
exceptional avors of its brews. In Chico,
where Grossman made environmental im-
pact a top priority, 76% of electricity usage
in 2013 was produced on-site, with 10,573
solar panels and four fuel cells; it recycles
and composts 99.8% of its waste. Mirroring
the home base, employees in Mills River will
have a free day-care center and health clinic.
All those good works couldnt change the
fact that the craft-beer revolution Grossman
helped launch was passing him by. If you walk
down the grocery aisle and you get to beer,
you say, Whats wrong with this category?
says Joe Whitney, head of sales and market-
ing. There are hundreds of players, theres all
these avors. Its total chaos. With almost no
advertising, the signature citrus-and-pine blast
of Sierra Nevada Pale Ale had become a reliable
standby for millions, but consumers demanded
ever more extreme avors and styles, even will-
ing to pay $12 for a single bottle.
So Grossman got busy, experimenting with
new brews. Last year Sierra Nevada produced
55 new labels. Pale Ale is still the number one
seller, accounting for 60% of
the companys sales. But the
Torpedo Extra IPA, released
in 2008 (and named for the
giant device stufed with hops
that Grossman invented to
add a avor kick), generates
20%. Its 180,000 barrels last
year makes it one of the most
popular India pale ales in
America. Seasonals have long
been popular sellers for Sier-
ra, but new exotic brands
like the Ovila Belgian-style
brews and barrel-aged Big-
foot (with winelike potency)
have grown to 5% of the busi-
ness in just a couple years.
Sierra Nevada is always
compared with Boston Beer,
its better-known, larger and
publicly traded rival. Co-
founder Jim Koch has had
mixed results in diversify-
ENTREPRENEURS
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1978 1990 2000 2012
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500
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2,500
3,000
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AFTER LEVELING OFF, A SECOND
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Tampa brewer cant satisfy demand for
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Cake-like imperial stout infused with cof-
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Turns out the maxim is
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The former San Antonio
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XERO
The New Zealandbased
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F

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$43 million in sales in 2014), but the manic pur-
suit of growth is real. Forsythe has already mas-
tered a classic entrepreneurial lesson: building
on one success to launch anotherand another.
In October he introduced a buyback program for
old or wounded iOS devices: iTechs ofer prepaid
debit cards on the spot, and iCracked ips the
mended phones via eBay or foreign wholesalers
for a prot. Forsythe hopes this business outstrips
repair revenue in 2014. Never mind that Apple in-
troduced a trade-in service last August. He plans
to start an insurance program by year-end.
Forsythe grew up wrestling, not writing
code. With a Cheshire grin and hastily combed
sandy-brown hair, he speaks in a deep, gravelly
voice that still carries a bit of Texan twang from
six years spent in Dallas. The rest of his child-
hood kicked across the country every two or
three years, following his dads banking career.
It sucked as a kid, he reects, but it gives you
a pretty holistic view of things.
After high school he followed his brother
W
e want to grow 20%
month-over-month for
the next 36 months,
says AJ Forsythe into a
nearly drained iPhone
5S as he paces a seawall overlooking San Fran-
cisco Bay in Redwood City, Calif. Its the kind
of boast iCrackeds 25-year-old CEO likes to
camouage in tangential asides, like describing
the cat-themed conference room planned for the
companys new 25,000-square-foot ofce. Or the
$100 worth of fried chicken someone bought that
morning after hacking into his credit card. Or the
life-size oil painting of his older brother Chip that
will be commissioned and hang in iCrackeds of-
ces if Forsythe loses an undisclosed bet.
Dont mistake the Ritalin- deprived detours
for a want of focus. Forsythe is all business. Hes
just booked a last-minute red-eye to London
to work on the U.K. market, the latest target
for iCracked, which runs a network of 470
iTechsiPhone and iPad repair professionals.
Customers summon a rep via the Web for such
common snafus as a cracked screen, water dam-
age and broken speakers and input jacks, and
meet in person at a prearranged spot. You can
usually get your phone back the same day for an
average charge of $99.
What started as a dorm-room hobby in 2010
has exploded into an enterprise with iTechs in
43 states and 11 countries and 43 employees in
the corporate ofce, who work mostly in opera-
tions, product development, customer service
and marketing. ICracked broke even on $9
million in sales last year, up from $1.9 million in
2012. Forsythe conservatively predicts $30 mil-
lion this yearif we all do our jobs correctly.
His math may not be perfect (based on De-
cember results, 20% per month gets you to
MOBILE REPAIRS
Fix-It Riches
BY J.J. COLAO
Break your iPhone?
Good news for
AJ Forsythe, who is scaling
the repairman model.
Say again? Forsythe
wants an iTech
repairman in every
city of the world
within two years.
ENTREPRENEURS

Chip to California Polytechnic State University
on a wrestling scholarship. Two grades older,
Chip had switched majors from kinesiology (the
study of movement) to viticulture (the study of
grapes) after mistaking an educational wine tour
for a party bus one weekend. By the time AJ
arrived on campus Chip was making wine from
the leftover yeast and sediment of local wineries
and storing it in casks under a bridge.
A psych major, Forsythe helped his brother
plant a two-acre vineyard during freshman year,
then started a honey business after taking a class
in beekeeping. When that failed he tried a dis-
tillery, then looked into importing 25,000-liter
casks of Russian vodka through Alibaba.com,
the Chinese online marketplace. That didnt pan
out. At one point he bought a new iPhone screen
for his broken mobile and xed it himself.
Though a helpful skill for his own mishaps
hes broken his phone nearly a dozen times
sincehe didnt think to turn it into a business
until an uninspiring career fair during his junior
year in 2010. I threw out all of my rsums,
went to the library and started making neon-col-
ored iPhone repair iers on Microsoft Paint, he
recalls, and got ve phone calls the next day. He
charged students $75 a pop for
repairs at his kitchen table.
That summer he teamed up
with Anthony Martin, a re-
cent UC Santa Barbara grad , to
cofound iCracked. Flush with
prots from Campus Radar, his
textbook-rental startup, Martin
invested $10,000, and the two
spent the next year trying to re-
cruit students, especially tutors,
as iTechs across central Califor-
nia. Didnt happen. Says AJ: We
would cold-call these guys, and
theyd be like, No, I dont want to
x iPhones.
Before graduation in 2011,
Forsythe and Martin teamed up
with Leslie Lambert, a graphic
designer, who replaced his
amateurish iers. They soon
racked up $40,000 in credit
card debt for replacement parts
and packaging supplies, then
moved to a rented basement in
Sunnyvale, Calif.
Martin nudged Forsythe to
apply to Y Combinator, Paul Gra-
hams Silicon Valley startup accelerator. I said,
Dude, I dont know what Y Combinator is,
Forsythe recalls. They missed the rst interview
while on a trip to China, then bombed the next.
But Graham saw big promise in the kid: AJ
seemed to me more of a Rockefeller than a Steve
Jobs. Hes not some sort of tech visionary , but he
has immense energy.
The programs $150,000 worth of seed fund-
ing proved a godsend for the indebted found-
ers, and the company expanded from 60 iTechs
in January 2012 to 125 by graduation that spring.
Forsythe raised another $500,000 from SV
Angel that spring, moving into a 3,500-square-
foot of ce in Redwood City.
Typically IT veterans, iTechs are a select
group: Fewer than 1% of the applicants survive
three interviews and a background check. They
meet customers 30 to 50 times a week to x and
purchase phones, earning around $60 per repair
and $25 for buybacks; iCracked makes money
selling them replacement parts at a 20% to 40%
markup or marking up purchased phones for re-
sale. The company also sells do-it-yourself repair
kits for $20 to $150 each, some 35% of sales.
Forsythes quest to transform iCracked into
the AAA of smartphones depends on an ex-
panded iTech networkeven putting one of his
guys in every city in the world over the next 24
months. Well, every city we have demand in, he
explains when pushed to clarify. Thats still 2,300
metros. In February he planned to hire up to 85
more iTechs, some in countries like the U.K.,
Germany and Mexico. The larger the network,
the more toying with new services that can push
sales higherincluding add-ons like warranties.
Does Forsythe really want to compete with
AppleCare or insurance from Verizon and
AT&T? Theres this crazy thing called conve-
nience, he contends. Two years of AppleCare
costs $99, plus $49 to $79 per repair via mail,
often leaving customers sans device for a week.
Forsythe thinks folks will gladly pay a monthly
fee in return for free, on-the-spot repairs.
But getting between Apple and Verizon and
their customers will take big bucks. Forsythe is
hoping to raise $50 million in Series A fund-
ing this year. That would cut into the vast
majority of iCracked still held by the found-
ers, but he says hes willing to eventually give
up 50% or 60%. Apple sold 51 million iPhones
in the most recent quarter. If you control the
life cycle of these devices, he says, wide-eyed,
thats crazy awesome.

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TOOLBOX
FAMILY PLOTS
Survival rates of family
businesses with each
successive generational
handof are abysmal: A
slim 30% make it past
the rst, and that drops
to 12% by the third, says
Wayne Rivers, president
of the Family Business
Institute in Raleigh, N.C. To
succeed requires passion,
talent and adaptability.
But heres a surprising
key to longevity: investing
in real estate. My most
successful clients are in
their core businesses and
the real estate business,
Rivers says. They start
small, work up to owning
their own property and
then reinvest in land or
buildings elsewhere.
Why? Real estate provides
a cash cushion for
down the line. Its also
a diversication route
for those who need a
new outlet. And its a
way to invest in the local
community.
Emily Inverso

C
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PHOTOGRAPH BY ERIC MILLETTE FOR FORBES

PAYPAL IS IN THE
CENTER OF TWO
BATTLES: ONE
FOR CONTROL
OF EVERY
TRANSACTION
ON THE PLANET,
THE OTHER FOR
CONTROL OF ITS
OWN DESTINY.
BY STEVEN BERTONI
THE CLOGGED ROADS OF SAN JOSE teem with
Priuses, which merely serve as earnest slalom gates for
David Marcus to blow through in his black Porsche Pan-
amera Turbo on a January afternoon. The 40-year-old
president of PayPal has been in a rush since taking the
top job 21 months ago. Hes overseen a sweeping over-
haul of the payment companys technology. Hes rolled
out a passel of new products to let his 143 million users
pay with their phones. And hes seen his parent compa-
ny, eBay, become a public targetCarl Icahn has quiet-
ly amassed a 2% stake, ahead of a just-promised proxy
ghtas the division he runs increasingly appears more
valuable than the core business that purchased it.
Eager to show of some of the magic, were racing to
Birks, a bustling Silicon Valley chophouse that accepts
PayPal from diners. Marcus res up the PayPal iPhone
app, which locates him in the restaurant and allows
him to scan a bar code before the meal and watch the
check update on his phone in real time. The idea is to
WARS
WALLET

FORBES
COVER STORY PAYPAL
bring the speed and simplicity of
Internet shopping into the physi-
cal store. I like to think of it as The
Matrix, grins Marcus, a slight ac-
cent revealing his French and Swiss
upbringing.
But theres a glitch in this matrix.
The restaurant is not running the lat-
est program. Theres no bar code to
scan before the meal and none on
the check. Instead Marcus must
type in a seven-digit code at-
tached to the bottom of the check.
When the check arrives the code
is missing. The challenge, Mar-
cus says, trying hard to mask his
frustration, is not only scaling the
technology but having people un-
derstand it on the merchant side.
Ten minutes later the waiter returns,
code in hand. Marcus enters a tip,
pays the bill via iPhone and sighs:
When it actually works you dont
have to wait.
Marcus and PayPal have neither
the luxury of glitches nor of waiting.
Money is going mobile, and the race
is on to control the ow of bits and
cash across a billion smartphones
and at millions of online and physi-
cal locations. Research rm Gartner
estimates that mobile payments will
top $720 billion a year by 2017, up
from $235 billion last year.
The upside remains enor-
mous: Humans made
$15 trillion worth
of retail transac-
tions in 2013. Who-
ever ends up with
controlling inter-
ests in this new
digital ecosys-
tem will reap bil-
lions in transac-
tion fees, collect
massive amounts
of consumer data and
control the type of tar-
geted advertising that
makes marketers drool.
Giants such as Apple, Am-
azon, Google, Visa and Master-
PayPals
a jewel,
and eBay is
covering up
its value.
CARL ICAHN
It doesnt
make sense
that a global
payment
system is a
subsidiary
of an auction
websiteits
as if Target
owned Visa
or something.
ELON MUSK
If you allowed
PayPal to pursue
its own destiny
there are moves
it could make
to become the
largest nancial
company in the
world.
DAVID SACKS
Ebay has
accelerated
and enhanced
PayPals success,
allowing it to be
more aggressive,
bolder and to
take more risk
than if it was
separate.
JOHN DONAHOE
We are growing
faster in this
conguration
than we would
in any other.
DAVID MARCUS
SHOULD PAYPAL
AND EBAY SPLIT?
LIKE ALL RELATIONSHIPS,
EVERYONES GOT AN OPINION.
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/
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;

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Musk (Tesla, SpaceX) was original-
ly joined by Peter Thiel (Facebook,
Palantir) and Max Levchin (Yelp,
Slide), with an initial mission sim-
ilar to what Bitcoin is trying to do
15 years later: create an electron-
ic currency independent from gov-
ernments and central banks. Soon
to join: Reid Hofman (LinkedIn),
David Sacks (Yammer), Jeremy Stop-
pelman (Yelp) and Chad Hurley and
Steve Chen (YouTube). Its almost
impossible to nd a major startup in
Silicon Valley untouched by the Pay-
Pal maa.
Its rst great success was gur-
ing out how to beam dollars between
Palm Pilots and, later, transferring
cash via e-mail. Like credit card com-
panies, PayPal charged the seller a
fee of about 3% of the transaction,
but the founders gured out how to
make a decent prot in the low-mar-
gin business of transaction process-
ing by encouraging people to fund
payments with checking accounts,
which let PayPal avoid having to
remit that 3% fee right back to cred-
it-card-issuing banks. To this day,
that direct link to bank accounts is an
advantage that Amazon, Google and
Square lack.
Its speed, convenience and se-
curity made PayPal popular with
eBays small-time sellers, and by late
2000 the service had amassed more
than 3 million customers. One of the
rst IPOs after the Sept. 11 attacks,
PayPal jumped more than 50% on
its rst day of trading. Less than a
year later eBay bought it for $1.5 bil-
lion. The original PayPal team wait-
ed until their lockup agreements ex-
pired and then were gone, en masse.
By that point most of eBays found-
ing team had moved on as well.
Ebay had a very diferent way of
doing things, says Eric Jackson, the
CEO of Caplinked, who was Pay Pals
VP of marketing during the transi-
tion and later wrote the book The
PayPal Wars. Lots of meetings, lots
of PowerPoint slides, lots of commit-
tees, decision-making slowed down.
Its engineering department
turned into a slog of nine groups
ghting constantly over re sources
and often building redundant prod-
ucts (log-in screens, sign-up
forms, checkout pages). Pro-
grammers across the globe
wrote tiny strips of code
without knowing, or car-
ing, about the nal product.
They would just reinvent
the wheel, says Hill Fer-
guson, PayPals chief prod-
uct ofcer. Every time you
changed something you had
to do it 30 diferent times. It
was a staggering technical
debt. Instead of a few days,
it took almost two months to add
a new server, and nearly 70 days
to change text on the home page.
Under the old format many great
technologists left, says Marcus. If
you had a choice between Google
and PayPal youd go to Google.
Its website design was clunky (the
same photo of a kissing couple greet-
ed home page visitors for years be-
fore its removal two years ago) and
its customer service so poor that
websites exist for the sole purpose
of trashing the company. Says eBay
CEO John Donahoe, with the un-
derstatement only a former manage-
ment consultant can muster: Our
consumer and merchant products
needed to be updated and refreshed.
For Donahoe and former Pay-
Card all want to be your mobile dig-
ital wallet, as do several well--
nanced startups, including Square,
founded by Twitter billionaire Jack
Dorsey.
Right in the middle of it all: Pay-
Pal, the precocious child of the last
dot-com boom, which is now in-
icting as much disruption on its
parent company as it hopes to on
global banking. PayPal moved $180
billion in 26 currencies across 193
countries last year, and its revenue
grew 20% to $6.6 billion41% of
eBays total revenue and 36% of its
prots. In fact, its no longer fair to
call eBay an online auction compa-
ny. Pay Pal, purchased in 2002 for
what everyone thought was an out-
rageous price of $1.5 billion, is now
worth at least half of eBays $70 bil-
lion market capitalization, with
many people thinking it could be
worth far more.
If you just went out and took it
public youd get a huge premium be-
cause of growth, says Icahn, who
is demanding a sale or spinof. Elon
Musk, the billionaire polymath be-
hind Tesla and SpaceX who made
his rst fortune cofounding PayPal,
is even more direct: It doesnt make
sense that a global payment system
is a subsidiary of an auction web-
site. Its as if Target owned Visa or
something. PayPal, he adds, will
get cut to pieces by Amazon Pay-
ments, or by others like Apple and
by startups if it continues to be part
of eBay. Such sentiments add an-
other layer to this gold rush. The
winner of the brewing mobile-pay-
ment showdown will rst be predi-
cated on who wins the battle to con-
trol PayPal.
THAT EBAY, ONE OF THE most
innovative startups of all time, now
nds itself positioned as a lumber-
ing giant has some historical basis.
PayPal has a legitimate claim, based
on future successes, to the most en-
trepreneurial founding team ever.
IF YOU HAD A
CHOICE BETWEEN
GOOGLE AND
PAYPAL YOUD
GO TO GOOGLE.

