Tag Archives: Business

Flash of genius?

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I was watching the Greg Kinnear movie: Flash of Genius.

It’s the one where an academic engineer beats the giant auto makers in the ’40s to inventing the intermittent wiper that you see on your car.

In case you are thinking of starting a patent-based business … don’t.

To understand why, please watch the movie; you’ll see a man’s solitary struggle over 20 years to (luckily, successfully) enforce his patent rights against a giant corporation (in this case, Ford).

You’ll also get a bit of a wake-up call about the legal profession (they will aim to settle a case early, so that they get their 30% quickly).

But, what piqued my interest was the characterization of the man at the center of the story:

He (according to a screen play that probably had very little to do with reality) suddenly got the notion that fixed speed wipers were stupid, so he immediately – and, I mean that night (!) – set about solving the problem.

Now, I suddenly realized that man is me!

Case in point:

I created a little e-book some time ago for an online experiment that I was running for you guys; I actually gave the e-book away on this site but – for the purposes of the experiment – sold it for a few bucks a copy on a site that I set up for that purpose.

Well, I’d been selling a few copies along the way … but, the experiment served it’s purpose, and I almost forgot about the book.

But, it’s good! A simple, concise overview of everything that we talk about on this blog.

So, on Thursday night, I suddenly get the idea for a site called “little free book”; I thought: “why not give this little book away to everybody … heck, I don’t need the money”.

By Monday morning (that’s now), I have all of the pieces in place: book; graphics; web-site; twitter account; and, Facebook ‘fan ‘page‘.

I have two points that I would like to make:

1. It’s really easy to set yourself up on the Internet, especially if you have a blog: you have plenty of knowledge collected in your own blog (on whatever that subject may be) to create your own for-free and/or for-fee information products.

If I can get all of this up and running BY MYSELF over one weekend, surely you can do the same over a week or two? You may not make much money (or, you may make a lot!) but, you will gain a huge amount of experience with ‘new media’ and ‘social media’ … as well as business.

You might even make enough money to kick-start some other business and/or investment program.

2. What I don’t have is any clear strategy of what to do, other than give these books away to as many people as possible.

But, that’s OK … you read the book by  Ready, Fire, Aim by Michael Masterson didn’t you? If you haven’t, the message is clear: any ACTION is better than no action.

Now, that the site is out of my head and onto the virtual ‘paper’ of the Internet, I have PLENTY of time to cogitate on all the potential strategies and counter-strategies of what I might/should/won’t/shouldn’t do with the Little Free Book.

But, until I got SOMETHING going, I really didn’t have much to think about, did I?

Oh, if you don’t already have my e-book, I would love for you to download a copy for yourself, and even send this link: wwww.littlefreebook.com to your friends.

I would also LOVE for you to click ‘like’ on my new Facebook ‘fan page’ that I set up specially for this book: http://www.facebook.com/pages/Little-Free-Book/119974768055224 and, encourage your Facebook friends to do the same.

And, if you are a fellow blogger, you already know what to do …

But – and, this is a big BUT – only if you like the book … and, me 🙂

This will teach you all you need to know about marketing your product or service …

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PAY CLOSE ATTENTION TO THE NARRATOR’S INSTRUCTIONS!

After you’ve seen the video, read on:

I said that if I found a video that was a real cracker, I would do one of my famous-in-my-own-lunchtime Videos on Sundays …

… well, I found this one on Youtube.

In fact, it’s the exact same video that I used to show students of our training division (before I gave it away to my ex-business-partner).

If you want to learn about WHY this works and HOW you can use these concepts in your own marketing, read Ramit Sethi’s spot-on post:

http://www.iwillteachyoutoberich.com/blog/why-personal-finance-experts-continue-writing-worthless-advice/

But, first be sure to let me know what you thought of this video!

Riding the profitability curve …

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Take a look at the chart on the left … yes, the one that I’m busy drawing for you 😉

… because, if you’re in business – or aspire to be – whether online or offline, this is a lesson that you simply have to ‘get’ … and, early:

For those of you who have been to business school, there is a space between the sales [blue] and expense [red] lines called PROFIT.

Profit is for growing the business and returning value to the shareholders.

