Focusing In Tight Times....and in Good

Barry VanderKelen, who heads up the San Luis Obispo County Community Foundation, has a column entitled Nonprofit Strategies that appears from time to time in the SLO Tribune. I often catch it on-line when it appears. Today's is entitled Stay Focused in tight times. In it he asks Israel Dominguez, who became the new director of Cuesta College's Small Business Development Center in November, "how does a nonprofit organization navigate tough economic times?"

What I liked was the advice given by Mr. Dominguez is good for non-profit....and for profit enterprises alike. And not only in bad times -- but good ones too.

You may want to read the article yourself (link again) then come back here. Anyhow, I'm not known for lacking in opinions so I had a bit to add which is below:

For directors (and business owners), it shouldn't be a matter of thinking in terms of good times versus bad times but a matter of thinking: Who really are my customers? What do they truly want right now? How might I give it to them? And, critically, how do I communicate to them in a compelling way that is compatible with their current mindset?

Good times just means we get to be a bit more lazy in our planning and implementation of all of the above while still drifting by. :-) True success -- the kind that is sustainable anyway -- takes deliberate analysis of the marketplace. Once you're in that position you stop worrying about the ups and downs of the economy other than as variables to incorporate into your analysis about what needs and desires you should be meeting for your customers and making sure your marketing is appealing to them in the new context.

Ironically, with a bit of creativity and persistence, economic downturns can actually be incorporated into ones product/service development and marketing messages. All changes and cycles present opportunities for the astute director/manager/owner.

"You only find out who is swimming naked when the tide goes out." -- Warren Buffet

Is Risk Aversion Our Greatest, Uhm, Risk?

Are WE Holding Ourselves Back?

(This is a draft of an informal essay I wrote today. Figured this would be a good place to post it and garner some feedback). A brief excerpt:

"Often we're concerned about failure. The great irony about the perception most humans have about taking risks and failing is that it nearly insures that most of us will, in fact, have the greatest failure of all: never seeing our most fruitful ideas turned into reality and achieving our most important goals in life. Our built in risk aversion is really, quite ironically, our greatest risk of all. A wolf in sheep's clothing."

"The truth is that most of us can handle far more “risk” than we currently do. On the other hand, we could do with a lot less of the risks we do chose to take on...."

Most of us are capable of far more than we give ourselves credit for. Fortunately, we are the only ones holding ourselves back.

Usually due to a combination of starting something worthwhile but not finishing it and coming up with a good idea but not doing anything about it (taking action), we stand still or, at best, make very very slow progress. Thus, at best, even if we make some progress towards our goals we still do not end up actually passing the goal line.

Often we're concerned about failure. The great irony about the perception most humans have about taking risks and failing is that it nearly insures that most of us will, in fact, have the greatest failure of all: never seeing our most fruitful ideas turned into reality and achieving our most important goals in life. Our built in risk aversion is really, quite ironically, our greatest risk of all. A wolf in sheep's clothing.

Our perception of the risks of most failures are outlandish. While there are certainly some things that are risky enough they could, say, kill us outright, most failures are far less dramatic. Some types of failures can be quite stressful to be sure. Some may even shorten our lives by a few years (due to the stress, though even a bit of short-term stress can sometimes be worth it if it makes the remaining years that much more satisfying). But nowhere near the percentage we think -- of “risky ideas” that we all come up with in our day to day lives -- are even half as horrifying in impact, if we were to take action and fail, as we might convince ourselves they are.

Our comfort zones hold us back. However nearly all good things that come to us, arise from somewhere outside of our comfort zones. Taking on our first real job. Driving for the first time. Taking an entrance or certification exam for a college program, to teach, or some other program we want to pursue to push our careers forward. Marrying for love. Having our first child. Flying for the first time. Learning to swim. Passing a difficult test that forced us to really learn the subject matter rather than simply memorizing a few key concepts. Learning to take our first step (though most of us will lack firsthand memory on this one). Asking someone attractive (in whatever way you deem important) out on a date or even simply for coffee. Starting a blog and posting our real thoughts, opinions, and ideas out there for the world to yell back that we're wrong. :)

While each of these can be stressful in the moment, that feeling soon subsides (especially with practice and time). Without these stretches, life would be so boring and, well, lifeless. We grow, becoming more comfortable in our new terrain. When viewed with a receptive mind, we even learn a lot from our failures.