FORBES
COVER STORY PAYPAL
never managed more than 250 em-
ployees. He hit it big on his third try
with a mobile payment company
called Zong, which he sold to PayPal
for $240 million in cash. Marcus no
longer had to workhe conrms that
he owned a great deal of Zongbut
Thompson, aware of the hole they
had dug for themselves on the prod-
uct side, asked him to run PayPals
mobile division.
The challenge intrigued him. Born
in Paris and raised wealthy in Gene-
va (his grandfather was a success-
ful entrepreneur), Marcus was a full-
edged computer geek by the age of
8, eventually programming games on
his Mac 512K. He studied at the Uni-
versity of Geneva, until a currency
bet by Dad went horribly south after
the Berlin Wall fell, putting the fam-
ily in nancial peril. It was terri-
ble at the time, says Marcus, who
dropped out of school and took a job
at a bank to support the family. But
it was probably the best thing that
ever happened to me.
Thats because the bank gig made
him realize that building compa-
nies was better than banking for
them. When Switzerland deregulat-
ed its telecom industry, Marcus start-
ed his own phone company, built it
Pal head Scott Thompson, global
growth trumped chasing the prod-
uct innovations from startups like
Square. Would you rather have a
big, global payment system work-
ing at scale or refocus on a domes-
tic system for a device attached to
an iPhone for a very small, mostly
ofine merchant? says Thompson.
Its tough to debate, that. The only
way youll get to the right answer is
to look back ten years from today.
Under Thompson Pay Pals revenue
more than doubled from $1.9 billion
to $4.4 billion.
To Icahn, however, PayPal has just
been riding a wave. I dont think
eBay is a well-run company. When
the tide is rising high, everyone looks
good. Just compare eBay to Amazon.
PayPal is a jewel, and eBay is cover-
ing up its value. While eBay shares
are up 80% since Donahoe took over
in March of 2008, over the same pe-
riod Amazon is up 400%; Visa and
MasterCard are each up 245%.
The new Icahn-eBay feud only
makes more complex PayPals on-
going war with techs most danger-
ous giants. Google released a wallet
product for its nearly billion Android
users and inked a deal with Master-
Card to get access to millions of re-
tailers. Apple has been able to use its
retail stores as laboratories. It thinks
it can convert its nearly 600 mil-
lion iTunes customers to use the ser-
vice ofine and has slapped thumb-
print readers on its iPhone 5s, with
the idea of replacing credit card sig-
natures. Amazon just announced that
its developing a Kindle-based pay-
ment system to allow its 230 million
customers to send money to each
other and check out in stores.
Most frustrating to PayPal: the
rise of Square, which had none of
the inherent advantages of the tech
giants and yet has built a platform,
from scratch, that could become a
mobile payment standard. I was
shocked that PayPal didnt already
have something like this, says Mar-
cus, who took over as the divisions
president two years ago. Says former
PayPal COO David Sacks: If you al-
lowed PayPal to pursue its destiny
there are moves it could make to be-
come the largest nancial company
in the world. But rst it must get its
act together.
THE MAN IN THE MIDDLE of
this swirl arrived almost by acci-
dent. Until August 2011 David Mar-
cus was a serial entrepreneur who
PAYPAL
PROS: Top online
payment choice
after credit cards.
In 193 countries,
26 currencies.
Hooks into check-
ing accounts, too.
CONS: Depends
on other peoples
hardware. Not a
beloved brand
everywhere.
Odds of global
domination: 5-1
AMAZON
PROS: 230 million
active accounts.
Dominates online
shopping. Reams
of spending data
to mine. Jef
Bezos.
CONS: Retailers
dont exactly
love Amazon. No
product or Ama-
zon phoneyet.
Odds: 8-1
SQUARE
PROS: Slick
checkout app for
small merchants.
Moves at startup
speed. Hipster
factor high with
Jack Dorsey.
CONS: No online
presence. Not
global. Capital-
constrained.
Incompatible with
existing registers.
Odds: 12-1
APPLE
PROS: 600 million
credit cards on
le. IPhone 5
has thumbprint
reader. Loyal fans.
Noncompetitive
with retailers.
CONS: No product
yet. Likely never
on Android. Not
schooled in nan-
cial services.
Odds: 6-1
GOOGLE
PROS: 1 billion
Android phones.
Big partners.
Deep pockets.
CONS: Ever used
Google Wallet?
(Exactly). Cant
use iOS in real
world. Payments
not core (but
neither are robot
cars).
Odds: 7-1
VISA
PROS: Biggest
network$4.4
trillion in pur-
chases and 74.2
billion transac-
tions in 2013.
CONS: Lacks
direct hook to
consumers. Has
to work through
banks. Its V.me is
a PayPal clone.
Odds: 4-5
MASTERCARD
PROS: Self-pro-
claimed fastest
network$3 tril-
lion in purchases
on 45.5 billion
transactions.
CONS: See Visa,
and its smaller
than Visa.
Odds: Even
WHOS IN YOUR MOBILE WALLET?
BILLIONS IN RETAIL FEES ARE IN PLAY. THE CREDIT CARD GUYS CANT LOSE, BUT WHO ELSE COULD WIN?

the nine-silo system and adopted a
single, more adaptable set of soft-
ware tools. PayPal organized engi-
neers into small groups that would
build a product from start to n-
ish. On top of that PayPal recruit-
ed serious tech talent from Netix,
Google, Amazon and Box, while lay-
ing of about a third of the engineer-
ing team.
Most of all, Marcus has returned
PayPals culture to its roots, snapping
up nearly $1 billion worth of startups
in areas he considered weak points,
and stacking the divisions top ranks
with career entrepreneursmost
of whom, like himself, have entered
PayPal through acquisition. Its un-
usual for a multinational to have as
its head of corporate strategy some
Russian guy with no business degree
and who doesnt believe in strategy,
says Stan Chudnovsky, whose data
company IronPearl was bought by
PayPal last spring.
[In 2013] we launched 28 prod-
ucts. The year before? Basical-
ly zero, says chief product ofcer
Hill Ferguson, who helped build
Zong. Marcus personal sandbox
mobile paymentshas surged from
$750 million in 2010 to $27 billion
in 2013.
The newer, nimbler PayPal now
has a mission as simple as it is mo-
mentous: put PayPal into the cen-
ter of every transaction, every-
into the third-largest xed-line carri-
er in Switzerland and sold it in 2000
to Atlantas World Access for around
$50 million in stock. He was 27 years
old and worth $10 millionon paper.
But then the Internet bubble burst.
World Access went bust, taking Mar-
cus shares with it.
Marcus shook of the loss and
started Echovox, which made voice-
recognition software for cellphones
(think Siri for old-school Nokias).
That didnt work out, so the com-
pany shifted to text-based market-
ing and running the voting system for
the European versions of American
Idol. At the time, social-gaming com-
panies like Zynga were catching re
on smartphones, but no one wanted
to take the time to enter their cred-
it card information to spend less than
$1 on a Farmville cow. Marcus cre-
ated an Echovox spinof called Zong
that let people charge inexpensive
virtual goods to their mobile bill. In
April 2008 he moved his entire fam-
ily to the Bay Area to build the busi-
ness. Three years later PayPal bought
Zong, and suddenly Marcus was
running mobile.
On his rst day in the ofce he
set about creating a Square-kill-
er, now called PayPal Here, that lets
small merchants take a credit card
using a phone or tablet. It took seven
months. Honestly, it was probably
the rst real major product launch at
PayPal in years, says Marcus.
Around the same time, Thompson
left to run Yahoo (a gig that quick-
ly imploded, after Thompson got
caught with a false computer science
degree on his rsum). For three
months eBays Donahoe cast about
for a successor. I didnt think for a
second they would think of giving me
the job, says Marcus. But eventual-
ly Donahoe did: Mobile was com-
ing up as an important platform shift.
We wanted someone with really
strong product skills and consumer
instincts.
Marcus was hesitant. In startups
you work your ass of, but you get to
decide that 100% of the time. Here
Id be scheduled up to the minute. Id
travel more and see less of my wife
and kids. I thought, Do I really want
to do this? That night he and Don-
a hoe grabbed drinks to discuss the
role. Drinks turned into dinner at a
strip mall in Portola Valley and more
drinks as Donahoe tried to persuade
Marcus to accept. Marcus told Dona-
hoe that if he took the job hed need
the power to change the place bot-
tom to top. Donahoe assured him
that if he wanted the status quo he
would have given the job to someone
more traditional.
So Marcus is staging what he calls
an invisible turnaround, reengi-
neering PayPal while revenue growth
is still strong. He quickly blew apart
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2014
0
2
4
6
8
10
12
14
$16
PAYPAL
EBAY INC.
30
40
50
100
200
300
400
500
600
AMAZON.COM
EBAY
MASTERCARD
VISA
STOCK PRICE, 3/31/08=100 REVENUE ($BILLIONS)
BUY IT NOW?
EBAY IS A HYBRID OF PAYMENTS AND RETAIL. WALL STREET CANT MAKE UP ITS MIND WHAT TO THINK.
SOURCE: INTERACTIVE DATA VIA FACTSET RESEARCH SYSTEMS.

FORBES
COVER STORY PAYPAL
let you pay via credit card or bank ac-
count, use coupons and collect vari-
ous loyalty points without removing
your phone from your pocket.
Cultural issues remain. In its
soul eBay remains leery of PayPal,
as Don a hoe maintains that the ties
to eBay have allowed it to act more
aggressively. The natural synergies
are fadingof PayPals $180 billion
in online transactions last year only
30% took place on eBay, down from
51% in 2008even if the old men-
talities arent. Its a 13,000-person
company where were changing ev-
erything and rewiring the whole
culture, says Marcus. Its really
brutal. At large companies
you always nd someone with
reasons not to do something
the self-preservation thing is
highly frustrating.
And thats the exact senti-
mentplus the prospect of un-
released value, ready to drop
into his own pocketthat fuels
Icahn. Its not that he thinks
PayPal should be a stand-alone;
he says he would prefer if eBay
simply sold it to a more natu-
ral t, such as a Visa. Another
giant in the space would pay a huge
premium for PayPal.
Musk and other former PayPal-
ers like Sacks would prefer that it op-
erate as a stand-alone, arguing that,
once unchained, it could eventual-
ly be worth $100 billion (compared
with the $40 billion or so its valued
at today). It will either wither or be
spun out, says Musk. Carl Icahn
can see it, and hes not exactly super
tech savvy.
Musk has a point. Icahn, a no-
torious Luddite, may not know
exactly how PayPal workshe talks
about it in the generalities of some-
one who still doesnt use e-mail
but he senses potential. And the larg-
er question for PayPal shouldnt be
whether Icahn can eventually get it
spun of. Its whether people like him
will eventually use it.
where. Platform agnostic. Online or
physical.
One thing a company should ask
itself is, if it didnt exist, would it cre-
ate an unllable hole in the lives of
people? I want that to be PayPal,
says Marcus. Theres not many in
techGoogle and Apple and thats
it. Unfortunately for Marcus, theyre
his top competitors.
For its part PayPal remains a jug-
gernaut in Internet transactions, and
Marcus purchase of startup Brain-
tree in December for $800 million
will help it defend its turf: The one-
click payment software, embedded
in popular services such as Uber,
Fab.com and HotelTonight,
can easily and cheaply be
dropped into any mobile app.
Winning over real stores,
however, is where the rest of
the pack has made inroads.
And given that the old system
of cash and plastic works well
enough for merchants and
shoppers, there must be big
incentives for each to switch
payment systemsespecial-
ly when that system isnt al-
ready buried in a consumers
device.
PayPal is instead focusing on the
merchants, licensing its software for
use in point-of-sale equipment cov-
ering more than a million physical
retailers. PayPal now enables mo-
bile checkout at Home Depot, Foot
Locker, Toys R Us, Jamba Juice
and Dollar General. Marcus is hoping
that the retailers will then gure out
the best way to get their customers to
use a phone to pay.
It could mean hands-free pay-
ments, line-cutting capabilities,
personalized coupons and instant
credit. Diferent stores need dif-
ferent features, and Marcus is not
attempting to create a one-size-
ts-all product. Just as Apple and
Google have done with apps, Mar-
cus aims to build the operating sys-
tem for mobile payments, laying
out the key network, programs and
hardware that will allow retailers
and software developers to create
the products. It has to be the expe-
rience you have online today, says
Marcus. Youll get what you want
really fast, pay really fast and get
out. And the merchant will know
more stuf about you, and that will
make your experience better.
To see how mobile moneyPay-
Pal specicallymight be better, go
to your local Starbucks. The cof-
fee chain says that nearly 10 mil-
lion customers pay with its mo-
bile apppowered by both Pay Pal
and Squaremaking about 5 mil-
lion mobile transactions a week.
The app lets you load money onto
your Starbucks account, pay by
phone and automatically collect
rewards points. More use means
more perksfree food, free rells
and free digital music. You can also
locate open stores, search the menu
and gift drinks to friends. While
not earth-shattering, the app al-
lows more convenience, more infor-
mation and more savingsenough,
PayPal hopes, to keep your wallet
at bay.
As for hardware, later this year
Marcus is rolling out Beacon (not
to be confused with Apples similar
iBeacon)a cheap, matchbook-size
Bluetooth transmitter that connects
your smartphone to the stores pay-
ment system. Coupled with PayPals
new mobile wallet app, Beacon will
I DIDNT THINK
FOR A SECOND
THEY WOULD THINK
OF GIVING ME
THE JOB.
F

LEARN MORE. CALL 866.467.7651 OR VISIT WWW.OUTWARDBOUND.ORG
EDUCATION FOR LIFE

MICHAEL THAD CARTER FOR FORBES

R
ANDY BEST CANT READ. Im acutely dyslexic, says Best from his ofce in
a glitzy Dallas skyscraper where he is plotting his assault on the ivory tower.
My mother read to me all through college. She was a schoolteacher, so she
was just humiliatedand made it clear to me that she was devastated. Back
then there were two reasons you didnt learn to read: You were lazy or you
werent very intelligent.
Even today, as his latest venture, Academic Partnerships, is using the Web to turn strug-
NO
COLLEGE
LEFT
BEHIND
The easy money in higher education is in helping
mediocre public schools put their professional
programs online. An entrepreneurial Texan
named Randy Best is rapidly commoditizing it.
BY CAROLINE HOWARD

