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

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.

Local company, Shopatron, gets $6m in Additional Funding

Congratulations to the folks over at Shopatron, a nifty San Luis Obispo (California) based company. Until relatively recently, they were called Firepoppy while Shopatron was the name of their primary product. They have picked up some additional capital and continue to be working hard on solving problems in their niche.

Shopatron solves problems for manufacturers that don't or cannot sell their products directly, namely connecting their customers (say, visiting their web site) with their retailer/distributor network. They do it in a way that is conducive to the customers desire to "buy now", with less hops to jump through, and make it a win-win all around (win-win-win, uh, win, really) .

It's one of those niches that makes a lot of sense once you hear about it and they've been working hard at perfecting it for a number of years now. And, since they are so focused on solving one particular problem space (and it's a real one at that, as best as I can tell), rather then solve every interesting opportunity that they run across haphazardly, they are sure to be successful.

Congrats Ed, Sean, Dave, and the rest of the crew over there.

Further Related: Links:

• Shopatron takes $6M funding to capture in-store pickup crowd
• Shopatron closes $6 Million in Series B Funding
  

Verifying Your Financial Advisors Advice - Service provides watchdog for investors

See article @ http://www.pacbiztimes.com/index.cfm?go2=articles/wk_091707e

This is an interesting idea (follow article link above or see excerpts below). I think there might be some other ways of implementing this that could be even more useful but I certainly agree with the sentiment. And, for the price, it's a cheap second look at things to make sure you are not entirely getting simply "told a line" by your broker, financial advisor, financial planner, etc. while still being more formal than getting your friend "Bob" to take a quick look at your portfolio. Mostly what caught my eye was seeing another way for more folks to easily get a second set of eyes looking at their portfolio, ideally in a quasi-independent and professional manner, especially without the hired trying to take a big bite out of it themselves.

While it's not stated outright, it sounds like he's doing Monte Carlo simulations, so he's contrasting ones existing portfolio with a group of model portfolios of various supposed styles that have been back tested with historical data to supposedly ascertain their "risk". (The more mysterious part, at least to me, is just how to ascertain an individuals "risk" tolerance, which can be taken to mean many different things -- and whether that is even as relevant as the size of their portfolio relative to their overall net worth and their timeline for needing the principal back, but that's a digression for another day).

To compare this with another industry, this service is a bit like the automated security scans from the likings of ScanAlert (with the green "Hacker Safe" shield logo) that IT folks responsible for e-commerce sites have grown accustomed to. The results can be useful, sometimes annoying, but they also just might not mean anything. You still need to know their basis and how to interpret them for your particular environment.

Anyhow, it's not a perfect method but it's a start.

-jr

David Donaldson plans to revolutionize the investment industry by bringing accountability to financial advisers.

“I just can’t stand when I see people who are individual investors who get taken advantage of,” Donaldson said. “My goal is to be kind of a watch dog to make sure financial advisers are doing their job.”

On Aug. 27, he announced the launch of Advisor Check, a service that analyzes investment portfolios so that individual investors can see whether their financial advisers and asset managers are addressing their personal investment goals. Donaldson is the managing director and senior portfolio analyst for Advisor Check.

[....]

“It turns out what we found is a majority of people really want someone to give them a second look at their portfolio, but are afraid that if they go to someone else like a financial adviser, they’ll just be told what they want to hear,” Donaldson said, adding that he rushed to launch the service officially because of the current volatility of the market.

[....]

“I would say that about 79 percent of the portfolios we look at are improperly allocated and expose clients to more risk than they actually need to be taking,” Donaldson said.

Donaldson offers his clients an unbiased, third-party analysis. In order to avoid any conflict-of-interest, he does not offer advice or sell any services beyond a comprehensive portfolio analysis.

“If anything, it gives [investors] the ability to ask the right questions” of their advisers, he said.

“It gives financial advisers – if they do a good job – a lot of kudos for what they do, but if not, it’s a good reality check for them,” Donaldson said.

[....]

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

Take the Time to Be Specific

One of my fairly serious hobbies is seeking out, analyzing, and (rarely) investing in under appreciated excellent companies. And I'm a ferocious reader, consuming a growing list of business, success, finance, investing, entrepreneurship, and related books, blogs, papers, articles, and similar texts. I've also had hands-on involvement in several start-up and more mature businesses in various capacities of responsibility.

It is interesting that a common problematic theme I come across is that of the business strategy being too fast and loose. This happens in large public companies just as often as it happens in small one-person businesses. Sometimes you hear about "needing more focus", "defining your market", "defining your niche", etc.