Nearly all “firsts” in our lives are outside of our comfort zone. In fact, some of them may even be far more realistically life threatening than the other ideas and opportunities that we chose not to take action on. So much for our built-in perceived versus real risks radars.

When I was starting my most recent consulting business I knew there was a good chance that cash would get a little tight for a while. Since I knew that was a high probability outcome along the way towards my goals, I could plan to address it. I could take some actions to handle the looming issue and I could think through some of the options I'd have, depending on how bad things got when the time came. To me, that wasn't really a risk. I trusted myself and thought my way through it. There are few situations in life where we have absolutely no options. It wasn't that I didn't worry about having money to pay the rent and buy food. It wasn't that it didn't stress me out. It was more that the real risks that scared me more than the others were the things that I might have fail(ed) to anticipate and plan. To a certain extent, the ones entirely (or mostly) outside of my control, were a big deal but, again, it's all about having options. As long as I was confident I'd have options, the number of real risks in my world quickly shrunk and became manageable.

The truth is that most of us can handle far more “risk” than we currently do. On the other hand, we could do with a lot less of the risks we do chose to take on....

Our perceptions that result in us not taking on risks that we should while continuing to do things that we shouldn't are even more humorous when considered in another light. I got my first credit card when I was eighteen. It was an American Express. A Mastercard soon followed. At first, I had the money so it really wasn't a big deal. Then I left my comfy job to try my hand as a pseudo-partner in a friend's business venture. That fizzled out. I had some savings from a well timed stock option sell-out. It didn't take long to burn through that. After all, I'd gotten used to a pretty good salary (even if I hadn't been only eighteen at the time). I temporarily struck out on my own (consulting without any specific plan other than to explore new business opportunities) and then, a short time later, became a partner in another new business venture. Well, my financial situation changed quite a bit over that time period. And, like many early entrepreneurs without a solid win under their belts, my partners and I didn't pay ourselves much since we were in start-up mode. But, hey, I didn't have to change my lifestyle – I still had all those credit cards, right?

Give nearly anyone a few dollars and they'll have no problem finding a way to spend it to get something they need (let's not worry about the distinction between need and want for today). Now combine that with easy access to credit (credit cards and home equity loans are the most common current incarnations). Coupled with the basic desires that we all have to please ourselves, get a bit of instant gratification from time to time, and reward ourselves for a job well done or some ill we suffered that day, and our perceptions of risk go out the door.

Suddenly we're no longer thinking about how we'll afford to pay off that large credit card balance next month, how much extra we'll really have paid for today's little indiscretion due to the compounding interest we'll have paid before the balance is gone months or years down the road, and, worse in my mind, the opportunity cost that slowly at first and incrementally over time builds up until we have convinced ourselves that we “just don't have the money to do whatever we want”.

We want everything now so much that we put ourselves in a permanent position of never actually getting what we want. Irony can hurt, especially when it's wired into the standard operating procedure of our brains. It's a bit like the inverse of “wanting to have our cake and eat it too”. We use perceived risks as excuses not to do the things we really should if we actually want to achieve our goals. And we toss out the real matter-of-fact risks when it comes to acquiring the things we could probably do without for just a bit longer. If only... If only...

“I want it now, the future be damned!” Don't get me wrong. There's a time and a place for this attitude – it can be what gets us through some days. We're all human and I doubt we're supposed to be perfect all the time. Besides it's no fun to be perfect. The problem is recognizing when it has become a habit, a regular occurrence, and something that we keep doing even while making excuses about not doing the things we know we really should. (Sadly it can become a feedback loop unto itself, it almost being worse if we are aware that this is what is going on but don't have the strength left to pull oneself out of it so we feed the indiscretion monster more to get through each day and it gets worse -- so watch out!)

While we can be our own worst enemies, remember that is a good thing as well. It means it's under our control. While it's not easy to fight what is hard wired into our own brains, it can be easier than many other battles we participate in outside of ourselves. It's certainly a more important (and probably much more effective) fight. I challenge you:

1. What is one really attractive goal you have?
   
2. What step, or even steps if you are really on it, have you taken in the last day to get you there?
   
3. What about in the last week?
   
4. The last month?
   
5. The last year?
   
6. The last decade?
   
7. Don't beat yourself up over the answers to #2-#6. More importantly, what are you going to do TODAY?
   
8. Now, to make it a little easier to stay on the ball tomorrow with your new ambition, what is something you can do tomorrow as well?
   