But, in a small business it’s mostly known as OWNERS’ SALARY, because the owners live off this instead of taking a wage … and, it’s usually (barely) enough to fund their ever-growing (assuming the business is becoming more and more successful) lifestyle.

Instead, it should be known as CAPITAL.

You see, large businesses (particularly publicly listed ones) find it easy to raise capital: they simply issue stock.

They trade bits of paper (stock) for more bits of paper (cash) to go ahead and do all the things they need to do in order to expand their businesses (e.g. buy new machinery, open new branches, fund acquisitions).

But, small business owners can’t do that … it’s very hard to raise money as a small business owner, for anything … including expansion.

So, my advice is to fund your own expansion, by retaining profits (instead of spending them on yourself) and using those retained profits to grow the business.

There’s your capital!

Fellow Aussie and business/success coach, Jon Giaan (knowledgesource.com.au) similarly advises aspiring business owners:

When starting a business, most people focus on generating income and lose sight of their long-term goal of having a successful and ‘sustainable’ business that will provide freedom, independence, wealth and support many years into the future. Keep focused on building a long-term asset.

No doubt this is true; Maslow’s Hierarchy puts food/shelter/clothing right at the top …

But, once your business has grown to supporting those needs, your mind starts to look at wants, and before you know it, you NEED your business just to survive mortgage payments, expensive car leases, private school/coach/country club fees, and the list goes on.

Right from the beginning, we had a different view, one that saw the owners of an [eventually] profitable business jointly deciding that the partner not working in the business – my wife – still needed to work her $60k – $90k per year ‘day job’ (as an IT Project Manager with a major telco).

The reason was exactly as Jon says: we wanted to keep “focused on building a long-term asset”.

We knew that it was only by reinvesting the cashflow produced by the business – both within (reinvesting in the business) and without (buying good quality buy/hold real-estate and other investments) that we would eventually reach our Number.

[AJC: Right there, in a nutshell is how we reached $7m7y: use the cashflow from the business to invest instead of spend. A side benefit being that we didn’t need to rely on the ongoing success and/or sale of the business to reach our Number. Too easy, huh?]

In fact, we eventually blew our first $7m7y out of the water … but, that’s a whole, other story 🙂

There IS an entrepreneurial bug!

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This post has been featured in the Carnival of Wealth: http://personaldividends.com/news/admin/carnival-of-wealth-august-7-2010-edition

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People often say that they have been “bitten by the entrepreneurial bug” … and, I can say that is perfectly true!

I always wanted to be a ‘millionaire by 30’, but I missed my first million and jumped straight to making my 7th by the time I was 49 😉

But, that did not translate directly into wanting to be an entrepreneur; in fact, I was working for a Fortune 10 company and happily dreaming about becoming its CEO (“one day”) …

… apart from one or two disastrous years, I had a charmed time there, winning ‘bonuses’ left, right, and center – and, traveling around the world on the corporate budget, having the time of my life.

But, that all changed by Work Year 6.

Suddenly – and, I mean suddenly and inexplicably – I was struck with the desire to be in my own business. Almost literally, I was bitten by the entrepreneurial bug!

From that point on, I was miserable in my job … I schemed and planned my way to a myriad business ideas that I couldn’t quite translate into a real business.

In the end, I wimped out and joined IDB.

Yep, the Great Entrepreneur was In Dad’s Business!

Thankfully, that business promptly went broke leaving me with nothing but a $30k debt and a customer list, which I turned into a ‘cloned’ business (i.e. same customers, same concept, very similar name) that I still own, nearly 20 years later. And that business helped to fund the ‘other business’ that took me to the USA.

So, I guess I found the true Entrepreneur Within, after all …

But, what I wanted to share was my thought process, all those years ago when I was still at my ‘desk job’:

I wanted to be in business, and all I knew was IT (information/computer technology), so here were the choices that I came up with:

1. Consulting: as I mentioned in passing, in a recent post, I was something of a ‘world expert’ in my little niche so consulting was a natural first choice for going it alone. But, I realized that I would still be trading hours for dollars.

