Sunday, January 31, 2010

Finding What You NEED To Do

I like being at Chicago Booth. I appreciate the low risk environment, and I'm enjoying my life as a student. But last quarter (my first 10 weeks of school) I developed a nagging itch that needed to be scratched. It was an itch that I never felt when I was working in China. I just realized what was causing it.

I need to create things.

It's more than a desire. I have discovered that I actually become uncomfortable when I go a long period of time without creating.

In China, writing sales copy fulfilled the need, and I felt great. But when I came back to school, I stopped creating so that I could focus on my studies. I started feeling uneasy a few weeks into the first quarter, but I didn't understand why.

Now I know the reason. I wasn't fulfilling my need to create.

I recently started programming in my spare time. The nagging itch is gone. I'm energized again. Coding is quenching my thirst for creation.

I have a suspicion that everybody has their own need that must be met. I just hope that everybody has the chance to recognize it. Once the need's been spotted, it's easy to fulfill.

Saturday, January 30, 2010

Should Everybody Learn to Program?

One of the co-founders of the start-up that I'm working with made an interesting comment yesterday. We were discussing web development, when she mentioned that coding "is one of those things that everybody should know how to do."

I had heard similar thoughts before from other smart people, but this time it really struck me.

Looking at the future, I'm wondering just how right she will be. Currently, knowing how to program in a few computer languages gives you an advantage. But I'm starting to wonder if not knowing how to program may become a disadvantage.

There's a subtle difference between those two statements, so let me use a different example to illustrate. It used to be that a bachelor's degree from a university gave people a huge job hunting advantage over people who did not have a bachelor's degree. For people in my generation, having a bachelor's degree does not give us much of an advantage in the jobs market. On the contrary, not having a bachelor's degree is a significant disadvantage.

I don't see it quite yet, but in the long term programming just might become one of those necessary skills. Any thoughts?

Friday, January 29, 2010

Getting the Fingernails Dirty

Once in a while, a friend will come to me with a complaint, "I doing get how this [insert complicated classroom topic] works. The professor is doing a terrible job explaining it." Then there's often a tirade about how the person is paying thousands of dollars for an education and blah blah blah . . . but I digress.

My first response to that person usually has nothing to do with the professor. I ask if they have worked through any problems related to the topic. Almost all of the time, the answer is "no."

No wonder my friend doesn't understand.

Complicated topics like mathematics, economics, finance, accounting, marketing and programming require effort. They are not topics where you can listen to a lecture and immediately understand all of their nuance and subtlety.

Rather, you learn the material when you dig in to it. Do the problems. If you get a problem wrong, try to figure out why before talking to somebody who knows the answer. Test your assumptions - are they correct? Test your logic - is it correct?

Get your fingers dirty with the details. That's the way to learn the complicated stuff.

Thursday, January 28, 2010

Something That Everybody Should Know

If you like to read and you haven't learned how to subscribe to RSS feeds yet, learn today.

RSS is like a hyperactive newspaper delivery boy who only delivers you the articles that you want to read. All you do is make a note of the sites and people that you want to follow, and the boy will deliver you any new article that comes from that source.

This video will show you what RSS does and how to use it (it's a bit tacky, but it's clear).

And if you like my blog, feel free to subscribe to my RSS feed when you're done.

Wednesday, January 27, 2010

You Can't Buy This Marketing . . .

There is a magical aura that surrounds some companies. Only a few have it. When they are preparing to announce a new product: the world holds its breath.

Apple is one of those companies.

I just googled "apple tablet." The world is buzzing. Twitter, live-blogging - people are excited!

Just take a look:

This is more valuable than all of the advertising in the world. You just can't buy it. This level of respect and awe has been built over time. It is impressive.

Note: for a laugh, take a look at the second tweet under ("Latest Results for apple tablet"). I promise it's unintentional, but it illustrates my point.

Tuesday, January 26, 2010

Thinking Big, But Solving Small

I love big thinking. It's exciting. It's what changes the world. It's sexy!