9. And the next day?
   
10. And the next?
    
11. Good work --- keep it up! Momentum has a tendency of building, even from nearly nothing. You'll be there in seemingly no time if you keep it up. But you do have to START somewhere. Get moving. NOW.
    

-jr

Food For Thought: What Do You Think of My Idea?

Chris Lyman, the CEO/Janitor of Fonality, made an insightful post on his blog regarding entrepreneurs and aspiring entrepreneurs here. I don't have much to add -- I thought it was good food for thought and wanted to file it somewhere so what better place then on my blog.

I think it's a good idea to fill your thoughts constantly with lots of inputs from all over. Just don't take any one of them too seriously. Consider everything and then decide where you want to go, on your own.

Here's an excerpt from Chris's post:

For 10 years now people have approached me with business ideas, and asked: "What do you think of my idea?"
[...]

And I have always taken their "What do you think of my idea?" very seriously. After all, asking for an opinion on something that you have labored over is difficult - it's a moment of vulnerability as you open yourself up to a potential battery of cerebral criticism and intellectual pugilism. It's not easy ...and I know this.

Thus, I listen to their pitches, I read their business plans, and opine. I try to give thoughtful advice on the "what-ifs" and the "how-tos" and I introspectively incant my "lessons learned."

But, it never sits right with me. And, slowly I have come to hate this question. And, finally I know why.

The entire act of questioning before leaping is fundamentally opposed to the true spirit of entrepreneurialism. Being an entrepreneur is about doing something NEW that has NEVER been done before, or doing something old in a totally NEW way. You just don't build a bad-ass business by being a me-too. In short, you gotta bring the NEW to outdo the OLD and the NEW can never be known because it hasn't happened yet and therefore ANY attempt to discuss the new as if you know what the hell you are talking about is an ego-trip and I don't want a ticket to that ride.

Let me illustrate my own idiocy at predicting the future:

In my last company, I had a Director of Sales named Jon Venverloh. One day, in late 1998, he showed up to work and said he was moving up north to take a sales job at Google. I laughed at him and asked him why the heck he would go to a company with no revenue and no revenue model. Remember this is 1998. He said: "I like Northern California better and I can ride my bike." Believing he was making a lousy career move, I wished him luck. Well, I just googled (hehe) Jon and he is currently listed as an Executive in charge of Federal Sales for Google, Inc.

Go figure. Nobody knows who is going to be the next Google. Least of all me. And the mere fact that you are asking means that you are doubting yourself and doubt is what you CANNOT have as you strive to create the NEW. Don't let the opining and the opinionated slow you down.

-jr

Thinking In Percentages Not Absolutes (Investing)

Question: Which hurts your investment portfolio value the most?

• You own $10,000 worth of a mutual fund representing the Nasdaq Composite index. The Nasdaq Composite, which opened at 2,795, drops by 200 points by the time the market closes today. Headlines scream about a large market loss.
  
• You own $10,000 worth of stock in a company, which opened at $8.00/share and falls to $7.20/share by the time the market closes today.

Choose your answer. In the next day or so I'll post my answer, an explanation, and why I highlighted this scenario.

Dying 47-Year-Old Professor, Randy Pausch, Gives Exuberant ‘Last Lecture’

I just finished watching an all around nifty guy, Randy Pausch's, well, probably last lecture. :-( He is currently a professor at CMU. His specialty is human-computer interaction, such as virtual reality. He has done work with Disney and EA. Among other accomplishments, his most recent is Alice, which is an innovative and pragmatic educational programming language[1]. He was recently diagnosed with a dire case of cancer. This lecture was about achieving your childhood dreams -- and helping others achieve theirs. For a guy that knows he is about to die, he's got a great attitude about his life -- and life in general. Certainly, if we're looking for people to draw clues from in living our own lives, he's up there.

His wikipedia entry already has a brief overview and link to the video of the full lecture (1h:45m or so) so no reason for me to re-invent the wheel:

Professor Randy Pausch delivered his "Last Public Lecture", entitled "Really Achieving Your Childhood Dreams" at [[Carnegie Mellon University]] on September 18, 2007 ^[5] (the full version of which is viewable at http://video.google.com/videoplay?docid=-5700431505846055184).