The formula is (from memory) 1440 possible working hours of the year – hours lost due to marketing, administration, and time off x billable rate = MAXIMUM total revenue. Plug any number in that you like, and it doesn’t add up to $7m7y.

2. Sell something: The only thing I knew how to sell was computers, and the only ones of those that I would likely be able to get a licence to sell would be PC’s. Unfortunately, I could see a price war and shakeout happening which would crush the small guys (this certainly happened).

3. Build something to sell: Again, the only thing that I knew was software: I could develop a piece of software and sell it. Unfortunately, every piece of software has a lifecycle … when the better one comes along, I’m toast.

There was my dilemma …

Fortunately for the world, Mr Price and Mr Coopers didn’t think about the consulting equation before starting PWC (one of the world’s biggest consulting companies before selling off to IBM).

Equally fortunately, Steve Jobs didn’t worry about costs and margins when creating the Apple 1 and 2 – then Lisa and Macintosh – computers and offering them to the world.

Perhaps unfortunately for the world (if you’re a M$-basher), Bill Gates didn’t think about obsolescence before licencing his piece of of software to IBM, then others.

Bottom line: if you’re passionate about an idea, give it a go … you’ll find a way to make money if the idea is good enough. If not, what you learn will be worth the ‘cost’ in lost time/money.

The Murphy’s Law Fund

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Scott who – in my post proposing a Zero Dollar Emergency Fund – says:

I’ve given this topic a lot of thought and how do you feel about seeing a typical ‘emergency fund’ as more of a temporary ‘war chest’? In that, you are building up this cash savings reserve as fast as you can, while you scout for that next great investment opportunity (ie; stock in that excellent undervalued company that you researched, or that terrific foreclosure that you’ve scouted out in a great area that you want to purchase and turn into a rental property, or an excellent business idea or perhaps funding the expansion of your current business).

I figure that way, this money has a specific target(high returns that are more likely to get you to your number by your date) BUT, in the meantime, if Murphy pays you a visit while you’re building up this ‘war chest’, you have some liquidity(ie; emergency funding) to tackle that emergency. But, as soon as you have enough built up to take that next investment opportunity, take it with this money!

The short answer is that Scott has some cash lying around, and hasn’t yet figured out what to do with it. An ’emergency’ pops up, so the logical thing to do is to dip into that cash and use it to solve the problem.

I don’t have any issue with that: but it isn’t an Emergency Fund. It also isn’t a ‘war chest’. It’s just some spare cash lying around …

Of course, I’m overstating things for dramatic effect, here 😉

So, let’s take a look at the following graph to see what may be happening [AJC: I’ve adapted this graph from something to do with the ‘mating cycle of dogs’ that I found on Google image search, but I think it suits our non-canine purposes just fine!]:

Let’s pretend for a minute that this graph represents the amount of ‘spare cash’ that Scott has lying around (Y-Axis) at any point in time (X-Axis):

Scott starts building up his savings, has a little glitch as he realizes that he forgot to pay his car insurance premium by installments so he has to pay it all at once, then steadily builds up again until it reaches Scott’s ‘peak’  – his ideal Emergency Fund of $10,000.

Then Scott hits paydirt: an idea for a new online business, and he starts to spend that $10k on programming, domain name registration, hosting, Google Adwords and all the other stuff needed to get the ‘side business’ off and running. A couple of months and $9k later, Scott’s business is paying it’s own way [AJC: well done, Scott!].

Great, now Scott can start building that Emergency Fund again …

Do you see the problem?

The only time the Emergency Fund is adequate is between the time that Scott has managed to save up the full $10,000 and the time he starts spending the money on something else (in this case, his new business idea; it could easily have been a vacation, new car, girlfriend, or …?).

[Sigh] If only Life’s little ’emergencies’ knew how to fit into Scott’s calendar [double sigh]

I guess it’s up to me to propose a better solution …

Next time 😉

Monetizing your passion …

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If you want a business but don’t know where to start, think about monetizing your passion.

By that I mean, find out what it is that you like to do in this world (golf? personal finance? knitting?) and parlay that into a business.

Here’s somebody who turned a passion (and talent) for jewellery made from twisting little silver-plated wires into a $600k+ p.a. online business that teaches others how to do the same!

