COBURN VENTURES LLC
WINDERMERE, FLORIDA

“The significance of crisis is the indication they provide that an occasion for retooling has arrived…” The upshot — We want to identify changes important enough to change valuation. So we are looking for changes that affect a sector or a specific stock such that the relationship of money heading into the “box” relative to money coming out of the “box” is significantly altered. Either the change causes the relationship of money into the “box” to money coming out of the “box” to improve or worsen. It could be a new product cycle … a management change … significant share gains … business model restructuring … So, If a company beats a quarter by a penny, we are interested to know if something significant is in the works. If there is not, then we will let the traders do what they choose. That situation won’t match our philosophy unless we see an interesting and substantive fundamental change we suspect is lasting. We are grounded by working in a user-oriented Change Framework model as opposed to a vendor-driven supplier model We have written thousands of pages on what we have termed The Change Framework, and that writing has helped ground us inside the world of Change. So …while most investors fail to trust a single investment philosophy, we have become grounded in the one we have chosen: “change.” We have studied Change vigorously and have developed our own philosophy on why change does and does not happen. In doing so, we have not only grounded ourselves at the investment philosophy level but we have also burrowed deeper and deeper into change — to more deeply gain an understanding of the roots of our philosophy. However, a key problem – for starters – is that most potential users of technology products are quite afraid of new technologies. The creators are not afraid, but the users are, and it is the users who matter. SO it seems obvious to creators that this new thing will sell, and then, it doesn’t. Even during the fabulous 90s when nine or 10 technologies finally hit a major commercial inflection, most of the emerging technologies failed to get anything resembling lift off. We have written extensively on 10 failures of the last decade and in no case was technology the problem. All the technologies worked. The engineers indeed developed a cool massive disruptive so-called 10x change in technological capability. My 14-year-old nephew Dylan may have a desire to have all his music with him at all times. He may be a candidate for an iPod. If he views the total pain of adopting an iPod into his life as higher than his crisis of not having all his music with him at all times, then no change will happen. But, if the crisis is greater than the total perceived pain of adoption, then Apple will be able to sell Dylan an iPod. So… let’s suppose Dylan and my 78-year-old Uncle Jerry have precisely the same desire to have their music with them at all times. Then let’s suppose I offer to help them set up an iPod. I first tell them to go get all their CDs cuz they will need to load them on their computer. Dylan scurries off to get his vast collection. Uncle Jerry says no thanks. He is far more terrified of interfacing with a computer than Dylan. Dylan adopts. Uncle Jerry doesn’t. Uncle Jerry’s total perceived pain of adoption is higher. Identify products, services, markets that will be affected positively or negatively based on a change at NODE #1. Example: The Flat Panel TV market is booming thanks to the NODE #1 shift around society’s Addiction to Video… Identify companies that will be positively or negatively affected based on a change at NODE #2. We look for companies that will generate an unfair sustainable competitive advantage or will be in the process of losing one. Example: Corning as a glass provider to the flat panel TV makers. Identify the degree of leverage in the business models and valuation “leverage” for those companies experiencing dramatic change at NODE #3. Do earnings estimates fully account for the monumental change happening in NODES #1 thru 3? Will there be valuation expansion as the change takes place? Example: Corning had NODE #4 leverage until they ran into the same ASP pressure that was affecting the rest of the supply chain. We expect that the Digital Natives and Digital Immigrants will affect the social and business norms at an accelerating pace thus creating a peer pressure directed toward the Analogists. We expect an incredible migration of Analogists during the next 5-10 years. During that period the population will take on many of the attributes of the Digital Natives. The population as a whole will be able to adopt new technologies at an accelerating rate. The population will also adopt accelerated manifestations of other NODE #1 monumental shifts. The way the population as a whole exhibits the following shifts will accelerate dramatically: Addiction to Communication, The Free World, Extreme Personalization, Extreme Mobility, The Faster World, Addiction to Image/Video… The good news is that when Analogists fully Immigrate to the Digital World this fear of Data is radically reduced and greater adoption can then occur of many many products and services and ideas. So in 2004, who do you think would more easily “get” the idea of bringing all your music (data) with him: Uncle Jerry or Dylan? Dylan. But once Uncle Jerry decides to fully engage in learning the iPod from start to finish his fear of DATA would drop and he would be a better candidate for other products and applications such as, for instance, a personal video recorder. Coburn Ventures We study monumental change in companies, markets and society to better understand the powerful forces shaping business. We use this thinking as the starting point to generate high conviction investment decisions. We provide our thinking and specific investment advice to institutional investors across sectors and companies worldwide. That failure rate is consistent with the hatred and distrust most normal human beings —which I like to call Earthlings — tend to have of high technology. That hatred and distrust is a bummer since our little planet can use all the help technology might provide.