During this lecture, Randy Pausch was very upbeat and humorous, rapidly switching between standup comedy, insights on computer science and engineering education, advice on building multi-disciplinary collaborations, working in groups and interacting with other people, offering inspirational life lessons, and doing one-handed push-ups on stage.

This talk was modeled after an existing series of lectures where top academics were asked to think deeply about what matters to them, and then give a hypothetical "final talk", i.e., "what wisdom would you try to impart to the world if you knew it was your last chance?" And in Randy's case, this was more than an academic exercise.

Before he even started speaking, Randy got a long standing ovation from a large crowd of over 400 colleagues and students. When he motioned them to sit down, saying "make me earn it", some in the audience shouted back "you already did!".

Andries van Dam (a professor from Brown University) followed Randy with a tearful and impassioned speech praising Randy for his courage and leadership, calling him a role model and "a Mensch" (which in Yiddish means "someone to admire and emulate, of noble character").

Electronic Arts Inc. (maker of the popular "Sims" family of computer games with over 100 million copies sold) is now commercializing Randy's Alice system (http://www.alice.org/), and pledged to create in Randy's honor a memorial scholarship for women in computer science, in recognition of Randy's staunch support and mentoring of women in CS and engineering.

The president of CMU (Jared Cohon) spoke emotionally of Randy's humanity, and called Randy's contributions to CMU and to education "remarkable and stunning". He then announced that CMU will celebrate Randy's impact on the world by building and naming after Randy a raised pedestrian bridge that will connect CMU's new Computer Science building with their Center for the Arts, symbolizing the way Randy linked those two disciplines. It will be called the "Randy Pausch Memorial Footbridge".

Professor Pausch was named "Person of the Week" on ABC's World News with Charles Gibson on September 21. His last lecture has also attracted wide attention from the national media.

[1] Alice is designed to appeal to specific subpopulations not normally exposed to computer programming, such as middle school girls, by encouraging storytelling through a simple drag-and-drop interface. http://www.alice.org/

I Don't Know. Really.

Sometimes we don't really know the answer but pretend we do. In fact, sometimes may be an understatement. Not knowing the answers -- or having enough data to have an informed opinion -- but pretending we do is not the foundation upon which to have a discussion to help yourself or someone else arrive at a more informed opinion.

This is particularly important with complex worldly issues (say, geopolitical problems that have the potential to create wars). Few of these types of issues have truly black and white answers. The "truth", such as it is in these cases, often lies within carefully selected -- yet still meaningful -- nuances that can only be honed after significant study and analysis.

Best case, we come off silly. Worst case, we, well, kill a few people. Thankfully we're all adaptable and like to better ourselves. So we can get better at all of this.

Get out there and vote but become truly informed first -- don't just sound informed to those that already agree with you. Be able to have an honest opinionated discussion with folks that don't agree with you and still walk away with an understanding of where they are coming from. If you can't do that, you probably don't know what you're talking about -- and should get back to reading, researching, and thinking before opening your mouth.

Anyhow, the excerpt (along with watching lots of West Wing episodes) that inspired this post (even though it was talking about managing software projects) is below:

True Factors

Next time someone tries to pin you down for an exact answer to an unknowable question — whether it's for a deadline date, a final project cost, or the volume of milk that would fit in the Grand Canyon — just start by taking the air out of the room: say "I don't know."

Far from damaging your credibility, this demonstrates the care you bring to your decision-making. You're not going to just say words to sound smart. It also levels the playing field by reframing the question as a collaborative conversation. By learning how exact your estimate needs to be (and why), you can work together to develop a shared understanding about the true factors behind the numbers.

—Merlin Mann, creator and editor of 43folders.com

More To Lose, Priceless Lessons

....and Why Wealth Is Best Acquired Neither Easily nor Difficultly
....and Personal Financial Literacy

I manage my own investment portfolio. For the most part, other than experimentation for educational purposes, I keep things pretty simple. I don't short stocks. I ignore options. My interest in the performance of the major indexes (e.g. Dow Jones Industrial, NASDAQ Composite, S&P 500) is mostly for entertainment purposes. I rarely consider fixed income securities (e.g. bonds, treasuries, etc), except during unusual situations when, effectively, due to the thesis of the investment in question, it really isn't a fixed income investment I'm making. I take long-only, and usually long-term oriented, positions in publicly traded stocks. Fractional interests in real businesses. Plain and simple.

