Category: Concepts


Risky Compared To What?

Filed Under: Concepts, The Very Basics by apingel — View Comments
September 18, 2010

There was recently a large MTG tournament here in Denver, and since I know a lot of gamers, several people in my social circle competed, including my partner (who’s been playing since the game was invented and is quite good) and a coworker (who’s 10 years younger, and is just starting to play “seriously”). My coworker played with a “net deck” (one he’d assembled using instructions online), and my partner played a “rogue deck” (one he’d invented himself). And each thought the other was taking a big risk.

Who’s Right?

Well, the first thing to know is that tournament rankings usually look much like this:
A bell curve with net decks in the middle and rogue decks on the ends

That is, net decks are still available online because they’re good decks; they’ve been tested and tweaked by thousands of people. But they are available online, so everyone knows about and prepares for them.

The second thing to know is that my partner is one of the best players in the state, and he builds really good decks.

My coworker, with less experience and fewer resources, is unlikely to build a deck that’s better than a net deck; he’s comparing the lower tail to the big hump, and concluding (correctly) that he’s better off with a net deck.

My partner is almost certain to place highly, on the top half of the curve. And up there, the net decks are the poor options — there is simply no way to be the best when you are identical to 20% of your competition. Your only way to stand out from the pack is to be different.

K. So What?

The same dynamic is at work in any sort of competition — including business. On any metric you care to name (price, convenience, quality, safety, etc), companies and products will be distributed along a bell curve like this, with anyone who follows “industry standards” safely in the middle and the differentiation products out on the ends. If you don’t follow industry standards, you risk being below average. If you do follow industry standards, you risk never being above average.

In a game tournament there’s a clear, simple definition of “best” — the person who won the most games. But in business, it’s not that simple… and that’s a good thing. If there was only one “best”, there would be little room for competition, and no way for newbies to break into the field. But that’s not the case. There are lots of definitions of “best”, and you can certainly meet one of them.

Application

Have you done a SWOT analysis for yourself and your entrepreneurial venture yet? You should. But for the moment, I just need an internal analysis, because we need your strengths and weaknesses.

For your weaknesses — things that you’re worse than average at — you’d do better to copy the competiton, and get yourself up to average. Read blogs, check out books, call an expert, call your networking aprtners, or whatever, but move yourself towards what the rest of the industry is doing.

For your strengths — things that you’re better than average at — it’s possible that industry standards are holding you back. Take a look at everything you do in that department and ask yourself why you do it Because you’ve found it to be good? Because you think it might be good? Because everyone says you have to do it that way? And regardless of why, what results do you see from it? Do you think it’s the best you can do, or do you think a different approach might work better?

Then experiment… slowly. Industry standards, like net decks, are still around because they are good. Most exist for some reason. So you don’t want to throw everything away. You just want to try a few new things, see how they go, and try a few more.

And if you’re just starting, and don’t yet know your strengths/weaknesses? I advise you to give them some consideration — your personal strengths are the best place to start an entrepreneurial venture, and you’ll really want to know them. Take online quizzes, read StrengthsFinder 2.0, talk to your friends, talk to your coworkers, and do some journaling. But as a starting assumption, you can use the industry standard for everything, and adjust as you discover what you do well.

Resources for Further Reading
Play It Safe — and Experiment
Risk Analysis

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Define: Entrepreneur

Filed Under: Concepts, The Very Basics by apingel — View Comments
August 28, 2010

Entrepreneur comes from French, where it means go-between (literally “in-between-taker). At the time it was coined, since most businesses were import/export businesses or retail shops, someone starting a new business literally took the goods between their origin and their destination.

Although the types of businesses have changed, we’ve retained the word “entrepreneur” to mean someone who starts up a business on their own, whether that’s a huge industry-changing business a la Steve Jobs, or a corner bakery like the one down the street. And an entrepreneur is still a go-between of some sort: they fill a gap in the marketplace, whether that’s a lack of intuitive music players or a lack of genuine French-style pastries. Other entrepreneurs filled in the gap between those who have used books to sell and those who wish to buy used books (Amazon Marketplace) or the gap between old college buddies (Facebook), or the gap between the high cost to make automobiles and the low cost most people could afford (Ford Motors… the original one, not the current, failing, one).

In No Job? No Way! I listed four potential monetization schemes:

  • Employee (makes money from a job)
  • Self-employed (owns their own job)
  • Business Owner (owns a business that makes money without them)
  • Investor (makes money from having money).

Although there are some advantages to employment, this blog is about making money without being an employee. And so on this blog, I will use “entrepreneur” to mean “making money from one of the non-employee monetization methods”, including owning a small business in which you work, a business in which you don’t need to work, or making money in stocks, real estate, loans or other forms of investing.

Resources For Further Reading
No Job? No Way!
Thoughtwrestling: Entrepreneur Definition

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Entrepreneurs Have More Fun

Filed Under: Concepts, The Very Basics by apingel — View Comments
August 10, 2010

At TedxBoulder this weekend, David Thomas gave a talk on what makes a place fun. His argument was that fun comes from ambiguity: from both being and not-being an astronaut when you’re a kid, from rides at Disneyland that both are and are not jungle cruises. Disneyland is in fact the epitome of this ambiguity-for-fun, with their “house for a mouse that’s not a house for not a mouse.”