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FORBES
COMMODITIZING COLLEGE
not, says Donald R. Bobbitt, pres-
ident of the University of Arkansas
System, which began working with
Best in 2012. Best nds students part-
ly through partnering with some
2,000 big institutions worldwide
hospitals, corporations and munic-
ipalitiesthat want better educat-
ed (or credentialed) employees. But
its also a lot of telemarketing. Of the
more than 400 workers employed by
Academic Partnerships, 50% work
the phonesand the e-mailsin a
sprawling call center situated right
across the street from Bests ofce:
The three Rs here being recruitment,
retention and revenue.
P
hilosophy, political
science and art histo-
ry majors need not apply,
nor gifted high school
seniors shooting for top-
tier schools. The Stanfords, the Har-
vards, oh my gosh, those schools are
remarkable, says Best. But theyre
irrelevant to the market. The de-
grees Academic Partnerships are sell-
ing are aimed squarely at the bulging
middle mass of the college market
the millions of adult students seek-
ing degrees as a vehicle to better jobs
and bigger salaries. Let the twenty-
somethings pack the cofeehouses,
stadiums and frat parties. Bests cli-
ic Partnerships helps colleges move
some of their degree programsusu-
ally those with a professional or vo-
cational slantonline. The company
spends an average of $2 million per
school (it currently has 40 U.S. cam-
puses and 17 international ones) to
acquire online students, digitize les-
sons, set up back-end administra-
tive and technical support, and tutor
professors in the ABCs of the vir-
tual classroom. In return it takes a
50% cut of the tuition, which at some
schools can be as costly as a tradi-
tional degree. The company says
it has so far recruited 82,000 stu-
dents, with an 85% retention rate.
When they graduate, those students
are granted transcripts and diplomas
that are indistinguishableto an out-
side observerfrom ones earned the
old-fashioned way.
There are now in excess of 2,000
online degree programs in the U.S.
About half of the schools rely on a
third-party facilitator like Academ-
ic Partners or its competitors to put
warm, tuition-paying bodies behind
their new virtual desks. Those facil-
itators currently bring in an estimat-
ed $1 billion a year in tuition revenue,
a number that is expected to double
in four years.
They are good at that, and we are
gling midlevel U.S. universities into
global education brands, he still
needs someone to read to him. On
his desk sits a manila folder marked
Read, where he stashes articles and
e-mails for his right-hand woman,
Justyna Dymerska, a Cambridge-ed-
ucated Ph.D., to recite. In fact, Best,
71, cant even use a computer. His
Web activity is conned to an iPad.
When he needs to send e-mails, he
dictates while someone else types.
Its a startling confession for any-
one, let alone the founder and CEO
of an estimated $100 million (sales)
education technology company. But
Bests functional illiteracy masks an
even rarer ability: mak-
ing moneyand lots of
it. There are the jewel-
ry businesses he found-
ed as an undergrad in
the 1960s, the art galler-
ies and cattle yards in
the 1970s, and outpatient
care, oil exploration and
defense contracting in the
1980s. By 1995 Best had
made several fortunes
and turned, momentarily,
to philanthropy.
He founded Voyager
Expanded Learning as a
free afterschool program
for Dallas latchkey kids.
Originally a nonprot,
this startup would turn out to be his
biggest moneymaker yet. Best even-
tually pulled in so much government
money from the No Child Left Be-
hind Act that Voyagerby then very
much for-protwas criticized by
education watchdogs as the Halli-
burton of Education. Best sold Voy-
ager for $360 million in 2005 to li-
brary database ProQuest. His 37%
stake in the company was worth
close to $130 million.
Academic Partnerships, founded
as Higher Ed Holdings in 2007, is on
track to make that payday look like
a freshman introductory course. Its
a simple business model: Academ-
PLUS A CHANGE
IT SEEMS THAT EVERY TIME
THERE IS A REVOLUTION IN
HOW WE COMMUNICATE
FROM CHEAP POSTAGE
IN THE 18TH CENTURY
TO TODAYS SOCIAL
WEBTHERE ARE THOSE
WHO WOULD APPLY
THE NEW TECHNOLOGY
TO CHANGING HOW
WE LEARN. DISTANCE
LEARNING MAY NOT GET
A LOT OF RESPECT, BUT ITS
A VENERABLE INSTITUTION.
1728: Caleb Phillipps,
teacher of the New
Method of Short-
hand, runs an ad in
the Boston Gazette:
Persons in the
Country desirous to
Learn this Art may
by having the
several Lessons
sent weekly
to them, be
as perfectly
instructed as
those that
live in
Bos-
ton.
1858: University of
London is the rst
institution of higher
education to embrace
correspondence
courses, ofering
degrees worldwide
to people who
were not able to
study full-time on
campus. Charles
Dickens
calls it the
Peoples
Univer-
sity.
Over 100
years
later Nelson Mandela
studies law as a Uni-
versity of London stu-
dent while imprisoned
on Robben Island.
1920S: The School
of the Air movement
makes educational
radio broadcasts to

B
est was born and raised
in Beaumont, Tex., a fad-
ing oil boomtown near
the Louisiana border.
His father was a hard-
ware store owner (and also dyslexic)
and his mother a schoolteacher and
principal. He set out to major in pre-
law at the local college, Lamar Uni-
versity, but soon realized hed have to
read and write briefs. Best switched
to political science and began a life-
long obsession with history, ancient
civilizations and the arts.
When we rst got married he
had all of Edgar Allan Poes litera-
ture and all kinds of poetry on rec-
ords that he would listen to over
and over, says his wife of 37 years,
Nancy. In his Dallas home hes as-
sembled a personal museum of fos-
sils, early human tools, old masters
and even one of Custers ries and
saddles (see box, p. 73).
Best graduated from Lamar in
1967, having already tasted his rst
success. In 1963 he founded his rst
business with two friends, Colle-
giate Diamonds of America, later
Gold Lance, which sold engagement
and class rings on college campuses
across Texas and Louisiana. He made
his rst millions in his mid-20s when
he and his partners sold Gold Lance
ents are all business. They are cops,
nurses, teachers and construction
workers grinding for the promo-
tion and pay bump that comes with a
B.S. in criminal justice or nursing or
a masters in education or construc-
tion management but cant take days
or nights ofmuch less four or ve
yearsfrom the job and kids to earn
a diploma.
Wed all like to be 19 again, sit-
ting in a dorm, but thats not the way
it is, says Jeb Bush, the former Flor-
ida governor and a current Academic
Partnerships investor and senior ad-
visor. We have a whole lot of people
who aspire to a better life, are mar-
ried, have a job, cant pause and undo
what theyve done in their adult life
but want a college career that will
help them live a life of purpose and
meaning. And without expanding the
reach of our public universities, that
promise will be unfullled.
Its great for the colleges, too. On-
line learning enables them to expand
without building new classrooms
or laboratories, landscaping playing
elds or providing heat, so growing
a digital student body has an outsize
efect on the bottom line. It costs the
average public college $13,000 a year
to educate an undergraduate on cam-
pus. According to Academic Part-
ners, it can do the same job online for
about $1,500 a yearmaking digital
degrees a prot machine even after
accounting for the signicantly high-
er costs of acquiring virtual students
(there is much more competition in
cyberspace).
In some ways the money couldnt
come soon enough. At elite public
universities like UVa or UC Berke-
ley bright and often wealthy students
battle for admission, but there are
hundreds of middling state schools
on the brink. These schools are being
squeezed by decreasing government
aid (taxpayers typically foot about
13% of the bill), falling enrollment
and anemic alumni giving.
Higher education is an industry
in danger, says Clayton Christensen,
a Harvard Business School professor
and a senior advisor (unpaid) at Aca-
demic Partnerships. Its very plausible
to say that 15 years from now half of
the universities that exist will be bank-
rupt and in some fundamental way
facing extinction and the need to total-
ly change themselves. Best wants to
be that change agent. If his plan works,
the same man who cant nd his way
through a textbook or use a computer
might end up saving the battered U.S.
public university systemand mint an-
other fortune in the process.
be used in grade-
school classrooms
across the U.S.
1956: Chicago
public television
station WTTW, in
partnership with
the local Board of
Education, televises
college courses for
credit; over 15,000
students enroll in
5 years. New York
University and
CBS launch
Sunrise Semes-
ter, which also
ofers TV cours-
es for credit; in
1962 the New
York Times
runs an article
congratulating
a housewife for
getting her bach-
elors degree from
these TV courses.
1984: National
Technological Uni-
versity established
the rst accredited
virtual university
with nancial sup-
port from compa-
nies like IBM,
Motorola and HP.
It delivers aca-
demic courses
to employees
via TV.
2003: Accord-
ing to the U.S. gov-
ernment, of the 41%
of homeschoolers
who take part in dis-
tance learning, 20%
use television, video
or radio, 19% use the
Web and 15% take
a correspondence
course by mail.
2006: 89% of
4-year public col-
leges in the U.S.
ofer classes online,
along with 60% of
private institutions.
2012: Elite universi-
ties, such as Stanford,
Harvard and MIT, rush
to launch massive
open online courses
(MOOCs): free, not-
for-credit courses of-
fered on the Internet.
The most popular
MOOCs attract tens
of thousands of stu-
dents worldwide.
Lauren Gensler

FORBES
COMMODITIZING COLLEGE
school students in the pipeline. In
order for us to continue to have any
growth, we were going to have to
have a diferent business and re-
cruitment plan.
Best had that plan: Move the
Lamar campus to a server. To
be able to have a top-quality pro-
gram delivered to your home real-
ly appealed to our education facul-
ty and dean, says Simmons. Antic-
ipating maybe 300 or 400 students,
Lamar went online in 2007, and
with Bests telemarketers sweating
the phones, theyve since grown to
be one of the largest online provid-
ers of masters degrees in education
in the country. The school now of-
fers two dozen diferent degrees on-
line; in ve years total online enroll-
ment has grown from 226 to around
5,000. Nearly 35% of the universitys
14,000 students have never set foot
on campus.
The following year Academic Part-
nerships began working with the Uni-
versity of Texas at Arlingtons College
of Nursing. At the time its nursing
school had 1,912 on-campus students.
It now has more than 8,900, most-
ly online, making it one of the largest
and fastest-growing state university
nursing programs in the country.
Some clients are still waiting for
the impact. Wright State University
in Ohio signed with Academic Part-
nerships in 2012, ofering four grad-
uate degrees in education. Prior to
making our decision to go online, en-
rollment was running in single digits
in some programs, and all were de-
clining, says R. William Ayers, asso-
ciate dean of the graduate school. It
took us six months just to get all this
up and running. It was a tremen-
dously complex enterprise, involv-
ing marketing, communications, ad-
ministration, the bursars ofce, the
registrars ofce, admissionsevery-
body had to get on board. And so
far its been a bust. After 13 months
of efort there are just 100 online-
only graduate education students
for $12 million (about $70 million in
todays dollars).
Hes a classic American entrepre-
neur, says Jeb Bush, who has known
Best for more than a decade. Hes a
dreamer, creative and hardworking.
He didnt start life with the afuence
he has today. Hes earned it.
And he earned it any which way
he could. In the 1970s and 1980s he
swerved from ne art galleries to an
agricultural company with interests
in grain, cattle, swine and farmland
to outpatient surgery. In 1984, with
$100 million in backing from a pow-
erful group of nancial and political
boldface namesincluding Robert
S. Strauss, former national chairman
of the Democratic Party and later
an ambassador to Moscow under
George H.W. Bush; CEO of Loews
Laurence A. Tisch; and Thomas C.
Barry, head of Rockefeller & Co.
Best founded a private merchant
bank with Elvis L. Mason, a fellow
Lamar alumnus. Mason Best invested
in defense and aerospace, oil and gas,
andwhy not?Girl Scout cookies.
In 2005 he also opened a for-prof-
it teachers school based in Chicago
and a chain of Latin-American post-
secondary schools headquartered in
Miami.
I never knew any industry that I
went into, says Best. Im intrigued
with a concept, an idea that you
have driving down the road or in the
shower. And my mission is to prove
that idea, to prove that concept.
Eventually they become companies
with workers and customers. Thats
when I begin to feel like an alien in
my own company.
But like many self-made busi-
nessmen in midlife, he began search-
ing for meaning beyond mere money.
Why am I here? What am I doing?
What will my signicance be? So I
started a not-for-prot to help public
education. And when I got in, I real-
ized every preconceived notion I had
was wrong.
O
nline degrees are the
redheaded stepchil-
dren of academia,
largely because they
are associated with
for-prot outts like the Universi-
ty of Phoenix. Best realized that op-
portunity was knocking in the pub-
lic sphere, but he needed a test case.
As always, he started with his well-
thumbed Rolodex.
In 2005 his alma mater, Lamar
University, was headed by an old
high school classmate, James
Jimmy Simmons. Simmons
watched helplessly as Hurricane
Rita wreaked in excess of $40 mil-
lion in physical damage to the cam-
pus, tearing the roofs of build-
ings and ruining the football stadi-
um. More than 1,500 students out of
11,000 abandoned the campus and
never returned. Rita dealt us a ter-
ric nancial blow, Simmons says.
But at the same time we realized
that we had a larger problem: a di-
minishing number of regional high
Its plausible that 15 years from
now half of the universities that
exist will be facing extinction.

students, seems like a moral dilem-
ma for a public institution, doesnt
it? he asks, eyebrows arched. They
do consider it a virtue. But turn-
ing students away, historically, was
based on a limited number of seats.
You wanted the best students for
those seats. Today, thanks to the In-
ternet, you have unlimited seats. Ex-
clusiveness is going to lead some
universities to extinction. Inclusive-
ness is the future.
not nearly enough to justify the cost.
The jurys still out in terms of say-
ing whether this is a success or this
is a failure.
I dont think online is the fu-
tureits simply a money scheme,
says William Rowe, professor of art
at Arkansas State University, which
parted ways with Academic Partner-
ships in 2011. As an academic, they
destroy my reputation by what they
do. The quality now is less than it
was when I came here. There is no
selective process; whoever wants
to pay can go. It devalues the diplo-
mas of the students. Some people call
ASU a diploma mill. Now, how does
that reect on the kid whos truly a
serious student? The students in the
end are the ones who lose.
Best has a ready-made answer to
this critique. The whole idea of ex-
clusiveness, as if its some kind of
virtue to turn down large numbers of
S
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EVERY NIGHT AT THE MUSEUM
Randy Best is a compulsive collector not just of businesses but also of ancient artifacts. He started at age 7 with a small plant
fossil, a gift from his father. Over the next six decades hes painstakingly assembled a tiny museum of natural history in his
home. It satises a lifelong curiosity of where we came from and who were the rst people, he says. In one corner stands a
7-foot-high Egyptian sarcophagus lid, in another room a massive Siberian cave bear skeleton on its hind legs. Then there are
saber-toothed-tiger and other megafauna skulls from the Pleistocene period. Best is especially keen on early human stone and
copper toolshis last purchase was a 5,500-year-old ceremonial Egyptian int knifeand Old West ries (he owns a wall full,
including the one belonging to George A. Custer). Now he says its time to let go and is donating it all to the Perot Museum
of Nature & Science in Dallas and the National Museum of Natural History in Washington, D.C. Its a remarkable connection to
millions of years ago. Or maybe I never grew up. C.H.
Neanderthals, cave bears and tiger skulls, oh my! A few
of Randy Bests favorite things.
F

The second edition of the iGATE CEO Cup has taken a
whole new meaning. This unique championship-style golf
tournament will be played at Course No.2 of the legendary
Pinehurst Resort & Country Club, the very course where
the golfing world Pros will shortly play their 2014 U.S.
Open and U.S. Women's Open Championships.
This extraordinary game of golf will witness CEOs from
around the world compete on behalf of their favorite
charities for $120,000 prize money, of which $40,000 -
double the amount of the inaugural event - has been
earmarked for Player of the Tournament.
Add to this the remarkable event being co-hosted by
Grand Slam professional and golf legend Gary Player
and a chance to lift the worlds largest gold trophy,
make the iGATE CEO Cup all the more thrilling.
Charity becomes
more thrilling.
FOR ONCE,
THE PROS
WILL
FOLLOW
IN YOUR
FOOTSTEPS.
DATE
21st and 22nd of March 2014.
VENUE
Pinehurst Resort & Country Club
North Carolina, USA

THE NEW
RETIREMENT
MATH
M
ath may not be your favorite subject, but if you want to retire well,
you or your advisor better be familiar with the new calculus. How
do you maximize your income without outliving your nest egg?
Or, if your 401(k) is too big, how do you get at your money with-
out getting whacked by Uncle Sam? In the wake of recently en-
acted legislation, we ofer advice for avoiding sneaky penalties and explain why you
should fret more about capital gains than death taxes. Got decades to go before re-
tirement? Find out why a Roth IRA is a must for Millennials. Finally, we spotlight an
ofeat investment that generates income and good vibrations: song royalties.
EDITED BY JANET NOVACK AND MATT SCHIFRIN
F
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Goosing the
Golden Goose
In the new retirement, sprinters nish last
while distance runners prevail. And risk is not
necessarily a four-letter word.
BY DANIEL FISHER
PHOTOGRAPH BY ERIC MILLETTE FOR FORBES
THE NEW RETIREMENT MATH
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Financial Engines Jason Scott has devised a
waste not, want not approach to retirement.