That’s why I recommend that you start today …

… whether you have any idea what/how to start your business or not, start by writing a blog.

It can tell others how to do whatever it is that you do (if you are already an expert), chronicle your own journey to ‘expertness’ (great way to get started, even if you don’t know much about your passion at all), or it can simply be a collection / review of others who are experts.

Down the track, you’ll have enough randomized blog entries to create some of your own information products … all neatly reviewed, scrubbed, and honed with the volunteer assistance of your readership.

What do you think I’ve been doing with this blog all of this time? 😉

Seriously, if you think this is hard, check out this story of a 9 y.o. who decided to (successfully, I believe) help pay for his own heart operation by writing/selling an e-book:

http://steve-olson.com/9-year-old-helps-pay-for-own-heart-surgery-by-publishing-estory/

Inspirational, true story even without the business/money lesson that I had to wrap around it!

Lying in a job interview …

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… don’t.

If you don’t understand why lying to anybody about anything is a Very Bad Thing, please unsubscribe from this blog … I don’t want to financially arm a lying, cheating scoundrel, you’re dangerous enough without money 🙂

This could be my shortest post ever, so let me pad it out with a very-slighty-related anecdote:

One of my friends was offered a promotion, so he had a ‘salary negotiation’ meeting with the CFO of the company (also a very nice guy and also a personal friend, which makes this all the more funny to me).

After a suitable opening discussion, the CFO reached into his briefcase and pulled out an Offer Letter with the proposed new salary on it, and signed by the CEO.

Pretty official … end of discussion.

Except the payrise was trivial (like 5%) and involved a relocation; naturally, my friend pointed out to my other friend (the CFO) how inadequate the payrise was.

No problem.

The CFO merely reached into his briefcase and pulled out a second letter! Neatly typed and also signed by the CEO … sneaky, huh?

Only problem was that this offer was still too low, and my friend told him so.

No problem.

The CFO reached into his briefcase and pulled out a third signed letter!

I wonder how many more signed ‘official’ letters were sitting in there?

Unfortunately, we’ll never know because my first friend stopped there and my other friend (the CFO) ain’t telling.

If there is a message in all of this: negotiate the hell out of all job/business opportunities (without being a pain the the a…), but please don’t lie about it.

5 Secrets Of Self-Made Millionaires

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I’m a voracious reader of anything that purports to teach you how to be rich … when I needed to learn, I read everything hoping to find ‘the answer’ … and, after I made it, I continued reading (but, I must admit that I am more discerning now) mostly out of curiosity (to see what others are saying).

In both cases, I was almost invariably disappointed … hence this blog.

But, I was pleasantly surprised to read an article with a [groan] headline: 5 Secrets of Self-Made Millionaires …

… it’s actually not that bad. Not rocket-science, but not anywhere near as bad as most similar articles and books are.

Here are the 5 ‘secrets’ and my take on each:

1. Set your sights on where you’re going

T. Harv Eker, author of Secrets of the Millionaire Mind [another groan] says:

The biggest obstacle to wealth is fear. People are afraid to think big, but if you think small, you’ll only achieve small things.

Wanting to be wealthy is a crucial first step.

I obviously agree; if you don’t understand why, you must be a new reader [Hint: It’s to do with discovering your Life’s Purpose and Your Number / Date]

2. Educate yourself

You’re reading this blog post … and, I wrote it, didn’t I? ‘Nuff said 🙂

3. Passion pays off

See 1. above … ZZZZZzzzzzzzzzz

4. Grow your money

Well, d’uh!

But, Loral Langemeier, author of The Millionaire Maker, adds something sensible:

The fastest way to get out of that pattern [the never-ending cycle of living paycheck to paycheck] is to make extra money for the specific purpose of reinvesting in yourself.

[AJC: I would delete the last two words, which are hokum; it doesn’t cost much to “reinvest in yourself” except time … for example, this blog is FREE].