But it's usually impractical. I'm realizing this more and more as I work at a start-up. We can have all of the huge ideas that we want, but if we don't execute on the ideas, they're practically useless.

The reality of our situation is that we only have three people really pushing our projects forward. And though I am continually amazed by how much three hardworking people can accomplish, I am equally amazed by how small our accomplishments are compared to the enormity of our ideas and ambitions.

We are quickly learning that we will need both big ideas and small solutions to survive.

The big ideas keep us motivated. They remind us of the end that we are pursuing, and the goals that we plan to accomplish in the long run.

The small solutions ensure that we are constantly making something. They show progress, which keeps other people - investors, potential customers, etc. - involved in the process.

It's a tough balancing act, but we're learning as we go.

Monday, January 25, 2010

More Good Branding

The Financial Times ranking of top MBA programs came out today. The University of Chicago Booth School of Business is in the top 10 again.

Global Ranking: 9th

Within US Ranking: 6th

Not quite as strong as our Business Week #1 spot, but we're still running with the best.

Best Meeting Ever

I used to hate meetings. Almost all of the ones that I attended were wasted time.

Recently, I've been having some pretty good ones. Today, I had an excellent one. Let me describe it:

  • There were only two people involved
  • We had spent several hours thinking about the problem and preparing to discuss
  • We were open to new ideas - the battle of the egos was nonexistent
  • We created a clear set of objectives, and when we achieved them the meeting was done
  • We took good notes and wrote down specific next steps (and who was responsible for them)
For me, point one is the most interesting.

The other four are critically dependent on point one. If we added one more person to the meeting, we would have risked introducing somebody who might have completely changed the dynamic (and the quality of the outcome).

Perhaps it's obvious, but I still see enough bad meetings that it seemed worth mentioning . . . again.

Sunday, January 24, 2010

A Big Fish in a Big Pond

There are some talented people in this world - crazy talented people*! Competing with them almost guarantees failure. Why even bother?

I had an amazing cross-country and track coach in high school. One of his favorite sayings was, "If we want to be the best, we have to run with the best." And he meant it. When he saw an opening in a meet that had the best teams in the state, he would work like crazy to get us into it.

My senior year, he gave us a tough competitive schedule . . . a really tough schedule. We did not win many races as a team, and though I was the team's lead runner, I did not win many races individually.

However, we achieved the two most difficult team goals that we set: we won the conference meet and qualified for the state meet.

And I had two brilliant seasons. In cross country, I earned first team all state honors and ran the 3rd fastest time in my high school's history. In track, I set the school record in the 1600m run which is still the record nearly 8 years later.

We were a talented group, but not exceptionally talented. And I was a talented individual, but not amazingly talented. However, we achieved great things. It was thanks to Coach.

Coach taught us that we shouldn't shy away from competition. We could win all of the tiny races that we wanted to, and he knew that. But he also knew that if we chased the best, we just might catch them.

If there's even a remote chance that you can catch up, competing with best can be an amazing and life changing experience.

Thanks Coach. The Oregon boys will miss you.

*I'm certain of this fact - 1200 of them go to Chicago Booth!

Controlling Information: Products, Process, and People

I've been noticing lately how a few people with whom I interact are always in the know. I bring something up and they can talk with me about it. They may not know all of the details, but they've got the key points.

These people, in general tend use at least one of the following tactics to control information:

Products - These people start the day with a newspaper (or maybe even a Kindle that contains a newspaper). They check their RSS feeds. Maybe they have a relevant email from a mailing list. Information is delivered to them every day, on their terms. If something important happened, they've heard about it.

Process - The experts in this area structure their information consumption. Jeffrey Hoffman, CEO of (who recently gave a speech at Chicago Booth), sets aside a specific time of day to randomly browse new information and consider possible implications for the future. Tim Ferris ruthlessly cuts out anything that will not help to make a specific decision. The processes are very different, but they are both consistent, replicable, and effective.