My present approach, and seemingly most likely to remain permanent (though it will continue to go through maturity spurts as all good conclusions should), is based on quantitative fundamentals (i.e. the numbers on the balance sheets, cash flow, and income statements) combined with deep qualitative analysis. Purchase and sale price determination is based on a value-driven approach somewhat akin to Benjamin Graham, Warren Buffett, Third Avenue, Longleaf, Sequoia, Mohnish Pabrai, and others. The math is not rocket science. In fact, if it wasn't for the surrounding analysis, my eight year old could probably be taught how to do it. If I have to whip out spreadsheets and make lots of assumptions it's probably not the investment for me.

Call me old fashioned, but I invest to make money and that also means doing so as efficiently and effectively as possible. I see no reason to look at higher branches when there are inevitably enough low hanging fruit around (which also happen to be where I'm less likely to break my neck if I slip and fall). I enjoy investing but I also have plenty of other things I enjoy spending my time on.

With varying degrees of success I've been doing this for the last decade. Unfortunately it wasn't until the last two to three years that I finally really had enough of the pieces together to be able to deliberately and confidently make transactions in which I could be more certain that the outcome was due to my careful analysis over simple dumb luck. So my lessons have been both highly profitable and, alas, combined with others, highly expensive. i.e. I'm not (economically) wealthy yet. :-)

I wouldn't take any of it back though for anything. Not even a million dollars. Why? Glad you asked. :-) Two main reasons, more to lose and priceless lessons, which are sort of just opposite sides of the same coin. You see if I'd started with a million dollars the lessons would have been proportionally that much more expensive. Investing is a cumulative learning activity where you can learn a lot from your mistakes and where constant reading, honest reflection, and careful analysis is necessary. It's also useful to have a long-term perspective and understand that short-term performance is not something that can actually be extrapolated from in estimating long-term performance. (Side note: Rarely do things go quite as planned, especially so in the short-term. In the longer-term, things are usually closer to plan. So, uh, plan accordingly?).

If I had started with a million bucks I'd not only be much poorer than I once was (relatively speaking) but I'd also have spent even more on those priceless lessons I've learned along the way. Worse, I might have been just too risk-averse to even learn some of the lessons I have -- after all there would have been more to lose. The lessons may have been priceless but it's still much easier to earn a few thousand (or tens of thousands) back than a million or two when you have to start all over from zero again.

Another thing I like about this path is that extreme wealth, without having great and painful lessons along the way to achieving it, can often make one too conservative and controlling and naive for their own long-term economic good. For example, having all your capital tied up in fixed income securities forever won't do much for increasing your buying power. (Or, I suppose, not being controlling enough is also a problem if you are a spendthrift partier which is really the exact same problem manifest in a different form).

Even if one has painful -- but useful -- lessons one may still not reflect upon them properly and/or for some reason or another not behave economically rationally when the rubber actually meets the road. Unfortunately the same is true for most of us who have never truly achieved significant wealth. We usually have incorrect or irrational attitudes amount money and wealth, managing it, saving it, growing it, etc. We are just as bad as many of the folks that inherit their money without good parental financial teachings or, at least, innate (rare) financial intuition. We just aren't quite as first hand knowledgeable that we're pissing all our wealth away. i.e. We don't have the historical memories of seeing all the zeroes in our bank account balances and thus we are even less convinced we even have the potential to have larger bank accounts ever -- lot alone again. We're more ignorant of our potential because we didn't have it once then lose it (yet). :-)

While you can't deposit potential in the bank, having it and not capitalizing on it (oh, a pun, heh) is just as awful as already having lots of wealth and pissing it all away. And, if you really stop to think about it, it probably hurts just as bad too.

I suppose the conclusion is that becoming wealthy should not be too hard nor too easy and it's important to pay attention to the hard learned lessons along the way without getting too down on oneself. At least if your goal is to achieve wealth and "keep" it.