I like this part [AJC: I bolded the part that I like the best … I like it, because I did it, too; that’s how I raised the capital to expand to the USA i.e. from profits left in the business]:

A little moonlighting cash really can grow into a million. Twenty-five years ago, Rick Sikorski dreamed of owning a personal training business. “I rented a tiny studio where I charged $15 an hour,” he says. When money started trickling in, he squirreled it away instead of spending it, putting it all back into the business. Rick’s 400-square-foot studio is now Fitness Together, a franchise based in Highlands Ranch, Colorado, with more than 360 locations worldwide. And he’s worth over $40 million.

I also like:

If you want to get rich, you need to pay yourself first, by putting money where it will work hard for you—whether that’s in your retirement fund, a side business or investments like real estate.

5. No guts, no glory

If there’s any one secret in all of this, it’s this one:

Iif you are a timid mouse (like me), you either have to learn to roar (like I had to) or learn to live with a Small Number / Never Date.

Getting the Life’s Purpose ‘religion’ is one way to put the fire in your belly … it worked for me.

Oh, and they leave the best secret to last (at least the author feels it’s the best), which is funny because this would then be Secret # 6:

The Biggest Secret? Stop spending.

I agree with everything AFTER the ‘?’ above 😉

If you don’t have the money to invest, don’t spend … it’s simple!

But, I don’t agree with this:

Every millionaire we spoke to has one thing in common: Not a single one spends needlessly. Real estate investor Dave Lindahl drives a Ford Explorer and says his middle-class neighbors would be shocked to learn how much he’s worth. Fitness mogul Rick Sikorski can’t fathom why anyone would buy bottled water. Steve Maxwell, the finance teacher, looked at a $1.5 million home but decided to buy one for half the price because “a house with double the cost wouldn’t give me double the enjoyment.”

Don’t believe that Millionaire Next Door cr*p; some multi-millionaires are frugal – even some Billionaires (most notably Warren Buffett) – but, don’t be fooled into believing that’s the majority of multi-millionaires:

I have a friend who works for a 35 year old Russian immigrant who is now a hugely successful hedge fund manager (yes, he’s survived the GFC as far as I know. I’ll check when I’m on Safari in South Africa with my friend later on this year); my friend overheard him explaining to his daughter that he was going to take the family jet to a business meeting, so she would need to fly on a commercial airliner with her mother to get home from their vacation.

This is what he said to his daughter: “You know that there will be people you don’t know on that plane” … at 8 years old, she had never flown other than by private jet!

Another friend works in MLM and had breakfast with that company’s # 1 distributor – a nice, young lady. She receives a $600,000 check every month. She just bought a mountain in Colorado and a special tractor, so that she could grade her own private ski run.

I hope she puts a lot aside for a rainy day; gives overly generously (money and time) to charity and those in need; and, joyfully spends the rest!

I have a simple rule: spend freely, when it doesn’t make sense not to.

Think about that, and let me know what you think it means …

The problem with Henry …

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Actually, it’s not the problem with Henry, it’s the problem with HENRY: High Earner Not Rich Yet.

Included in this group, a group that most workers mistakenly aspire to, are those doctors and ceo’s (at least those not in the Fortune 500) that I mentioned in yesterday’s post.

Now, this is only interesting because I can now answer the question posed on Twitter [AJC: you can glance across to the right to conveniently find a link to my Twitter account].

Dianne Kennedy (CPA), I think erroneously, links HENRY’s to taxes then lifestyle, but (as my article some time back about doctors also said), I think it boils down to three non-tax (even though taxes hurt!) issues:

1. As your income grows so does your spending … then some!

2. Keeping up with YOUR Jones (i.e. other high-flying corporate executives and professionals) is VERY expensive

3. You can’t sell a salary package (like I can sell a business, some shares, or a property or two) when you decide to retire

[AJC: You need both a big 401(k) – see reasons 1. and 2. why this doesn’t happen – and a huge golden parachute, which may / may not happen to compensate for reason 3.]

If HENRY’s want to become rich, they have only two choices:

– Get lucky, or

– Invest a very large % of their annual earnings

Let’s assume that a HENRY – conveniently named Henry who happens to be ceo of a medium-sized business – is earning $290,000 and has already managed to save $1 million – our consummate Frugal Investor – and has arranged things so that he can continue to save a very hefty 35% of his salary (this is all pre-tax).