W
ill you outlive
your nest egg?
Its the
burning ques-
tion of the
millennium, and there is no short-
age of financial advice or advisors
willing to tackle it. For 78 million
people at or near retirement age,
the old rule of thumb has been to
spend an inflation-adjusted 4% of
the amount you retire with for each
year of retirement. The rule relies
on statistics that show there is a
90% probability that people hold-
ing a portfolio of 60% stocks and
40% bonds will be able to withdraw
that amount for at least 30 years.
Thus, if you have $1 million
when you retire at 65 you can
withdraw $40,000 the first year,
or $3,333.33 per month, and then
adjust that number by the inflation
rate each year thereafter.
The problem with the 4% rule
is that it can waste assets and it
doesnt always work. While tests
of 90 years worth of U.S. stock and
bond returns suggest that you will
be safe, a 2010 study of 17 markets
in other developed countries found
the 4% rule, using a more conserva-
tive 50/50 stock-bond mix, would
have failed at some point in each
one of them, forcing retirees to cut
their spending dramatically or look
forward to becoming totally depen-
dent on government pensions.
Conversely if the stock market
booms and the money in your nest
egg doubles to $2 million, the rule
stipulates that you dont veer from
the original 4% amount. You could
find yourself spending only 2% of
your actual portfolio and building
a large sum for your heirs to enjoy
after all that self-denial.
The 4% rule requires a lot of
faith, says Jason Scott, managing
director of the Retiree Research
Center at Financial Engines, a Sili-
con Valley-based retirement advi-
sory firm founded by Nobel Prize-
winning economist William Sharpe.
You have to say, Even if my
portfolio doubles I still shouldnt
spend any more, and if the market
crashes, you have to believe it will
come back.
Given the shortcomings of the
4% rule and the host of firms trying
to win retirees assets, there are a
myriad of viable alternatives. (See
p. 80.)
Scotts solution is a hybrid that
he calls the floor-leverage rule.
The floor is a base level of income
you want to receive until you die.
Leverage is how you boost your in-
come, by investing in a mutual fund
or ETF that uses borrowed money
to get triple the exposure to the
stock market. If stocks go up, you
take your winnings and move them
into the bombproof floor segment
of the portfolio. This permanently
boosts your retirement income. If
the market collapses, your equity
portfolio might get wiped out, but
youve still got the floor portion of
your portfolio.
Its for someone who doesnt
want to outlive their money but
also wants to participate in market
upside, says Scott, who, with col-
league John Watson, outlined the
floor-leverage theory in an article
in the Financial Analysts Journal.
Like many of the number
crunchers working at Financial
Engines, Scott, 46, was hired fresh
out of Stanfords doctoral program
after studying economics, writing
his thesis on the distribution of tax
benefits to employees from invest-
ing in 401(k)s. His floor-leverage
rule is an improvement over the
4% rule, he says, because it locks
in a specific level of income that
can ratchet up, permanently, if
the stock market rises. In fact, it
is based upon a more complicated
theory for managing permanent
endowments that guarantees a base
level of income by selling riskier as-
sets and buying bonds when stocks
fall, and doing the reverse when
markets rise.
The problem is few retirees have
the inclination to constantly rebal-
ance their portfolios. So Scott and
Watson tested simpler approaches
that require rebalancing once a
year. After running 1 million Monte
Carlo simulations under different
market outcomes, they hit upon
the floor-leverage rule. Scott and
Watson assumed a 40-year post-
retirement lifetime and bond yields
of 2% after inflation. The idea is to
put 85% of your money in invest-
ments, like inflation-protected
Treasurys, that virtually guaran-
tee a fixed level of income for the
rest of your life. The rest goes into
a triple-leveraged bullish stock-
index fund like ProShares UltraPro
S&P 500.
As a rule of thumb, it costs about
$25 today to lock in a real return
of $1 a year for 30 years, or about
$1.5 million in TIPS to ensure
$5,000 a month over that period,
assuming you are drawing from in-
terest and principal.
Another approach to setting
up this floor would be to buy
an immediate annuity that pays
out $5,000 a month until you die.
ImmediateAnnuities.com says
it would cost a 65-year-old male
$846,000, but it comes with some
serious drawbacks: The cash flow
and the principal disappear the
day you die, theres no protection
against inflation, and the money is
USING THE OLD 4%
WITHDRAWAL RULE,
YOU COULD RUN OUT
OF CASHOR END UP
DENYING YOURSELF
AND LEAVING YOUR
HEIRS A WINDFALL.
INCOME

FORBES
Investors Look Ahead
(And Like What They See)
LULE DEMMISSIE
MANAGING DIRECTOR OF INVESTMENT PRODUCTS AND GUIDANCE
TD AMERITRADE
investors said they were more likely
to be ahead of schedule or on track
with their goal in 2013, compared to
53% four years ago. Theres an uptick
in nancial planning, she says. I think
were seeing more people leave the
sidelines and put more of their cash
to work. To keep the nancial planning
ball rolling for 2014, Demmissie
suggests three basic principles: Make
it automatic, take small steps toward
your nancial goals, and remember
the value of time.
For example: Have part of your pay-
check automatically deposited into
an investment account. A Dividend
Reinvestment Plan (DRIP) is another
small but potent way to automate
things. You can also ask your tax
advisor about adjusting your W9
withholdingsthe average tax refund
was slightly below $3,000and
invest throughout the year.
And then theres the value of time: If
at 21 you automatically saved $100
a month until you reached 41, youd
have $24,000 to invest in your retire-
ment. Now take that and, assuming
a modest 8% annual return, com-
pounded monthly, by age 67 you will
have $471,358. If you wait until age
41 to invest $100 a month, and con-
tinue that monthly investment until
age 61 with the same annual return,
your nest egg will only total $59,295
by age 67. The message is clear: even
if you start small, start now.
Focus on what you can control
today, says Demmissie. Take it easy,
in other wordsbut take it.
T
ake it easy, the old saying goesbut
take it. Thats the mood of the market
these days: cautious, yet with a glow
of optimism, according to Lule Demmissie, TD
Ameritrades managing director of investment
products and guidance. Indeed, as the
image of the Great Recession recedes
in the rearview mirror, retail investors
have gained condence in the market.
Demmissie points to TD Ameritrades
2013 Annual Financial Outlook Survey,
which found that 77% of investors at
the end of 2013 expected the economy
to perform as well or better in 2014, and 84% felt
pretty bullish about their own personal nances.
There seems to be a sea change in investor
psychology, says Demmissie. Many investors
also seem to have gotten back on track in terms
of pursuing their retirement savings goals.
Optimism can look half full, of course, depend-
ing upon which survey you read when. While
the Dow Jones Industrial Average gained 26% in
2013the best annual performance in 17 years
only half (52%) of Americans surveyed by Gallup
last May said they owned stock or participated
in a self-directed retirement plan, compared to a
pre-recession high of 60% who did.
Demmissie, however, says that the TD Ameritrade
survey reveals an important number: 67% of
BrandVoice
BY TD AMERITRADE
Focus on what you can
control today.
LULE DEMMISSIE
MANAGING DIRECTOR OF INVESTMENT
PRODUCTS AND GUIDANCE
TD AMERITRADE
TD Ameritrade, Inc., member FINRA/SIPC/NFA. Commentary provided for educational purposes only. Past performance
is no guarantee of future results or investment success.
inaccessible for emergencies.
Both are wasteful, according
to economists, in that they squan-
der potential retirement savings in
the quest for guaranteed income.
The high-risk, leveraged-equity
component of Scotts rule seeks to
eliminate that waste and substan-
tially increase the amount of money
retirees can withdraw and spend
while still maintaining a floor. If
the market rises, you simply shift
the excess above 15% into the risk-
free portfolio annually; if it falls,
you simply watch it go down and
hope it recovers.
While many enterprising retir-
ees have informally used a similar
gambling money, safe money
bucket approach for years, not even
Financial Engines has devised a
product yet to deploy Scotts new
back-tested formula. (The man-
aged-income product it offers retir-
ees doesnt use leverage.)
Persuading old-timers to em-
brace high leverage wont be easy.
Exchange-traded funds like the
ProShares UltraPro S&P 500,
which offers three times the daily
return of the Standard & Poors 500
Index, have a bad reputation among
individual investors and most advi-
sors. Such funds tend to diverge
rapidly from their underlying
indexes because of the compound-
ing effects of day-to-day repricing
and volatility. An investor who puts
$10,000 into a triple-long index
fund whose underlying index drops
10% the first day and rises 10% the
next will end up with $9,100 at the
beginning of the third day, while
a straight index buyer will have
$9,900. Over a year this difference
can become significant. During the
bear market of 2008, for example,
droves of investors in leveraged in-
verse short ETFs were left dissatis-
fied after they profited much less
than they expected.
Still, Scott and Watsons analy-
sis shows that buying and hold-

ing leveraged equity investments can deliver outsize
in creases to income if the market rises over the year.
From an initial withdrawal rate of 4.4%, a hypothetical
retiree in 1950 would have been able to spend 12.5% of
his starting wealth each year by the early 1970s, thanks
to the long bull market during that era and the one-
way infusions of cash from the leveraged equity por-
tion of the portfolio (leveraged ETFs didnt exist until
2006). The worst scenario was a retiree who started in
1960 and flatlined at 5.9% after the 1973-74 recession
and bear market wiped out most of his equity port-
folio. But in all cases retirees were eventually able to
spend well above the 4% rule.
Of course, Scott notes that there are ways to fine-
tune the floor-leverage rule. Sixty-five-year-olds who
want to spend more from the outset can assume that
they will die before age 90 or they can choose to ig-
nore inflation. Or they can use some of the 85% floor
portfolio to buy deferred-income annuities, which kick
in and offer lifetime guaranteed income starting at
specific ages.
Scott and Watson calculated efficiency scores
for various retirement strategies and determined that
the floor-leverage rule was 99.6% efficient, meaning
it wastes $4,000 per $1 million on goals other than
providing the maximum combination of income and
upside potential in retirement. A straight bond portfo-
lio is 87.9% efficient, meaning it wastes $121,000 on a
million dollars invested.
But one mans waste is anothers treasure. Your chil-
dren might prefer that you stick to the old 4% rule be-
cause, with it, youre more likely to end life with a big
cushion of capital. To a dismal scientist that would be a
tragedy. F
SPENDING FORMULAS, OLD AND NEW
THE NEW RETIREMENT MATH INCOME
Jason Scotts oor-leverage strategy is just one of many for-
mulas being recommended to people facing the scary pros-
pect of outliving their money. Here are some old and new
strategies for making the money youve saved last:
OLD: The Bombproof Bond Portfolio. Buy a ladder of zero-
coupon Treasurys that mature every year until you die. Cost:
at current Treasury rates, $19,000 per $1,000 of annual
income, or $950,000 for $50,000 a year. Want ination pro-
tection? Buy Treasury Ination-Protected Securities instead,
at a cost of $25,000 per $1,000 of annual income.
UPSIDE: Worry-free guaranteed income.
DOWNSIDE: Youd better not live more than 30 years.
OLD: The 4% Rule. Withdraw 4% of your initial retirement
nest egg in the rst year of retirement and adjust the amount
annually by the rate of ination of the preceding year. You
have a 90% chance of sustaining that income for 30 years.
The rule assumes a 60/40 allocation of stocks to bonds and
would cost about $1.25 million today to get $50,000 in an-
nual income.
UPSIDE: Greater potential wealth.
DOWNSIDE: You could be limiting your lifestyle for the ben-
et of your heirs.
NEW: The Dynamic Strategy. Devised recently by analysts
at T. Rowe Price. You start with a conventional 60/40 stock/
bond mix and an initial withdrawal rate of 5.1% ($63,750 on
$1.25 million). Important: You must skip ination adjustments
after down-market years.
UPSIDE: Greater retirement income.
DOWNSIDE: Real income takes a hit if the market falls and
ination soars. Plus your heirs may still end up with much of
your money.
OLD: Bucket Strategy. The oor-leverage rule is a variation
of this old standard. Place enough money in low-risk invest-
ments, like investment-grade corporate bonds or dened-ma-
turity bond funds, to guarantee a base level of income over 30
years. You can put the rest in the stock market and try to fund
discretionary expenses with that, or you can ladder the entire
portfolio so that maturities coincide with spending targets.
UPSIDE: Low risk, and you can diversify interest rate expo-
sure by laddering. Plus your stock gains could boost income.
DOWNSIDE: You could get stuck with your base level of
income if the market crashes.
NEW: Deferred-Income Annuities. If youre inclined to go
YOLO and start enjoying your money once you hit 65, this
approach can safeguard against the curse of longevity be-
cause annuities eventually take over. ImmediateAnnuities.com
prices an annuity that pays $5,000 a month starting at age 85
for a 65-year-old at $85,000.
UPSIDE: Have fun running through your nest egg in the rst
part of retirement, knowing that youll be set beyond age 85.
DOWNSIDE: There is no ination protection, and if you die
before the payout age, the annuity rm keeps your premium.
OLD, BUT NEW AGAIN: Social Security. In exchange for a
lifetime of paycheck deductions, Uncle Sam promises an
almost unbeatable deal in todays low-interest environment.
Social Security benets are ination-adjusted and can be
inherited by your spouse (even a divorced spouse), depen-
dent and disabled children or parents. Dont underestimate
this benet. In order to ensure $50,000 a year in retirement
income it would ordinarily cost you $1.2 million in TIPS.
UPSIDE: You can obtain maximum income for life if you wait
until 70 to collect.
DOWNSIDE: Unless Congress acts, Social Security will be
able to pay only about 75% of promised benets come 2033.