William Glasser, in Choice Theory argues that fun is an evolutionary response to learning: critters that enjoy learning are more likely to learn, and therefore more likely to survive. When you have fun, you’re learning, and when you learn, you have fun. (This makes the US education system and its ability to make learning miserable, a really impressive — if depressing– accomplishment).

Yes, it can be fun

Whichever conception of fun you prefer, you get more of it by deliberately monetizing yourself, instead of accepting a 40-hour-a-week job by default.

Pick a job, and be a Linchpin

Even if you decide that employment is the best way to go, you don’t have to be a mindless cog in a machine. Look for opportunities to do work that matters, even if it’s just recognizing places where your current job could be made more efficient. The challenge of spotting ways to be a better employee will keep you engaged and learning, and the ambiguity of your job description will make your creative mind happier.

Work For Yourself
Self-employees have lots of opportunities to learn all kinds of things: basic accounting, basic marketing, how to handle customers, among many, many others. And ambiguity, too: the strangest one is the realization that you’re an expert in the eyes of some, even if you feel like a complete novice.

Work For Assets
Creating a business is fun because you both are and are not working for yourself — and explaining that at a cocktail party can take a long time! Also, just like being self-employed, you learn a ton.

Invest
As with all non-employment monetization methods, investing has ambiguity of outcome: when you wake up on January 1st, you have no idea how much money you’re going to make this year. And you can, if you choose, learn about something new every year or every month: real estate today, pork belly futures tomorrow.

Scary Can Be Fun

In the last post, we talked about why it takes courage to explore alternate monetization — to be an entrepreneur. It’s a scary thing to do. But roller coasters and haunted houses show that scary can be fun… and being an entrepreneur is fun. Pick a low-risk option and try it out.

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Don’t Work For Money

Filed Under: Business Models, Concepts, The Very Basics by apingel — View Comments
June 2, 2010

“…E’s and S’s [employees or self-employed] work for money….B’s and I’s [business owners and investors] work for assets.” — Robert Kiyosaki, Increase Your Financial IQ

First of all, let’s define what that even means. Robert Kiyosaki defines an asset as “anything that puts money in your pocket.” That is, there are things you can own (like shares in a corporation, or rental real estate, or royalties on a hit song) that just give you money.

But that makes the distinction seem kind of trivial. I mean, an asset is something that gives you money. So if you work for an asset, you get money. Sounds a lot like working for money, eh?

Ah, but here’s the important difference: an asset is permanent. When you stop working, it keeps putting money in your pocket (as long as the corporation makes money, people rent your real estate, or people keep buying your song). Whereas a job, as I’m sure most of you know all too well) is a one-shot, but-what-have-you-done-for-me-lately kind of deal.

Simplified Example

Suppose someone came up to you and said, “I’ll give you $1000/month for the rest of your life.” Would you take it?

    Obviously, yes

Suppose they said, “If you give me $10,000 right now, I’ll give you $1000/month for the rest of your life.”

    Assuming your life expectancy is greater than 10 months, you’d obviously take it

Suppose they said, “If you give me $10,000 right now, and do 80 hours of work, I’ll give you $1000/month for the rest of your life.”

    Still good. It might take you a few weeks to get your 80 hours in, but it’d be worth it

Suppose they said, “If you give me $10,000 right now and do 80 hours worth of work, I’ll give you $1000/month for 10 months out of the year, for the rest of your life.”

    Now you’re going to have to be a little smarter…. you don’t know which two months you won’t get the money, so you’ll want to be careful about how much you spend month to month. But it’s still obviously a great deal.

Suppose they said, “The work I need you to do is pretty technical, and it will take you several years to learn how to do it; I won’t pay you for that time. But if you

  • learn how to do that work
  • Do 80 hours worth of work
  • give me $10,000

I will give you $1000/month 10 times a year, and I will make this deal as often as you want.

    …?

What Rich Dad, Poor Dad wants you to know is that the last example is a pretty accurate model of reality. If you learn how to value real estate, how to spot a good deal, how to make offers, assess rent potential, raise funding, find a good property manager, etc, you can buy a house or condo or duplex that you can rent out for $1000/month. You don’t get paid for the time you spend learning, and you have to put in time to find the good deals, negotiate prices, etc. But thereafter you get “passive income” — income that happens whether you’re at your desk working or on a beach in southern France.

Or you could spend a couple of years learning how to make fantastic websites with lots of traffic, how to write content, where to host a website, some html, how to make an RSS feed, how to build a newsletter list, who has the best affiliate programs, how to build an e-goods store, and so on. Then build a website with thousands of visitors per month and an average monetization of $1/visitor. You wouldn’t even need $10,000 down.

That’s what working for an asset means: having money come in even if you’re injured, or too old to work, or just don’t feel like coming into the office today.