Unfortunately, probably much to the chagrin of economists, we humans are not economically rational beasts as a rule. We're so full of exceptions, biases, heuristics, assumptions, etc, at least if my own experience is of any commonality, that I couldn't even begin to comprehend what rules we all do operate by. Collectively we're fairly economically rational but individually we're not so much. In some ways, that explains why wealth, at least great wealth, tends to collect in fewer hands rather than being broadly dispersed. This seems true not only within wealthy societies but geopolitically as well as best as I can tell.

So, anyhow, this brings me to the one investment, wealth, and personal finance related topic that I have been struggling with. You see, I get freaked out a lot these days when I talk to friends, family, and various other folks about their investment portfolios. Not because I think I'm super smart investor guy whose feet everyone else should bow to. Feel free, however. j/k :-). I just happen to have already learned the hard way (and, because I discovered a deep interest, and tried to take it up a notch as well, I'm ultra-aware of this problem domain).

Let's get more specific. It's not uncommon to hear that someone has bought some stock for their portfolio and their reasoning -- and it's usually the extant of it -- is that it's a "cool company", "someone I know told me about them and I trust their judgement", "growing lots", "in the news all the time", "safe bet that can't lose", etc. etc. Yeah, that's great but what's the investment thesis? How can one be sure the price paid was realistic? How will one know when it has reached or exceed fair value (at what price shall it be sold)?

Oh, yeah, that. Buying a security without an idea of what it's worth is like saying you'll consider yourself happy when you're successful; We can all understand the words in this proclamation, their individual meaning is straightforward enough, but the sentence is too vague to be beneficially to anyone including the person stating it. Define success my friend before you attempt to achieve it. Keyword being before.

Just because, and even if you are "right", the stock of a company you bought goes up in price after you buy it doesn't mean it'll go to any particular price. Buying stocks is not as simple as saying "I'll just buy and sell when it goes up". Goes up to what exactly? Oh, double what you paid for it? Well, any idea if the company is even remotely, even under the most optimistic valuation, worth that much? One in this circular situation may be relying more on hope more than prudence. Worse, they are guaranteed to not be able to remove emotion from what should be an entirely business-like transaction. It's hard to remove emotion from the transaction when the initial purchase reasoning was hardly a step beyond that.

Another metaphor at the risk of beating a dead horse: Committing to a project, without confirming the project is even worthwhile, and stating at the same time that we'll consider it complete when it's done. We'd probably define "done" somewhere. Perhaps we'd use a metric of some type or at least some outcome that is a bit more readily identifiable and tangible. Oh, and we'd probably not want to spend our time on the project if it's not worthwhile (e.g. overpriced or just not the optimal return for the risk or, worse case, pure hype) so we'd make sure to evaluate that before we jump in too.

It's not that any of these people are stupid. Mostly they are in different businesses of their own, they are busy enough with enjoying their lives, they just have no time regardless of interest level in understanding this stuff, they don't know any better and take too many clueless folks or conventional wisdom articles at face value, they have zero interest in understanding this stuff (nothing wrong with that), they think hiring outside assistance is too expensive, etc. None of them is stupid at all. They just have other things going on.

So a goal I have is to figure out how to help improve the overall personal financial literacy of the populace. After all, we're all in this together and zero-sum game or not (depending on your view), there's plenty to go around for us all to be more than well off.

-jr

Thinking Differently About Problem Solving

We are obsessed with coming up with solutions but rarely do we step back to truly consider the most effective process for generating optimal solutions consistently. And we're quite reliant on mental heuristics, which are certainly helpful in our day to day lives, that deceive us into making intuitive but sub-optimal decisions in ways we are unaware of. And, finally, we're influenced by conventional wisdom which may not be so, well, wise.

A nifty (only 19-page) essay on the topic of generating optimal solutions more consistently that I ran across today on ChangeThis.com:

Mind of the Innovator: Taming the Traps of Traditional Thinking
By Matthew E. May

Matthew May [...] brings our attention to the ‘Seven Sins of Solutions’, the traditional ways of thinking that prevent us from divining the most accurate—and elegant—of solutions to any problem solving situation. Using accessible examples, you’ll find yourself saying “Yes! That happens to me!” as you read. Lucky for us, May also provides methods to avoid those deadly sins and train our brains to think differently, allowing our inner innovator to flourish.

http://changethis.com/37.01.MindInnovator
http://changethis.com/pdf/37.01.MindInnovator.pdf