All investments involve risk, and successful results are not guaranteed. Offer valid through 4/30/14. Funding/rollover of $25,000$99,999
receives $100; funding/rollover of $100,000$249,999 receives $300; and funding/rollover of $250,000 or more receives $600. Cash bonus
subject to nine-month funding-duration condition. See Web site for details and other restrictions/conditions. TD Ameritrade reserves the right to
restrict or revoke this offer. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. TD Ameritrade, Inc.,
member FINRA/SIPC/NFA. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.
2014 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission. 36 USC 220506
Carefully consider the investment objectives, risks, charges and expenses before investing. A prospectus, obtained by
calling 800-669-3900, contains this and other information about an investment company. Read carefully before investing.
AINT NO PARTY
LIKE AN INDEPENDENT
THIRD PARTY.
Open a new IRA or roll over an old 401k, and get up to $600. | tdameritrade.com
CHOOSE FROM INDEPENDENTLY SELECTED FUNDS FOR YOUR IRA.
At TD Ameritrade we use an independent third party to create a list of
vetted fund choices, none of which are made by us. So instead of feeling
overwhelmed by thousands of funds, choose the funds you want, without the
hard sales pitch or hidden motives. Because thats the way it should be.

Romney IRA Syndrome
Challenge: extract the money from an oversize retirement
account without getting destroyed by the new higher tax rates.
T
ake a close look at your
retirement account. Do
you have Mitt Romney
Syndrome?
This is an afiction
that strikes successful people. They
fatten their IRAs and 401(k)s only to
discover that compulsory withdrawals,
which begin at age 70, hoist them
into unexpectedly high tax brackets.
While details of the ex-governors
IRA are not public, it appears that his
tax-deferred savings are well into eight-
gure territory. When this fact came out
in the presidential campaign, a wave of
sympathy was felt in tax-planning of-
ces across the country. What a shame
that all that money was going to come
out at high ordinary income rates.
You dont have to be Romney-rich to
confront unpleasantness with your tax
rates. In fact, many of the surprises in
the code leave the wealthy unscathed
while doing a lot of damage to families
with incomes between $200,000 and
$500,000.
There are antidotes. They consti-
tute what Robert S. Keebler, a CPA
in Green Bay, Wis., calls bracket
management.
Consider a Keebler client we will
call Harry. Harry is a midwestern en-
gineer in his 60s. His retirement assets
will, assuming a conservative growth
rate, tote to $7.8 million by the time
Harry turns 70. At that point he has to
start withdrawing the money so the
IRS can get a piece of it. The with-
drawals would start at $291,000 a year
and follow an upward curve, peaking
at $642,000.
Thats a ticket to high tax brackets,
on top of which Harry will have other
income, like Social Security payments.
Keeblers solution: prepay some of
the tax. Harry will do that with a Roth
conversion, turning a portion of pretax
401(k) and IRA money into aftertax
Roth money. Theres a tax hit up front,
but once savings are Rothied they
compound scot-free, with no with-
drawal mandate as long as Harry or his
wife is alive.
Yes, prepaying tax can make you
wealthier. So long as you pay the tax
bill with cash now outside the account,
the maneuver is a clear winner if your
tax bracket in retirement is destined
to be the same as it is now. Some lucky
people can get an even better deal,
paying Roth tax at a low rate now and
BY WILLIAM BALDWIN
TAXES
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SLICE IT UP
Lets say you want to convert $1 million of IRA money into Roth money. First, chop
the sum into ten $100,000 accounts, then invest each piece in something diferent
(growth stocks, junk bonds, emerging market debt, Treasurys, big stocks...). Later,
after markets have moved, you can selectively undo the conversions of accounts
that went down.
If you convert now, youll have until the Oct. 15, 2015 extended deadline for
your 2014 tax return to decide which investments stay Rothied. You might wind
up standing pat with, say, $600,000 of conversions on accounts that have grown
to $700,000, while revoking the conversions on $400,000 of accounts that have
shrunk to $350,000.
Too good to be true? When this strategy was described in these pages in 2010,
it was somewhat fringy. Now even conservative wealth planners are urging it. But
dont be surprised if Congress hears about the mischief and calls a halt.

J
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K

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reducing future income that would
otherwise be taxed at a higher rate.
You might be in this category if you
are retired but not yet collecting Social
Security.
For many people between 55 and 70
a Roth conversion is a wise movebut
a tough sell. Tara Thompson Popernik
is a wealth planner at AllianceBern-
stein in New York City. She goes into
client meetings armed with stacks
of colored charts and Monte Carlo
simulations. She might be able to show
a couple that converting $1 million of
IRAs should ultimately make them
$500,000 better of. Still they hesitate.
Its a hard decision to make and a
big check to write, she says.
Bracket management means know-
ing just how much more income you
can take in before you get kicked into
a higher bracket. Perhaps you thought
there are just two brackets for you
say, 15% for dividends and long-term
gains and 35% for everything else. In
fact, you may be subject to any of four
bracket boosters.
First, the health care tax. It adds
3.8 percentage points to your tax rate
on investment income. It applies only
to the extent this income vaults your
AGI above a $250,000 threshold (on a
joint return). If you have $240,000 of
salaries and $35,000 of dividends and
capital gains, then your adjusted gross
income is $275,000 and the 3.8% sur-
tax hits the last $25,000 of it.
Investment income here is what
youre getting of unsheltered assets
say, the dividends on the Chevron
shares parked in your taxable broker-
age account. The 3.8% tax doesnt
apply to earnings inside a 401(k) or
IRA. Nor does it apply to withdrawals
from a retirement account.
Now look at some interesting tax
interactions. A withdrawal from a Roth
doesnt even afect the health tax, since
Roth withdrawals arent considered
income. But a withdrawal from a pre-
tax account (or a conversion) does go

CONGRESSIONAL DANGER
into AGI. In other words, mandatory
withdrawals from an IRA loft other-
wise unafected dividends into place
to be swatted by the tax.
This is why it might make sense
for you to swallow a large tax bite
today in order to get your taxable
income down in retirement. Today
you do a Roth conversion (creating
taxable income) and sufer the 3.8%
damage on a single years worth of
dividends. That may spare you, down
the road, from 20 years of surtaxes on
your dividends.
The other three bracket add-ons
are hidden in statutory verbiage that
disguises their efect. Nicknames will
make it easier to follow the tax codes
twisting trails.
The rst well call Clawback. This
bracket booster, added a year ago, has
the IRS clawing away a portion of
itemized deductions. Thats how the
law is written. Yet for most people the
amount of their deductions is irrele-
vant to the calculation. Clawback turns
out to be just a roundabout way to jack
up tax brackets by roughly a percent-
and losses next? Or the reverse? It all
depends on when you do your Roth
and where you land on that zigzag.
Spend some time with your accoun-
tant before doing anything to your
portfolio.
Five things to contemplate as you
design an exit route for your 401(k):
Charity. You can reduce the tax
bill in the year of conversion by being
philanthropic. Compress several
years of giving into one tax deduction
with a donor advised fund, one of
those charitable prepayment plans
ofered by af liates of investment
rms, including Fidelity, Schwab and
Vanguard.
Geography. No sense Rothifying
just before you move to a low-tax state.
Alternative minimum tax. If
youre afected, the odds that you
should be doing some Rothifying go
up. AMT victims tend to have incomes
in the $200,000-to-$500,000 range
and live in high-tax states.
Your legacy. UnRothied retire-
ment accounts make for mangled be-
quests, since heirs will owe both estate
and income tax on the money. A law
permits heirs to deduct the former in
calculating the latter. But this provi-
sion goes only halfway to protecting
your family from double taxation, says
Keebler. Thats because the deduction
is for a dollar amount rather than a
percentage of the account and because
it doesnt help with state inheritance
taxes. So Rothifying should be part of
any estate plan.
Congressional whim. Should you
worry that youll pay tax going into a
Roth now only to lose the tax exemp-
tion on the way out? Probably not.
Legislators have recently made
Roth conversions easier for 401(k)
money. Clearly they are desperate for
immediate revenue, and the conver-
sion tax spigot would dry up with the
least hint of plans to double-cross tax-
payers. A bigger political risk, Poper-
nik says, is rising tax rates. That risk
makes the case for Rothifying all the
more compelling.
age point. It afects joint returns with
incomes above $305,000.
Next is Kidnap. Exemptions for
you, your spouse and your kids get
gradually erased in a certain income
range. The efect is to boost the mar-
ginal tax rate for a family of four by
four points, but only if their income is
between $305,000 and $428,000.
This afects the Roth strategy for
families with incomes just below the
Kidnap range. They should prob-
ably convert only thin slices of their
401(k)s until the kids are out of col-
lege and can no longer be snatched.
Last on our list is Grannyheist.
Medicare premiums go up with in-
come. In efect, the tax bracket for
a retired couple in the $170,000-to-
$428,000 income range is kicked up
(with a two-year lag) by two percent-
age points. Defense: If you are 62 con-
vert now, not when youre 65.
Clawback, Kidnap and Grannyheist
turn a graph of tax rates into a psyche-
delic up-and-down zigzag. The result
is both opportunities and pitfalls.
Should you take stock prots this year
WHAT IF THEY CHANGE THE RULES?
Roths Double-Taxed
LOWYou pay tax today but have to pay on withdrawal, too? A
double-cross of that sort is unlikely.
Roths Indirectly Taxed
MEDIUMA law change could count withdrawals toward an income
base that afects other tax rates, such as on investment income.
Carve-Ups Chopped
VERY HIGHYou can now convert an account in pieces, then
selectively undo conversions for the accounts that go down in value.
Stretchout Killed
EXTREMENow your grandson can keep an inherited IRA going over
his lifetime. A future Congress might give him a ve-year deadline.
TAXES
Hungry for immediate tax revenue, Congress has made Roth accounts very alluring.
But it could take away some of the goodies. Here are the risks.
F

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a secure place to grow. Just remember, an early
withdrawal penalty may apply. An additional
IRS tax may also apply, so please consult your
tax professional