Is it worth the effort? Only you can decide. It is a lot of work. But it still sounds like a good deal to me.

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Rich Dad, Poor Dad Book Review

Filed Under: Concepts, The Very Basics by apingel — View Comments
June 1, 2010

There are a lot of critics that dislike Robert Kiyosaki, some of them quite vehemently. So before I begin my (overall positive) review, let me address some of the most common concerns.

He’s a bad writer
He’s a terrible writer. To his credit, he recognizes and admits it. I can think of dozens of ways his writing could be improved. But the fact that his message is jumbled, poorly explained and obscure does not make his message less valuable.

He just says the same thing over and over
This is also true, and it relates to objection #1. He couldn’t really figure out how to say what he wanted to say, so he kept reshaping his words and trying again. Subsequent books in the series, rather than reading like sequels, read like second drafts. So, if you get to the end of the book and think you’ve really understood his message, don’t feel obliged to read the rest. BUT, if you find his message intriguing yet elusive (very possible, since he’s a terrible writer), reading the other books will help you “get it”. The local library is a great resource for this, so you don’t have to buy them all.

He doesn’t give you enough information to actually do anything
He doesn’t. But he also never claimed that he did. He specifically said that if you were interested in doing the things he described, you should go check out books, do some research, or find a mentor. The point of the book is not to teach you how to become an investor or business owner, it’s to explain to you why to become an investor or business owner. It’s to let you know that being an investor or business owner is a possibility.

He ruins people by encouraging them to try investments that they’re not qualified for
Please see above. When you finish Rich Dad, Poor Dad, you’ll hopefully be excited about learning how to develop passive income. But you do still need to learn it. The book contains nowhere near the level of detail you would need to actually get into this stuff and be successful. So don’t do anything stupid, ‘kay?

He has no idea what the definition of an asset is
Mmm… it would be more accurate to say that he uses a different definition than most people. What he calls an asset is what accountants call an “appreciating asset” or an “income-producing asset”.

On the one hand, it is kind of obnoxious to make up your own definition and then insist that everyone else use it. But on the other hand, I think we can all agree that accounting jargon is complex and confusing, and we’d rather have a simpler terminology. Kiyosaki’s definition cuts through the clutter and jargon, and leaves just the heart of what an asset means to you.: an asset is something that puts money in your pocket.

    If you’re filling out your tax return, use the government’s definition of asset
    If you’re filing for a bank loan, use your bank’s definition of asset
    If you’re trying to develop passive income and get out of the rat race, use Kiyosaki’s definition of asset.

On to the good stuff

In my first post I said that the idea of not having a job had begun to enter my consciousness about 10 years ago. I can actually peg that to a specific event: when my mother gave me Rich Dad, Poor Dad and said I should read it. I had not much interest in finance at the time, but we were on a road trip to California, and I was grateful for the distraction (I’d finished my fantasy novel by the time we got to Vegas).

The title of the book comes from Robert Kiyosaki’s experience growing up in Hawaii. When, at the age of 9, Robert asked his dad how to be rich, his dad admitted that he had no idea. But he suggested that Robert ask his best friend, Mike, whose dad was going to be rich someday. So he and Mike went to Mike’s dad, who agreed to teach them how to be rich. And so Kiyosaki got money advice from two sources thereafter — his “rich dad” and his “poor dad.” This gives Kiyosaki a unique opportunity to see exactly what the rich teach their kids about money that the poor and middle class do not — the subtitle of the book. And one of the things they teach their kids is how not to have a job.

As I said, there’s not a lot of technical detail in the book. In fact, that lack of technical detail is one of the reasons I’m writing this blog. But Rich Dad, Poor Dad does provide one thing that no other book I’ve found can offer to you:

He explains the concept of being rich. The necessary requirements for not having a job, and the attitudes required to achieve that state. What passive income is, and that it’s possible for you to get some of it.

My upbringing focused entirely on getting a job. What I wanted to be when I grew up. Getting good grades so I could go to college so I could get a good job instead of flipping burgers. Determining my strengths so I could pick a career that fits me. That I would have a job was never in doubt; the only question was whether I would have a “good” job or a “bad” job. The only problem was… they all seemed like bad jobs to me.

What this book said to me, for the first time ever, was “You’re right. They are all bad jobs. Jobs suck. And there is an alternative. Here’s another option.”

The you-need-a-job mentality is hard to break; it’s so pervasive in our culture. My mother keeps asking me when I’m going to get a real job, and she’s the one who made me read Rich Dad, Poor Dad! But nothing on this blog will help you until you understand and believe.. until you grok.. that money without a job is possible. Not easy. Not quick. But possible.

If that concept seems too strange for you to wrap your mind around, then read Rich Dad, Poor Dad. It’s worth the terrible writing.

Resources for Further Reading
Rich Dad, Poor Dad
10 Reasons You Should Never Get A Job
The Cashflow Quadrant
Outliers

The above product links are affiliate links. If you enjoyed and appreciated this information, you can give me monetary reward by buying products through those links. Learn More.

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