After 22 years, Henry will have saved just enough (in Rule of 20 terms) to replace his $290,000 ceo’s salary … by then, inflation adjusted to $661k per year, assuming that he wants to maintain his lifestyle [AJC: more importantly, assuming that he can – and wants to – ‘ceo’ for 22 more years … if he ‘only’ starts with $500k in savings, he’ll need to work for at least 26 more years].

Seems easy, but human nature [read: urge to spend it up] is what it is …

I should know: I was ceo of my own business, employing over a hundred people across 3 countries (USA, Australia, and New Zealand).

I paid myself $250k per year, and had cars, cell phones, laptops, and health insurance all paid for by my company – I reinvested all the remaining profits in these businesses.

I had a $1.65 million house in the ‘burbs, paid for by cash (s0, no mortage), and two children in school (one private, one public). We traveled domestically and/or internationally once or twice a year as a family, ate at ‘normal’ restaurants (and, the occasional top-tier eatery).

I can’t see how I could have saved 1/3 of my salary … I couldn’t even save 10% 🙁

Of course, I could have saved 10% if I really tried, but my point is that it’s very hard to save 30% of even a high salary, unless you gear yourself up to do it from the very beginning.

[AJC: Look, it’s not my job to tell what should happen as you get richer, but the reality of what will happen and how to do better … when you get to $250k you will bring with you exactly the same spending and saving habits as you have today, if not worse. Moral: start MM101 today!]

In other words, don’t divert all of your creative energy into playing Corporate Lotto (i.e. chasing a higher salary) if you want to get rich – or, even to reach a more humble goal, such as becoming debt free (a dumb goal, IMHO).

First – and, as soon as possible – learn how to get rich (or debt free, or …) by taking action right now, with whatever you can bring to the table.

If your salary happens to improve along the way, all the better … but, don’t rely on it!

How much income do you need to be Rich?

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In his bestseller, The Number (2006), Lee Eisenberg relates the story of a man who outlined for him what somebody else told him [AJC: already, this sounds like an Urban Myth] about what it takes to be rich:

This is really interesting, because it matches what I was told when I began my Journey (to $7 million in 7 years) by a well-known finance guru; at the time, he said [AJC: paraphrasing; my memory’s not THAT good!]:

In order to live a ‘rich’ lifestyle (i.e. you can drive the cars you want, live where you want, travel whenever and wherever you want) you need an income of at least $250,000 per year.

Now, that was back in 1998 … so, when I bumped into him a year or two ago, I reminded him of what he told me then, and asked him what he thought the ‘number’ was now: he said “$500,000” [AJC: that’s per year].

In fact, that $250k (times the 20 multiple that he also told me that I needed) was the exact basis for my $5 million Number, because I didn’t know how to calculate it any better (then) … and, along with discovering my Life’s Purpose, started the journey that totally changed my life.

Seeing this table, excerpted from Lee Eisenberg’s book [AJC: which, he admits ripping from somebody else … apparently, that’s how these ‘rules’ get written!] only reinforces that … so, just decide whether you want to be “comfortable” (or, “comfortable+”), “kind of rich”, or plain ol’ “rich” and  your Number is virtually set!

Which brings me back to the question of whether CEO’s are rich, in the first place?

[AJC: we already know the Fortune 500 CEO’s are, but what about the ‘ordinary’ CEO’s of all of those small-to-medium-size businesses out there?]

Really, it’s only the CEO’s of those businesses (and, their highly-deserving legal advisors) who can even claim to be “comfortable+”.

Most senior management in these businesses can only claim to be ‘comfortable”, at best …

… so, the real reason why most CEO’s aren’t rich is that they simply don’t earn enough!

My question to you is:

If you know your Life’s Purpose, and if you know your Number (particularly if it’s a Large Number / Soon Date) why are you wasting your time:

– kissing up to your boss,

– back stabbing your work mates, and

– running ragged for your company’s customers?

… just to have the slightest-possible-chance of getting to the ONE job in the WHOLE company that ONLY makes you “comfortable+” AT BEST?

Seems silly to me …

When I crunched those odds (way back in 1990), I very quickly made a rush for the Exit Door at my high-flying corporate job 🙂