Freebasing Your Estate
Time to stop worrying about death taxes and start worrying about the capital gains tax.
R
ecent tax law changes are
turning traditional estate
planning on its head. In-
deed, moves long consid-
ered savvyfor example,
aggressively shifting wealth to younger
generations while senior family mem-
bers are still alive or leaving assets to a
bypass trustmay no longer be neces-
sary to save estate tax and could now
leave many families paying income tax
they wouldnt otherwise owe.
While planners are still working
through all the angles, the big rethink
was set in motion by the legislative deal
Congress passed Jan. 1, 2013. It made
permanent the most generous exclu-
sion from estate and gift tax, in real dol-
lars, since the birth of the death tax in
1916 and raised the top income tax rate
on long-term capital gains to its highest
level since 1997. Including the new 3.8%
net investment income tax that took
efect last year as a part of ObamaCare,
the top rate on long-term capital gains
from stocks is now 23.8%, up from 15%
in 2012.
At the same time, even many 1 per-
centers no longer need to worry about
the federal estate tax. The Tax Policy
Center projects that just 0.14% of adult
deaths this year will result in federal
estate tax, down from 2.3% in 1999 and
7.65% in 1976. Currently each person
can transfer $5.34 million to heirs dur-
ing life or at death, before a transfer
tax of up to 40% kicks in. Not only will
that so-called applicable exclusion
rise with ination, but spouses can now
shareand efectively inheriteach
others exclusions. AllianceBernstein
projects that in ten years a couple will
be able to pass on a combined $13.16
million and in 20 years $17.9 million
and that whole amount could be used
by a widow or widower.
At the recent annual Heckerling
Institute (the leading conference for
estate pros) Paul S. Lee, a Bernstein
wealth manager, called for a new
approach to planning he puckishly
described as freebasingbecause it
frees survivors to get the most potent
income tax savings from the step-up in
basis of the deceaseds property.
Step-up? When you sell an asset
such as stock, you owe capital gains
tax on the diference between what
you paid for it (your basis) and what
you get for it. But if you inherit certain
assets you can step up their tax basis
to whatever they were worth at your
benefactors death. That means highly
appreciated inherited property can be
sold immediately with no capital gains,
or later, with all the gains before you
inherited it disregarded. By contrast,
if you receive property from a living
donor, you take on his tax basis when
the time comes to calculate capital
gains. (You can neither inherit nor be
given capital losses.)
Step-up isnt new but has now
become central to wealth-transfer
planning for many families, including
some still likely to have taxable estates.
Depending on where you and your
intended beneciaries live, the income
tax savings from the step-up in basis
may be greater than the transfer tax
cost, if any, says Lee.
For example, in California, which
has no state estate tax but levies a 13.3%
state income tax on income above $1
million, heirs would pay a combined
state and federal top rate on gains from
the sale of a Rothko that exceeds the
top estate tax rate of 40%. But fami-
lies in Washington State, which has no
income tax but levies a top estate tax
of 20%, would still nd estate tax more
onerous. This suggests that Californians
should be much more passive in their
estate plans, choosing more often than
not to simply die with their assets, than
Washington residents, Lee says.
Note that not all assets benet from
the step-up in basis, so factor that into
decisions about what, if anything, to give
away during life, Lee says. Low-basis
stock and intellectual property, such
as copyrights, trademarks and patents,
all benet. So do art, gold and collect-
ibles, which are particularly good items
to hang on to, since gains on these are
taxed at 28% (plus the 3.8% ObamaCare
tax and any state tax). Fully depreci-
ated investment real estate is another
keeper; if you sell or give it away while
youre alive, depreciation youve claimed
will be recaptured at a 25% rate (plus,
again, 3.8% and any state tax).
Theres no step-up benet to leaving
your heirs cash or variable annuities,
whose payouts are taxed as ordinary
income and return of basis. As for pre-
tax IRAs and 401(k)s, while heirs can
BY DEBORAH L. JACOBS
TAXES
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stretch out withdrawals, thus beneting
from tax deferral, all the dollars they
eventually take out will be taxed at high
ordinary income tax rates. (But a Roth
IRA is one of the best assets to inherit,
since heirs can stretch out income-
tax-free growth and withdrawals. For
advice on Roths, see page 82.)
The new tax landscape also has
huge implications for married couples.
Widows and widowers can now carry
over any unused exclusion of the
spouse who died most recently and add
it to their own. Portability, as tax geeks
call it, doesnt change the fact that you
can give an unlimited amount to your
spouse, during life or through your
estate plan, provided he or she is a U.S.
citizen, with no federal or state tax ap-
plied. But before portability, if the rst
spouse to die simply left everything to
the survivor through an I love you
will, the dead spouses estate tax exclu-
sion was lost. To avoid that problem
you had to either leave assets directly,
up to your exclusion amount, to some-
one other than your spouse or set up a
special kind of trust known as a bypass
or credit-shelter trust. It works like
this: At the death of the rst spouse an
amount up to his exemption goes into a
trust for the kids. The surviving spouse
has access to the earnings (and in some
cases principal) of the trust, but the as-
sets in the trust arent hers outright and
bypass her estate when she dies.
To be sure, you still might want one
of these concoctions to protect assets
from creditors or assure (in the case of
a second marriage) the money goes to
your own kids. But otherwise, simply
relying on portability often makes more
sense, particularly if your assets are
comfortably under $10 million and you
live in one of the 31 states without its
own estate or inheritance tax.
Aside from the hassle factor of a
trust, the tax drag of having assets in
a trust is now greater than before. As-
sets in a regular bypass trust wont get
a step-up in basis at the death of the
second spouse. In addition, unless trust
income is distributed, the income tax
penalty can be huge. Thats because a
trust hits the highest income tax bracket
once it has more than $12,150 of taxable
income. In contrast, a single individual
doesnt hit this bracket until his taxable
income is more than $406,750.
No surprise, lawyers arent giving up
on trusts. Instead theyre busy looking
for ways to minimize the tax damage
from existing trusts and adapt future
trusts to avoid expensive income tax
consequences. One possibility, for wid-
ows and widowers already stuck with
bypass trusts, is for the trustee to dis-
tribute assets out of the trust (assuming
the trust terms allow this) to the surviv-
ing spouse, says Thomas W. Abendroth,
a lawyer with Schif Hardin in Chicago.
Another ploy involves living do-
nors who made irrevocable transfers
to grantor trusts for their children or
grandchildren. All the annual income in
these trusts goes on the donors income
tax return, so thats not a problem. But
the loss of step-up could be. So in some
cases lawyers are suggesting donors
shufe assets, swapping low-basis assets
out of their trust (and into their taxable
estates) and property that wont benet
from step-up into the trust, Abendroth
says. The stated trust powers must allow
for this, but typically, with a grantor
trust, they do.
These damage control measures
keep clients dependent on advisors.
Thats good for the estate pros bottom
line but bad for cost-conscious consum-
ers who might prefer to revisit estate
planning on a more occasional basis
say, when life events dictate. J
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Generation Roth
Millennials need exibility and a hedge against higher tax rates.
D
uring a visit to a Penn-
sylvania steel plant re-
cently President Obama
touted the exibility
that his gimmicky new
myRA account provides young work-
ers just starting to save. In an emer-
gency you can withdraw contribu-
tions without paying a penalty. So its a
pretty good deal.
Fact is, myRA is just a Roth indi-
vidual retirement account with training
wheels; the full, grown-up version is
an ideal savings vehicle for millennials,
including well-paid ones who also have
a 401(k).
A Roth IRA has two main advantag-
es for younger folks. Money you con-
tribute to an old-fashioned, pretax IRA
or 401(k) isnt taxed now, but all with-
drawals in retirement are taxed at high
ordinary income rates. Roth IRAs work
in reverse: You get no tax deduction
for your contribution, but withdrawals
after age 59 are tax free. By then your
income should be higher, in real dollars,
than at, say, 25, so your tax rate is likely
to be higher, too, making the back-end
tax break more valuable than the front-
end one. A Roth could also shield you
from a growing list of tax and benet
penalties on higher-income retirees (see
story, p. 82).
The second big selling point for a
Roth IRA is exibility. Retirement is
decades away and you might need cash
soonerto start a business, pay the rent
while you return to school or, as Obama
suggested, for an emergency. Take
money out of a pretax IRA or 401(k)
before retirement and you can get hit
with a 10% early withdrawal penalty, as
well as ordinary income taxes. (There
are ways you might be able to avoid the
penalty, but an estimated 5.7 million
folks still got stuck paying it in 2011.)
By contrast, you can withdraw your
original contributions from a Roth
IRA without taxes, penalty or jumping
through hoops. Life is unpredictable,
says Dan Keady, a nancial planner in
TIAA-CREFs advice strategy group.
The idea of having that money there in
a Roth IRA that you can just pull is a big
advantage for people.
Wait a minute, isnt a 401(k) the
best place to start saving? Yes, usually,
provided youre ofered an employer
matchin the most common matches,
your employer kicks in 50 cents or $1
for each $1 you save, up to maybe 6%
of your salary. But if youre planning a
decent retirement and saving for other
goals, too, youll need to sock away a
lot more than 6% a year. So put enough
into your 401(k) to snag the full match
and then fund a Roth IRA.
For 2014 you can contribute $5,500
per person to a Roth IRA, provided
your adjusted gross income isnt more
than $114,000 for a single or $181,000
for a couple. Above that the allowed
Roth contribution shrinks and then dis-
appears. Not to worry: If you earn too
much, you can get around the restric-
tion with a little fancy footwork (and
paperwork). Put $5,500 in a nonde-
ductible IRA and then convert it to a
Roth IRA.
Fortunately, you have until Apr. 15
to fund an IRA for calendar 2013. If you
dont have the cash but expect to soon
say youve just started a high-paying
jobhit your parents up for a short-
term loan to make the contribution.
Another option: If you le your 1040
early enough, you can ask the Internal
Revenue Service to deposit your refund
into a 2013 IRA.
What if you are already snagging the
match in your 401(k) and fully fund-
ing a Roth IRA, and can save still more?
Build an emergency account (three to
six months of expenses) outside the
Roth IRA, so you can leave the Roth
untouched, growing tax free.
Once you have an emergency cache,
consider maxing out your 401(k)you
can contribute up to $17,500 for 2014.
Keep in mind, however, that your pre-
retirement access to 401(k) funds is
limited, particularly if you stay with the
same employer.
A growing number of 401(k) plans
give workers the option of directing
some or all of their contributions into
a Roth 401(k) subaccount. If yours
does, consider using it, particularly if
you expect your income and tax rate to
rise. By law all employer contributions
are made pretax, so by using the Roth
youre spreading your tax bets. J
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BY ASHLEA EBELING
YOUNG MONEY
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How can you build
the retirement you want?
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5
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to ask yourself
as you save
for retirement
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Post-
Season
Each of these four sporting
greats from diferent
decades drew on a new
playbook to chart their life
beyond the eld, but they
all prove the key to retiring
well is not to retire at all.
BY STEVE SCHAEFER
PHOTOGRAPHED BY TIM PANNELL FOR FORBES
Mo Vaughn 46
The three-time All-Star in 12 major league seasons
with the Red Sox, Angels and Mets was the 1995
American League MVP.
Once one of baseballs highest-paid players,
Vaughn is now working the other end of the
wealth spectrum: low-income housing. His real
estate firm, Omni New York, which he cofounded
in 2004, uses government incentives to buy up
properties and refurbish them before installing its
own management. The business has grown from 3
employees to about 400 today, with a portfolio of
almost 8,000 units.
Vaughn says affordable housing proved its worth in
2007 and 2008: We were very fortunate to be in
this business, he says. We added a thousand units
a year when things were falling apart.
Money Moves in Your 40s
MAXIMIZE TAX-FRIENDLY SAVING
Although you might be still paying off college
debtand saving for your kids education
dont neglect your 401(k). Never contribute
less than the company match, and aim for three
times your annual salary in savings before your
50th birthday.
PATH TO SUCCESS
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One-on-one guidance to help your
retirement savings
Chris Evert 59
With 18 grand-slam titles among her
157 tournament victories, Evert was
unanimously elected to the International
Tennis Hall of Fame in 1995.
I love the freedom of being able to go to
the Caribbean if I want, Evert says. But
I also want to have a reason to get out in
the morning. She has plenty: In addition
to founding her own tennis academy in
1996, Evert spends eight weeks a year
covering the grand slams for ESPN, writes
a column for Tennis magazine and is
currently designing a line of tennis outfits
for the apparel company Tail.
Evert is also taking a more active role
with her investments. Her father, who
had managed her money (with her
input) since her playing days, directed
her into bonds that provided insulation
during the 2008 crash. But as the stock
market roared back from its bottom,
Evert shifted a portion of her assets into
equities. Im conservative, she says,
but I also want to be diversified.
GET A FINANCIAL PLAN AND A PLAN B
Use calculators or a financial pro to gauge if youre on
track. Start building a side business or acquiring skills for a
second career that can see you through your 60s.

DO MORE
Keep in mind that investing involves risk. The value of your investment will uctuate over time
and you may gain or lose money.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. 2014 FMR LLC. All rights reserved. 678341.1.0
Franco Harris 63
The four-time Super Bowl champ with the
Pittsburgh Steelers was a nine-time Pro Bowl
selection before being elected to the Pro Football
Hall of Fame in 1990.
When I played, everyone knew football
wouldnt take care of you forever, says Harris.
We didnt make that much money, so it kept
things in perspective.
After retiring from the NFL in 1984, Harris
applied a running backs hustle to building his
signature business, Super Bakery, which is known
for a nutritional paradox: a healthier doughnut.
The Super Donut, which doesnt contain any
preservatives, artificial coloring or flavoring,
is now available in all 50 states, generating
millions in annual revenue. Harris, meanwhile, is
already knee-deep in another project: a line of
antimicrobial fitness and workout gear sold by a
company called Silversport.
I go to the beach now, he says, and when Im
relaxing there its a great time to read and think
and strategize about my business.
Money Moves
in Your 60s
KEEP WORKING
Enjoy what youre doing? Still healthy?
Dont stop! The longer you stay
employed, the longer before you start
drawing down on retirement assets.

800 . FIDELITY
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Jack Nicklaus 74
The Golden Bear won a record 18 major championships,
including 6 Masters, on top of a PGA Tour career that
spanned 44 years, from 1961 to 2005.
Ive never retired, Nicklaus says. I stopped playing
competitive golf, but that was just one part of my
business life.
Indeed. His golf-course design firm, Nicklaus Design,
has built or renovated more than 380 courses around
the world since 1969, including annual PGA Tour stop
Muirfield Village in Ohio and Scotlands Centenary
Course at Gleneagles, host of the 2014 Ryder Cup.
(In 2007 Nicklaus sold 49% of the company for $145
million.) He has been selling golf shirts since he turned
pro in 1961, and just last year Nicklaus Companies
launched a new line of golf balls color-coded to
correspond to the black, blue and white tees. Charity-
minded duffers can choose to donate a portion of
their balls purchase price to Nicklaus foundation for
childrens health care.
Dont get him wrong, though. Its very much a business.
The charitable part is nice, says Nicklaus, but you
either make a profit or youre not in business.
CASH OUT
Be efficient with your account withdrawals:
Pretax IRAs and 401(k)s require minimum
withdrawals beginning at age 70. Have a plan
for spending. Dont overshoot and get caught
with empty pockets.

1. How much will I need to retire?
A lot goes into answering this question, and
everyones situation is different, but our general
rule of thumb is to have saved at least 8 times
your ending salary by the time you retire.
Another way to think about it is the 85-by-65
approachbeing able to replace 85% of your
annual income by the age of 65. This can help
increase the odds that you wont outlive your
savings during 25+ years in retirement.
2. Am I maxing out my retirement
savings at work?
We suggest saving at least 10%15% of
your salary each year, including any match
your employer offers. One way to gradually
reach this level is to increase your savings
percentage by 1% per year.
3. Do I have the right mix of stocks,
bonds, and cash?
When saving for retirement, its important to
have the right blend of long-term growth and
preservation investments. At Fidelity, we can
help you take a look at your investments, and
help you decide if theyre a good t for your
age, goals, and comfort with risk.
4. Should I be contributing to an IRA?
An IRA allows you to save for retirement
with benet of potential tax advantages. An
employer-sponsored savings plan, such
as a 401(k), might not be enough to accumulate
the savings youll need, and an IRA could be a
great way to supplement those savings.
5. How do I imagine my life in retirement?
Try to envision the lifestyle you expect and all
the costs that will go along with it. Do you plan
to continue working in some capacity? Where
would you like to live? What type of lifestyle do
you plan on having?
Keep in mind that investing involves risk. The value of your investment will uctuate over
time and you may gain or lose money.
Fidelity does not provide legal or tax advice and the information provided above is general in nature and should not be considered legal
or tax advice.
Consult with an attorney or tax professional regarding your specic legal or tax situation.
Diversication or asset allocation does not ensure a prot or guarantee against loss.
Mobile
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of the experiences of all customers and are not indicative of future success. For additional information, go to Fidelity.com/Rollover.
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INVESTING
KEN FISHER PORTFOLIO STRATEGY
WHILE MARKETS are pretty ef-
cient at prepricing, or discount-
ing, all known information so you
cant prot from it, they sometimes
miss the elephant in the room: huge
truths that for whatever reason are
ignored or forgotten.
Exhibit A: any stocks gross operat-
ing prot margin (sales minus direct
cost of goods sold). Back in the 60s
and 70s data were scarce, and while
analysts knew that companies with
fat gross margins lagged those with
thin gross margins early in bull mar-
ketsand overachieved in the later
phasesthey couldnt do much about
it. A simple rulewhich I discussed at
length in my rst book, in 1984.
But now that the information is
widely available I nd that, para-
doxically, no one looks for it any-
more. Hence I see power. Its mostly
worked in recent decades and in this
early bull cycle as thin gross-margin
stocks lead.
Regular readers know I think
1) were about halfway through this
bulls duration and 2) big stocks
will lead. But also, fat gross mar-
gins should lead from here. By that
I mean above 50% and higher than
the industrys average. One caveat:
It didnt work last timeI think
because that bull was unusually, and
prematurely, truncated. But that
boosts the odds this bull market
ends more normally. In this case
gross and fat mean beautiful.
It works because fat gross mar-
gins ofer a rm more discretion to
ne-tune its future. Invest in more
research than peers do. Or market
more. Or aford more capital expen-
ditures. Or, or, or! It renders more
reliable future earningsthe very
theme my research shows that later-
stage bull markets love. Here are ve
large stocks I like with fat gross mar-
gins overall and relative to peers.
Swiss-based NOVARTIS (NVS, 81) is
the worlds third-largest drug rm
by most measuresa very diverse
line. Its blockbusters include Diovan,
a blood-pressure medication, and
Gleevec, a cancer drug. Novartis is
well-run, and among the druggies
it sports fatter gross margins (66%).
Yet its cheap versus peers at 14 times
my 2014 earnings estimate. Dividend
yield? 3.1%!
Another Swiss-based multiyear
laggard I like now is NESTLE (NSRGY,
76). Investors yawn: 17 times 2014
earnings seems high for food rms.
How do I justify it? A foodie with
50%-plus gross margins boggles the
mind. How does it do that? Super
brands plus super management leads
to super-reliable protabilityagain,
something later-stage bull markets
love as the later entrants digest their
rst stock-bites in years. Buy it be-
fore they bite.
INTEL (INTC, 24) lagged for years, too.
I like that investors are used to being
repulsed. Folks forget the obvious: 1)
Its the prime generator of Moores
Law (our eras second most power-
ful force after raw capitalism), and
2) New CEOs, like Brian Krzanich,
always clean house, depressing cur-
rent earnings to boost future results
(which markets love later). And
3) For such a competitive eld its
58% gross margin astounds. Now its
timeat 13 times my 2014 earnings
estimate with a 3.5% dividend yield.
Another superbly run fat gross
margin (58%) IT rm, of a diferent
style, is MASTERCARD (MA, 76). Most think
its a credit card company. But its
also a payments-processing IT rm,
albeit growing at a slower, safer rate
than Apple or Facebook. It sells at
ten times my 2014 earnings estimate.
Compare Aussie mining giant BHP
BILLITON (BHPLF, 33) and its gloriously
bloated 66% gross margin with those
of its peers. And that with in-the-
dumps commodity prices! Simply
better properties!
You may think those would be in
the stock price already. I think not.
BHP has barely budged in this bull
market. Its down 25% from three
years ago, now at 12 times my June
2015 earnings estimate with a 3.5%
dividend yield. Perfect for the back
half of any bull market.
BIG, FAT, GROSS
MY KINDA STOCKS!
MONEY MANAGER KEN FISHERS LATEST BOOK IS MARKETS NEVER FORGET (BUT PEOPLE DO) (JOHN WILEY, 2011). VISIT HIS HOME PAGE AT WWW.FORBES.COM/FISHER.
T
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F
O
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F
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B
E
S
F
STOCKS WITH PLUMP MARGINS WILL NOW
BE THE ONES BEATING THE MARKET