While this can manifest itself regardless of the stage of the business, it often becomes more dire (or at least externally apparent) as more people become involved in the business and more customers/clients are taken on. Scaling is tough due to the lack of clarity across the organization. Things get dropped. Micro-managing ensues. Mismatched product and service lines and extensions are rolled out. Resources are chaotically allocated. Turf wars can occur. Otherwise preferred and ideal customers/clients leave and similar prospects drag the sales cycle on longer. People quit in frustration -- no longer having the energy to see things through. Seemingly dumb decisions are made by otherwise highly intelligent and competent people throughout the organization.

This is all about and so often can be addressed by the same thing: Be as specific as you possibly can about your market, your niche within that market, and the characteristics of your customers. Once you do, everything else (i.e. next actions, tactical moves, where to allocate limited resources, who to hire, which investments to make, which investments to cut loose on and re-evaluate) becomes quite suddenly far far easier.

Your risk is immediately reduced and communicating your value proposition becomes a day at the beach. Lest you think this is just a business problem not applicable to our personal lives, consider how being more specific with your goals usually makes it more likely you'll achieve them. Don't shortchange yourself or your business. Draw a specific line in the sand and say there is where I'm/we're headed (don't be afraid to do it because you suspect it may change down the road, that's just fine and shows you're thinking about it).

But that's not the entire story either. An ancillary theme -- and perhaps one causation of the prior problem -- I've noticed takes the form of over eagerness used as an excuse to keep the market/niche/customer defined so loosely. By this I mean not just that the entrepreneur (or equivalent within an existing company pursuing a new product/service concept) is eager to get started with development or selling but that their ambition is so large that they fail to realize that the way to most effectively attack a broader market is often to start by attacking a segment of it first not the entire thing (and then chip away until the entire thing is yours).

Most supposedly "large markets" are really groups of smaller micro-markets. Each of those micro-markets has slightly different needs and other characteristics which make them unique. You are making your job tougher by trying to attack the "whole thing" at the start. It's a question with differing answers -- not because the question is complex but because the question isn't specific enough.

This is a constant problem all over the place. Just this morning I was reading an article posted on GonzoBanking entitled Understanding the Decline and Fall of the Banking Industry (it happens to be told in a satire-like way which makes more sense if you end up reading the entire article but the excerpt is applicable regardless):

Excerpts from strategic plans in this period, however, indicate that bank management was still trying to target all customer segments, all product lines and all delivery approaches. Quotes from this period in business are somewhat comical as bankers write that they aspire to be “best in class,” “high performance” and “customer driven,” but none of the historical strategic plans seem to include what any of these terms actually meant.

My background is not in marketing. I'm actually stereotypically pre-disposed to think that "most marketing folks are fools and liars" since I'm generally thought of as a technology/IT geek (most of "us" tend to be cynics about all forms of marketing and advertising in seems). But that's an unfortunate, naive, and misguided reactionary opinion. After all, what geek wants to build stuff nobody wants to buy/use?

No business should be in business if it doesn't know exactly, and specifically:

1. who it's target customer's/client's are
2. why they are (or should be) doing business with you (from their perspective only, not yours),
3. how they find you and acquire your products/services
   

This is not just another of one of those "it'd be nice if we did this" To Do items to be filed away that you can limp along without. One (or more) of the following will happen, in time:

1. You're current (or not yet in existence but looming future) competition will consume your customer base and eat you alive
   
2. You will spend money on the wrong things and go out of business (or be forced to merge with a stronger competitor, more on their terms than your own)
3. You will be relegated, unbeknownst to you, to the least profitable and most difficult customers/clients in your loosely defined market to serve
4. You will spend incredible and blackhole-ish increasing amounts of money acquiring (marketing to) new customers without adequate return on your investment
5. You will burn out (and, if you have other staff and management, they too, which has it's own direct and indirect costs which will manifest themselves even if you keep plowing ahead oblivious) sooner rather than later and, along the way, probably burn bridges, alienate clients and partners, grow frustrated with seemingly piling up problems that lack a framework to prioritize them objectively within, inability to successfully delegate, freezing up and putting off critical major difficult decisions that only you can make, and otherwise eventually "giving up" (perhaps not even entirely consciously).
   

If you are in this boat, don't fret. You're also probably quite smart, analytical, and adaptive. You just took an early misstep. It's correctable though. Take a few moments and complete the following challenges. Go from there. The future should get clearer as you go along.

CHALLENGE #1: As specifically as possible (and if you think you are already to that point, challenge yourself to see how much more specific you can get) write down your initial gut feeling of:

1. who your target customer's/client's are
2. why they are (or should be) doing business with you (from their perspective only, not yours),
3. how they find you and acquire your products/services
   

CHALLENGE #2: Concisely whittle down the text from Challenge #1 to its essence. This should be a quick sentence or two that clearly articles what you REALLY do as a business from your customer's/client's perspective and who your "sweet spot" customer's/client's are.