ANNAPOLIS: JIM SCHWABEL; AUSTIN: TERRY VINE; BEND: JONATHAN KINGSTON; BONITA SPRINGS: PAUL AVIS; CHICAGO: DAVID JOEL; NYC: SYLVAIN SONNET; PORTLAND: DOUG VAN KAMPEN; PROVO: JOEL ADDAMS;
SAN FRANCISCO: PIERRE CHOUINARD; SANTE FE: RHONDA GUTENBERG; SEATTLE: KIRK MASTIN; ALL PHOTOGRAPHERS ARE WITH GETTY IMAGES
AZ
CA
CO
ID
KS
MN
MT
NE NV
NM
ND
OK
OR
SD
TX
UT
WA
WY
BEND
Thirty feet annually of nearby
mountain snow ensures vibrant
downhill, cross-county skiing in
outdoor playground of the West.
Fishing, hiking, rock climbing,
bicycling.
ASHLAND
Nine months a year of
Shakespeare and other
theater at heart of cultural
scene. Art galleries. Home
of Southern Oregon
University.
SAN FRANCISCO
Foodie paradise with
one restaurant for every
250 homes. Hilly mix of
culture and sophistication.
Meaningful volunteer
opportunities.
IOWA CITY
University of Iowa anchors creative
writing culture, numerous writing
programs. Honored as a
Unesco City of Literature.
OXFORD
University of Mississippi gives it classic
college-town ambience, with literary gloss
drawn from personas of William Faulkner,
John Grisham, Willie Morris.
AUSTIN
An indoor-outdoor town: 250 music venues plus University of Texas
surrounded by dozens of golf courses and soothing Hill Country terrain.
ALASKA
HAWAII
SCOTTSDALE
200 area golf courses, 330
sunny days a year. Hiking and
rock climbing big part of appeal.
Robust nightlife scene.
SANTA FE
More than 250 art galleries complement
Georgia OKeefe, other museums.
Art classes for beginners. Distinctive
architecture. Top restaurant scene.
WALLA WALLA
Next Napa? Center of 100
wineries. Vino fuels restaurant
scene. Memorable shing,
hunting and hiking around Snake,
Columbia rivers.
SEATTLE
Great salt- and freshwater sailing, 500
oating homes and top seafood
restaurants feed water-centric appeal.
Nearby mountains add skiing and scenery.
BOULDER
300 miles of hiking and biking trails within city and
ten months a year of sun. University of Colorado
anchors Rocky Mountains-framed area.
PROVO
Inviting Wasatch Mountains ofer
good winter sports, notably
skiing. Fly-shing. Home to
Brigham Young University.
ANNAPOLIS: JIM SCHWABEL; AUSTIN: TERRY VINE; BEND: JONATHAN KINGSTON; BONITA SPRINGS: PAUL AVIS; CHICAGO: DAVID JOEL; NYC: SYLVAIN SONNET; PORTLAND: DOUG VAN KAMPEN; PROVO: JOEL ADDAMS;
SAN FRANCISCO: PIERRE CHOUINARD; SANTE FE: RHONDA GUTENBERG; SEATTLE: KIRK MASTIN; ALL PHOTOGRAPHERS ARE WITH GETTY IMAGES
+
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3
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3 PASSIONS

AL
AR
CT
DE
FL
GA
IL
IN
IA
KY
LA
ME
MD
MA
MI
MS
MO
NH
NJ
NY
NC
OH
PA
RI
SC
TN
VT
VA
WI
Follow
Your Bliss
We used enthusiasts rankings
and our own metrics to iden-
tify 25 top U.S. locations for
the arts, ne dining, lifetime
learning, volunteering, out-
door water and land sports,
and, in its own category, golf.
States color coding shows tax
climate for af uent retirees.
BY WILLIAM P. BARRETT
FOR MORE INFO, GO TO WWW.FORBES.COM/BLISS
MADISON
More bicycles than cars in city with
large lakes and 200 miles of biking and
hiking trails. University of Wisconsin
provides intellectual overlay.
TRAVERSE CITY
Lake Michigan plus 150 other bodies
of water dominate aquatic mecca.
Surprisingly popular: scuba diving
around shipwrecks.
AUBURN
Warm climate nurtures robust
golf sceneonce ranked No. 1 by
Golf Digeston top of Auburn
University amenities.
ATHENS
University of Georgia ofers courses for seniors
in college-town environment. Terrain and climate
great for warm-weather outdoor pursuits.
JACKSONVILLE
Freshwater and saltwater shing
lead list of aquatic draws,
including boating, waterskiing
and ocean beaches.
BONITA SPRINGS
Boating and water-recreation
paradise along Gulf Coast near
more than 50 golf courses. Art
courses for seniors.
PINEHURST
Far more than just the
famous Pinehurst Resort,
area features 40 golf courses,
as well as schools that teach
the sport.
ARTS
BEST
TAX CLIMATES
FOR RETIREES
DINING
AVERAGE
GOLF
WORST
LEARNING
VOLUNTEERING
OUTDOOR
LAND
OUTDOOR
WATER
CHAPEL HILL
Once dubbed Americas foodiest
small town by Bon Apptit
magazine. Home of University of
North Carolina.
ANNAPOLIS
Surrounded by water on
three sides; recreational
boating and Chesapeake Bay
dominate. For novices, nine
schools teach sailing.
NEW YORK
No car needed to enjoy world-class arts, restaurants,
learning. City University units ofer tuition breaks to
senior citizens. But no real estate bargains.
PORTLAND
Coastal city ofering both water
and land recreation: boating,
kayaking, rafting, cross-country skiing,
hiking, bicycling.
CHICAGO
Far more than wind, Chicago fans every kind
of dining and the arts. Art Institute of Chicago
alone has more than 30 Monets.
ASHEVILLE
Proximity to scenic Great Smoky Mountains
ofers rafting, kayaking and mountain biking.
Hundreds of miles of hiking trails nearby.

Golden Oldies
If youre looking for an investment that throws of
both cash and good vibrations, take a page from the
songbook of ex-Wall Streeter Josh Gruss.
I
n a sunny conference room
high above midtown Manhat-
tan Josh Gruss is explaining
how to buy a song. Seems
simple enough$1.29 for an
iTunes download. But Gruss is talking
about the purchase of a much more
complicated item: the copyright for
the music itself.
Lets just say you really love the
band Tesla, he begins, looking at the
website for Ascap, the performing
rights organization, and guiding the
cursor to the search bar. And you say to
yourself, I want to buy their 80s ballad,
Love Song. Youd just simply type in
the performer Tesla. A few clicks later
a menu appears, showing that the tune
was written by the hair metal groups
front man, Jef Keith, and its guitarist,
Frank Hannon. Theres other informa-
tion, too, including contact details for
the rm overseeing the song rights.
For someone interested in buying the
groups publishing catalog, or even a
single song, that would be the most
direct route.
If you went to Tesla and said, I re-
ally love your song, I really want to own
it, and if you wanted to ofer a trophy
price, says Gruss, they might be will-
ing to do that.
He should know. Gruss, 39, is the
chief of Round Hill Music, which con-
trols nearly 8,000 copyrights, including
songs by the Rolling Stones, Frank Sina-
tra, Aero smith, Bruno Mars and Katy
Perry, as well as six of the Beatles
early hits. An ex-Wall Streeter, he
started the company three years ago
not only because of his passion for
musiche still occasionally plays
guitar in a rock band called Rubikon
but also for the prots.
The music publishing busi-
ness generates $6 billion in royalty
income per year and attracts some
savvy investors. In 2009 a Dutch
pension fund bought the Rodgers
& Hammerstein catalog. In 2012
Sony/ATV led a consortium that
included David Gefen, Blackstones
GSO Capital Partners and Michael
Jacksons estate in the $2.2 billion
purchase of EMI Music Publishing
and its 1.3 million songs.
Publishing is a great asset, says
billionaire Ron Burkle, a frequent
investor in entertainment securities.
People obviously went through a
moment in time when they thought
these assets werent going to be worth
very much because everybody was
going to get it for free.
They were mistaken. The Napsters
of the world have mostly been shut
down or transformed. Harsh penalties
for illegal downloading have certainly
contributed, but the real change comes
from services like YouTube and Spotify,
which ofer a relatively painless way to
listen to free music on demand. Thats
D
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BY ZACK OMALLEY GREENBURG
Royalty king:
Josh Gruss controls
nearly 8,000
songs, including
6 early Beatles hits.
a boon to the copyright owners, who
have long been more insulated from in-
dustry turmoil than record labels have.
The explanation traces back to the
two main nancial components to any
song: the master recording, typically
owned by a record label, and the rights
to the underlying composition, owned
by the composer and usually a music
ALTERNATIVE INVESTMENTS
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publishing company. The rights holders
split a mechanical royalty of 9.1 cents
per track sold on iTunes or CD, and
they earn a royalty every time one of
their creations is licensed for a televi-
sion ad or radio commercial. Same goes
for spins in bars, stadiums and shopping
malls and plays on Spotify. Licensing
fees for lms and TV shows can result
in six-gure payouts. Songwriters, un-
like recording artists, also get paid for
all U.S. radio plays. Happy Birthday to
You still generates about $2 million per
year in publishing royalties. For every
dollar a music publisher collects, it
typically pays out half to the songwriter
and keeps the rest for itselfwhile
maintaining the copyright, collecting
passive royalties and seeking out new
licensing deals to generate more cash.
A well-managed song can yield the
publisher and writer each a payout of
10% to 15% a year of the songs current
market valuea ratio that has stayed
fairly consistent over the past decade.
Think of it as an income play with
the potential for capital gain or loss.

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Michael Jackson famously bought a
catalog housing the Beatles biggest
hits for $47.5 million in 1985; he later
merged it with Sonys catalog, and his
estates share of the joint venture is
worth about $1 billion today.
Its very stable; its also uncorre-
lated [with equities], Gruss says of the
business, adding that global music pub-
lishing revenues dipped less than 4%
from 200810. Thats a big, attractive
factor for a lot of our investors.
So whats the catch? The biggest is
that opportunities for retail investors,
while growing, are still very limited.
One is Round Hill, which Gruss started
after working at Bear Stearns, Warner
Music Group and his familys hedge
fund. Round Hill has spent about $50
million buying publishing catalogs and
last year launched a private-equity-style
fund that allows outsiders to invest in
its copyrights. Theres a minimum in-
vestment of $1 million and hefty (albeit
standard for private equity) fees of 2%
of assets plus 20% of prots. FORBES
estimates that Round Hills annual re-
turn is about 15%. In that case, investors
would get a 10% payout. For a similar
minimum and fee, investors can buy
in through other outts too, including
Kobalt Music Group and Bicycle Music.
You can also bid on individual
royalty rights (often going for $10,000
or less) through the startup Royalty
Exchange. (You still have to be what the
SEC calls an accredited investorfor
example, with an investable net worth
of $1 million plus.)
Most of whats for sale here, says
Royalty Exchange cofounder Wilson
Owens, is the writers shareproducing
passive income, with no management
or licensing responsibilities. Songwrit-
ers sometimes sell just part of their roy-
alties; a 25% cut of the writers share of
the song U Remind Me, performed by
Usher, recently fetched a cool $113,000.
Buying individual songs associated
with unknown acts is cheaper and com-
parable to speculating in penny stocks.
In the unlikely event such a song gets
discovered and licensed in a TV ad, you
could make a killing.
For the catalogs and songs that do
generate steady royalty income, payouts
ofer the added benet of favorable tax
treatment. In the U.S. the purchase price
of a song can be amortized (written
down) over a ten-year period, making
most of the payout tax free for the rst
decade. If you sell, however, what youve
previously amortized is recaptured and
taxed at ordinary income rates of up to
39.6%; any gain above recapture is taxed
at the lower long-term gain rate that
tops out at 20%. If youre not actively
managing song copyrights as a business,
payouts and gains are also subject to
the new 3.8% net investment income
tax, says Anthony Nitti, a CPA in Aspen,
Colo. and a Forbes.com contributor.
So what about that second big
catch? Under U.S. law, written works
(including songs) copyrighted on Jan.
1, 1978 and later revert to the public
domain 70 years after the last writers
death. But writers (or their heirs)
can reclaim U.S. rights theyve sold to
publishers after 35 years. This can lead
to expensive legal battles, although as
a practical matter its mostly used by
writers to quietly negotiate a better
deal with their publishing companies.
This can reduce both the publishers
income from a song and the composi-
tions market valueanother reason to
invest in a catalog and not a single song.
Back in his conference room, Gruss
continues to explain how an individual
investor could buy copyrights directly
from a band. Still using Tesla as an
example, he scrolls down his screen and
points to an entity listed as City Kidd
Musicthe name the members of Tesla
picked for their copyrights, which they
still owned at that moment. Interested?
Too late. Round Hill has since bought
the whole catalog.
ALTERNATIVE INVESTMENTS
F
Usher
U REMIND ME
WRITERS
Anita McCloud,
Edmund Clement
PRODUCERS
Edmund Clement, Jimmy
Jam, Terry Lewis
SALES PRICE
1

$352,000 to $452,000
Earth, Wind
& Fire
SHINING STAR
WRITERS
Maurice White, Larry
Dunn, Philip Bailey
PRODUCER
Maurice White
SALES PRICE
$575,000 to $675,000
Aretha Franklin
WHOS ZOOMIN WHO?
WRITERS
Aretha Franklin, Preston
Glass, Narada Michael
Walden
PRODUCER
Narada Michael Walden
SALES PRICE
$40,000 to $60,000
Frank Sinatra
A NIGHTINGALE SANG
IN BERKELEY SQUARE
WRITERS
Eric Maschwitz,
Manning Sherwin
PRODUCER
N/A
SALES PRICE
$152,000 to $274,000

TLC
GIRL TALK
WRITERS
Lisa Lopes, Anita McLoud,
Edmund Clement, Kandi
Burruss, Tionne Watkins
PRODUCER
Edmund Clement
SALES PRICE
$40,000 to $64,000
PRICE THAT TUNE
WHEN ARTISTS MAKE A SONG FAMOUS, ITS COMPOSERS COLLECT REGULAR ROYALTIES AND SOMETIMES SELL THAT INCOME STREAM.
SALES PRICE IS AN ESTIMATE FOR WRITERS FULL SHARE. ANNUAL PAYOUTS USUALLY EQUAL 10% TO 15% OF THE SALES PRICE.
1
ALL PRICES ARE ESTIMATES BASED ON RECENT SALES OF PORTIONS OF WRITERS ROYALTIES THROUGH ROYALTY EXCHANGE; THE WRITERS AND PRODUCERS LISTED ABOVE WERENT NECESSARILY THE SELLERS IN THESE TRANSACTIONS.

INVESTING
RICHARD LEHMANN FIXED-INCOME WATCH
such as those from MLPs and REITs.
Now, 6% may sound puny in the
light of last years 30% stock market
rise. But is it reasonable to expect even
half that much from an economy thats
growing at a real return of 2%? In fact,
Im using trailing stop losses on my
stock portfolio because Im worried
about a big correction in 2014.
Theres always a chance that ina-
tion will suddenly reappear, making 6%
look totally inadequate. My approach is
to hedge with a gold bullion ETF such
as SPDR GOLD TRUST (GLD). While gold was
a big loser in 2013, down some 27%, it is
precisely at times like these when it is
cheap. Its 2013 decline reects a decline
in gold as a short-term investable rather
than a change in its fundamental value
as portfolio insurance. I recommend 5%
in gold.
Here are some of the places to lock
in that 6% return:
CaIIabIe ieeiieds yieIding
to 8% are available at or below their
call price. I like BARCLAYS (BCSPC,
7.75%), DEUTSCHE BANK (DCE, 7.35%), MERRILL
LYNCH (MERPE, 7.12%) and GOLDMAN SACHS
(GSPB, 6.2%).
CIosedend unds vilh a iedicl-
able rate of return and the ability to
correct for changes in the interest rate
outlook. These come in a variety of
specialties and ofer signicant yields
alei lheii ummeIing Con-
sider NUVEEN LONG/SHORT COMMODITY TOTAL
RETURN FUND (CTF) with an 11.2% yield,
FLAHERTY & CRUMRINE PREFERRED SECURI-
TIES INCOME FUND (FFC) with a 9% yield
and Eaton Vances TAX-MANAGED GLOBAL
DIVER SIFIED EQUITY INCOME FUND (EXG) with
a 9.1% yield.
Maslei Iimiled ailneishis
ofer attractive returns and signi-
cant opportunity for gains, especially
with the pipeline MLPs. I buy them
via closed-end funds. Two favorites
are FIDUCIARY/CLAYMORE MLP OPPORTUNITY
FUND (FMO), which yields 6.5% and uses
22% leverage. Also KAYNE ANDERSON MLP
INVESTMENT COMPANY (KYN), yielding 6.1%
with 27% leverage. If you dont like
the leverage and want more favor-
able tax treatment of dividends buy
ENTERPRISE PRODUCTS PARTNERS (EPD, 66),
ENERGY TRANSFER PARTNERS (ETP, 54), PLAINS
ALL AMERICAN PIPELINE (PAA, 53) and KINDER
MORGAN ENERGY (KMP, 80).
I expect that year-end 2014 will see
interest rates close to where they are
today. That makes investments yielding
6% something you can both live on and
sleep with.
THE 6%
SOLUTION
RICHARD LEHMANN IS EDITOR OF THE FORBES/LEHMANN INCOME SECURITIES INVESTOR AND AUTHOR OF INCOME INVESTING TODAY (JOHN WILEY & SONS, 2007).
FOR MORE INFORMATION FOLLOW HIM AT FORBES.COM/LEHMANN.
ITS A CRITICAL ELECTION YEAR, SO IF
STOCKS FALTER YELLEN MAY BE PRESSURED
INTO FALLING BACK INTO THE QE GROOVE
F
INCOME INVESTING was the Rod-
ney Dangereld of the market in 2013.
Only gold got less respect. My FORBES
picks sufered last year, with a 4.7%
loss, mostly occurring after Ben Ber-
nanke made his hasty tapering com-
ments last May. This year will be better
for both gold and bonds, despite the
prospect for rising interest rates.
Dont worry about a Bernanke taper
bluf in 2014. I think we will see fewer
headlines under Janet Yellen as Federal
Reserve chief. Since Bernanke man-
aged to relaunch tapering without the
expected volatility, it is unlikely that
Yellen will want to change course. But
then, its a critical election year, so if
stocks falter Yellen may be pressured
into getting back into the QE groove.
Deleveraging will continue in 2014
as hedge funds and others continue
to sell bonds, unraveling their inter-
est rate arbitrage plays. Thankfully the
strong dollar will continue to attract
foreign capital, and the slowing bull
market in stocks will mean less capital
eeing bonds. As for political stubborn-
ness, there appears to be an increased
avaieness by Congiess lhal comio-
mise is not a four-letter word, but
Iose is AII lhis shouId voiL lo Lee
bond price volatility to a minimum.
Believe it or not, its still possible to
build a reasonably safe income portfolio
yielding north of 6%. This will provide
plenty of protection against a rise in
rates. Your primary focus should not
be on duration, quality, coupon rate or
a strategy such as laddering; the key
element is diversication, not only by
market sector but also by security type.
Its important to remember that income
also comes from dividends, capital gains
and cash-ow-dependent distributions,

INVESTING
WILLIAM BALDWIN INVESTOR CHECKUP
ARE YOUR FINANCES too com-
plicated? This isnt just a question
about your portfolio. Its about your
personality.
Some people relish opportunities
to beat the system. Theyll jump on
a nifty tax trick or a way to shelter
assets on college aid forms. Some
people do not. Whatever dollars they
might get out of exotic strategies are
not worth the mental wear and tear.
If you are in the latter category,
this column is for you. It will give you
a simple buy-and-hold portfolio for
your retirement account. It will give
you a list of tax complexities to avoid.
I am as guilty as any fast-talking
planner of adding complexity to per-
sonal nance. The story on page 82
explains the Roth optimization game.
Should you play? Maybe; the sums
involved are very large. But maybe
youd be happier giving this brain-
teaser a pass. It depends on what you
want out of life.
Some years ago I heard a preacher
decrying careerism. He talked about
a man whose success came at the ex-
pense of time with family. Then came
a cancer diagnosis, and the fellow
devoted his considerable resources
and talents to trying, in vain, to delay
the inevitable. What is the point of
all the striving? the preacher asked.
Why spend most of your life trading
time for money, only to spend the last
six months of it in a desperate bid to
trade money for time?
It is easy to make the mistake of
striving too hard with your invest-
ment decisions. Recently a prosper-
ous dentist asked me about how to
liquidate some of his retirement
account. Following the advice of an
expert, he had maximized his contri-
butions by creating a dened ben-
et plan. Now he needed a chunk of
capital and couldnt get at it.
The dentist had paid a penalty in
the form of actuary and legal fees to
get the money into the super-duper
retirement plan. But since he wasnt
yet 59
1/
2
, he was going to pay a tax
penalty to get the money out. Hed
have been much better of putting his
spare cash in a brokerage account.
If youd rather not spend your free
time hunched over spreadsheets, take
some preventive measures to keep
your portfolio simple.
Put your 401(k) contributions
entirely in index funds: half in U.S.
stocks, a third in bonds and a sixth in
foreign stocks. If you have access to
exchange-traded funds, the tickers for
these things are VTI, BND and VXUS at the
Vanguard Group and SCHB, SCHZ and
SCHF at Charles Schwab.
Dont rebalance this account. Dont
look at the balance more often than
once a year.
Never buy a tax shelter or invest-
ment real estate. Dont invest in a
hedge fund; youll lose sleep wonder-
ing if you have the right one.
Master limited partnerships are
not for you. If you buy through a fund
you lose the tax benets, and if you
buy directly you wind up with K-1
forms and accounting bills. For your
energy sector exposure just buy a
stock like CHEVRON (CVX, 111).
Dont have a nondeductible IRA;
the small tax benet isnt worth the
paperwork. Dont own cash value life
insurance. Buy cheap term insurance
and put the extra cash in a brokerage
account.
Dont set up a trust. If you are
worth less than $10 million, dont
have an estate plan beyond a simple
will that leaves everything to your
spouse and, as contingent heirs, your
children (see related story, p. 86).
Whats the wealth reduction from
this kind of simplicity? Just some pro-
bate court fees and a state inheritance
tax, which is surprisingly low in most
of the country.
Will your children forgive you for
not optimizing your estate? Probably.
Will they forgive you for not hav-
ing time for their soccer games?
ZEN
INVESTING
GO TO FORBES.COM/SITES/BALDWIN FOR MORE ON TAX-WISE INVESTING STRATEGIES.
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SEEK INNER PEACE.
ELIMINATE SOME ACCOUNTS
GO TO FORBES.COM/INVESTORCHECKUP FOR MORE YEAR-END TAX ADVICE.

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cially open until the spring.
The property itself has led several previous
lives, but so far perfection has been elusive. The
original owner, Swiss-Italian banker Antonio
Saladino, attempted to capitalize on Canouans
abundant island charm with previous hotels, all
of which failed, a fact that obviously didnt dis-
suade Desmond.
Saladinos rst attempt in 1999, Carenage Bay
Beach & Golf Club, was constructed as a mul-
ticolored doppelgnger of the Sardinian resort
Porto Cervo and designed by the same architect.
It was a miss: The hotel was too big156 rooms
in 61 spread-out villasand clumsily designed.
The villas were nicknamed the bunkers. Add
to that the limited ights to Canouan, insuf-
cient to ll 156 rooms, and a marketing strate-
B
illionaire Irish nancier Dermot
Desmond, founder and chairman
of the Dublin-based private equi-
ty rm International Investment
& Underwriting, is a busy man,
but when it came to selecting salt and pepper
grinders for his new Caribbean resort, the Pink
Sands Club on the island of Canouan in the
Grenadines, he tested 29 versions before green-
lighting the (presumably) perfect pair. He is
so detail-oriented, says the resorts sales and
marketing director, Patrice Van Isacker. He
wants everything to be perfect.
Thanks to Desmonds credibilityhe also
owns the venerable Sandy Lane on Barbados
the ambitious, $120 million Pink Sands is al-
ready widely anticipated, though it wont of-
TRAVEL
A Splash in the Grenadines
BY LAURIE WERNER
Irish billionaire Dermot Desmond made Sandy Lane a Caribbean legend. Now
hes trying to turn a cursed piece of paradise into something even more luxurious.
Sandy Lane sister:
Desmond spent an
estimated $120 million
to build the Pink Sands
Club on Canouan Island.
FORBES LIFE

suites (and only suites), each measuring a min-
imum of 1,300 square feet, plus 20 sprawling
villas, all new or thoroughly redesigned. You
can get an idea of the resorts ambitions from
its published rates ($2,050 to $5,300 per night
for the suites; $10,000 to $22,000 for the vil-
las), which, in high season, are higher than
those of Sandy Lane, Necker Island and other
chic Caribbean enclaves. In addition to the
golf course, the spa and four restaurants, what
youll get for your money are design elements
generally seen in the elite hotels of New York
and London, not in a small Caribbean hide-
away: the highest-quality mahogany furniture,
cool, gray Carrara marble and a range of high-
tech accessories, including a mirror that, with
the touch of a button, turns into a TV set and
with another touch reveals the living room.
Every element was sent during every stage to
Desmond for his approval. He really only want-
ed the best, says Van Isacker, pointing out the
Pratesi bed linens, which are priced at nearly
$2,000 a set. Desmond wanted the rooms to be
user-friendly, so he built a model suite in Milan
and had focus-group guests stay in it for sever-
al months to test the accommodations. Still, the
place had some bugs to work out. Construction
problems and complications with new technol-
ogy that uses iPads to operate everything from
the sliding doors to booking spa appointments
forced the Pink Sands Club to delay its planned
December opening.
One part of the construction that went
smoothly was the extension of the airport run-
way to accommodate private jets. (If traveling
commercially, guests y to Barbados and are
transferred by private jet.) The Canouan run-
way also neighbors an 80-berth marina that
will be able to accommodate 100-meter yachts
when it is nished in early 2015. The idea, ac-
cording to Van Isacker, is that you can y in on
your jet and go directly to your yacht. The top-
to-bottom reimagining of Canouan is undoubt-
edly an upgrade, but the question remains: Will
Desmonds enhancements entice the Sandy
Lane set to this small island when all previous
attempts have failed? It is over-the-top gor-
geous, [with] quality that I have not seen in
a long time, says Albert Herrera, senior vice
president of Global Product Partnerships of Vir-
tuoso, who believes the resort has the poten-
tial to become something like Sardinias VIP-
magnet, Costa Smeralda. It brings a whole new
level of sophistication to the Caribbean.
gy aimed at Europe but not the much closer U.S.,
and the result was low occupancy numbers.
Then Rosewood Hotels & Resorts came along
in 2000 to manage the property and step up mar-
keting eforts to U.S. travelers, but that tenure
lasted only 15 months, and the resort closed to
regroup in 2002. Two years later another major
hotel brand, Raf es, came in and changed the
look of the resort , bleaching out the Sardini-
an colors for softer tones while bringing in the
Trump Organization to operate a casino and a
golf course designed by Jim Fazio. Raf es best
eforts didnt work out, either.
When Raf es exited in 2010, Saladino
began casting about for a partner. Enter Des-
mond, who bought in on a 50-50 basis and
began some three years of construction.
Desmond was taken with Canouan, a ver-
dant, hilly island with beautiful beaches, a cor-
al-reef-protected turquoise lagoon and very lit-
tle development. Its the perfect equilibrium,
says Pink Sands Club General Manager Jef
Morgan, who came over from exclusive Par-
rot Cay in 2013. Predevelopment but not a pile
of sand. There is a village here, so you get a real
sense of Caribbean island charm.
The new partnerships rst move was to
tear down most of the previous hotel and build
a new one in a diferent locationDesmond
and his partners own 1,200 of the islands 1,800
acresdirectly on pristine Godahl Beach. The
size was also downscaled dramatically: 26
Sand castles: Each of the Pink Sands Clubs 26 suites and
20 villas comes with a view of the ocean.
What the 63 million
Forbes.com users are talking
about. For a deeper dive go to
FORBES.COM/LIFESTYLE
TRENDING
PERSON
BRUNO MARS
The Seahawks ran away
with Super Bowl XLVIII,
but Mars mightve been
the biggest winner. The
28-year-olds dynamic
performance will boost his
concert sales and likely
land him on FORBES
highest-paid-musicians
list for the rst time.
COMPANY
CVS
It will stop selling tobacco
products by Oct. 1, costing
the company an estimated
$2 billion annually. To
make up for kicking the
habit, CVS will ofer a new
business: ofering patients
smoking-cessation
therapy.
IDEA
COLOR PSYCHOLOGY
Want to take a company
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ing to color psychologists
at Design Within Science,
green sparks creativity, pink
is calming, white leads to
boredom. The best option?
Change colors oftenbut
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Are Annuities Right for Your Retirement?
If you own an annuity or if
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Forbes Portfolio Strategy
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Please hurry! This offer contains time-sensitive information.
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What You Might Not Know about Annuities
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Before you put your hard-earned money into an annuity, or if you already own one,
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The different types of annuities and the advantages and disadvantages of each
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Gray hair is Gods grafti.
BILL COSBY
THOUGHTS
Havent the paladins of the elderly, lobbying organizations
from the Gray Panthers to the AFL-CIO, convinced the nation
that its senior citizens are wracked by infation, trapped in
squalid rooms, with only old newspapers wrapped around
their legs and a bowl of dog food to keep cold and malnutrition
away? In fact, that image of poverty is false.
FROM THE FEB. 18, 1980 ISSUE OF FORBES
To keep the
heart unwrinkled,
to be hopeful,
kindly, cheerful,
reverentthat is
to triumph over
old age.
THOMAS BAILEY ALDRICH
Now, aged 50, Im just poised to shoot forth
quite free straight and undefected my bolts
whatever they are.
VIRGINIA WOOLF
Old age is the most unexpected of all
the things that can happen to a man.
LEON TROTSKY
Old age comes at a bad time.
SUE BANDUCCI
To me, old age is always 15 years older than I am.
BERNARD BARUCH
Old age is always wakeful; as if,
the longer linked with life, the
less man has to do with aught
that looks like death.
HERMAN MELVILLE
Old age has
its pleasures,
which, though
diferent, are
not less than
the pleasures
of youth.
W. SOMERSET
MAUGHAM
FINAL THOUGHT
Age isnt important until you run out of it.
MALCOLM FORBES
SOURCES: THE COLUMBIA DICTIONARY OF QUOTATIONS; THE INTERNATIONAL THESAURUS OF QUOTATIONS;
THE NEW INTERNATIONAL DICTIONARY OF QUOTATIONS; THE OXFORD DICTIONARY OF HUMOROUS QUOTATIONS;
THE 2,548 BEST THINGS ANYBODY EVER SAID.
Being over 70 is like being engaged in a war.
All our friends are going or gone and
we survive amongst the dead and
the dying as on a battlefeld.
MURIEL SPARK
ON AGING
100-MILLION-SHARE DAYS January 1980 has a good chance of going
down in history as the weirdest stock market month ever. Gold doubles and
the Dow Jones soars. The Russians crush Afghanistan, and the new-high list
lengthens. Iran refuses to release the hostages, and the tape runs 20 minutes
late due to upside buying pressure. Whoever said that the stock market
doesnt like uncertainty must have been smoking something funny.
IMAGINEA WASP MIGHT MAKE IT George Bush is apparently
of the pad. Mebbe brains and backbone will overcome the presumed
political disadvantagethese daysof WASPness.
OTHER THOUGHTS FROM THAT ISSUE:

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How smarter research helps us fnd opportunity.
A few times a year, T. Rowe Price media and telecom analysts get together with college
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The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which is the approximate
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funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility over shorter
time horizons. *Based on cumulative total return, 12 of 12, 12 of 12, 12 of 12, 5 of 5, and 6 of 7 (86%) of the Retirement Funds for individual investors outperformed their Lipper average for
the 1-, 3-, 5-, and 10-year and since-inception periods ended 12/31/13, respectively. The Retirement 2010, 2020, 2030, 2040, and Income Funds began operations on 9/30/02; the 2005, 2015,
2025, and 2035 Funds began operations on 2/29/04; the 2045 Fund began operations on 5/31/05; and the 2050 and 2055 Funds began operations on 12/31/06. (Source for data: Lipper Inc.)
T. Rowe Price Investment Services, Inc., Distributor. RDFT082149
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