People - The holy grail of information control. If people who use this tactic don't know the answer to a question, they pick up the phone. In a minute, they have the answer. They don't personally know all of the answers, but they know who does know.

I'd bet that the most powerful people in the world all use at least one of these tactics. How many do you use?

Saturday, January 23, 2010

If You Can't Convince Them, Confuse Them . . .

The following is a common sales tactic that I've heard described many, many times:

Your target customer hasn't bought your rational or your emotional arguments. What's the next step? Tie together information that looks like it benefits your customer. The information seems to make sense, but actually doesn't add up. Hope that the target doesn't catch the flaws in logic. Confuse them into buying.

In the world of detestable sales tricks, this is the one that I hate most. I hate it because it is so easy to prevent in theory. All the target has to say is: "I don't understand, and I won't buy until I do understand."

In reality, the tactic is difficult to counter. We hate to admit that we don't understand. And since people usually are not intentionally trying to deceive us, we take their word when we don't quite get it. Usually, misunderstandings are small, and the issues that arise are not substantial.

The problem is when entire industries are built based on the premise that people can be confused into buying.

The mutual fund industry is an example. Classes of seventh graders choosing stocks will perform as well as 99.9% of experienced active money managers.* If you ever meet somebody with a PhD in Finance or Economics, they will confirm that fact. These managers should go out of business, but they don't because not enough people will refuse to buy what they don't understand.

It takes real guts to admit ignorance when the whole world seems to understand ("seems" is the key word in that sentence). When the stakes are small, feigning knowledge is not a problem. When the stakes are high, it's a dangerous path to travel.

*The research states that you are almost always better off with a low-fee index fund.

Friday, January 22, 2010

Find Me More Information! Wait A Minute . . .

My classmates and I are presented with a huge number of business problems every week. The problems are often ambiguous and imperfectly described, and I hear this comment all the time: "If we had more information about X, Y and Z, then we would be able to make a decision."

The classmates are right that more information would lead to a better decision, but they are ignoring an important fact. When we are in a business and we need to make decisions quickly, we will rarely have the time to find all of the information that we want in order to make a decision.

It's a perplexing problem. I think about it a lot, and I notice when somebody writes about it. Take this quote from a New York Times article by Thomas Friedman:

We are shifting from a world where the key source of strategic advantage was in protecting and extracting value from a given set of knowledge stocks — the sum total of what we know at any point in time, which is now depreciating at an accelerating pace — into a world in which the focus of value creation is effective participation in knowledge flows, which are constantly being renewed.
The new advantage sits with those who can tap information flows so that the largest amount of useful information reaches them.

My teachers are doing a great job teaching us students to make decisions in ambiguous situations. We need that skill. Even with amazing information flows, we will face uncertainty.

However, my teachers spend very little time teaching us how to construct efficient channels of information flow. That's unfortunate. Looks like we'll have to teach ourselves that skill.

Thursday, January 21, 2010

Value is Creating Time

The concept of "value" fascinates me. I feel like it's one of those ideas people discuss, but do not fully understand. I'm constantly looking for good examples of it. Here's a description of wealth (an accumulation of value) from Ayn Rand's Atlas Shrugged:

"What's wealth but the means of expanding one's life? There's two ways one can do it: either by producing more, or by producing it faster. And that's what I'm doing: I'm manufacturing time . . .

I'm producing everything I need, I'm working to improve my methods, and every hour I save is an hour added to my life. It used to take me five hours to fill that tank. It now takes three. The two that I saved are mine . . . that's the savings account I'm hoarding."
The description is incomplete, but it's brilliant.

Wednesday, January 20, 2010

When All of the Choices Are Bad . . . What Do You Do?

Imagine that you are in a relatively small company called YOU, Inc. YOU has done a great job creating difficult to use, but innovative products in the past. You sell these products to very sophisticated users for huge profits since the users are willing to pay for the newest and most advanced stuff.

As your company has innovated, there has been a big company (named WOW, Inc.) that has been watching you closely and copying your innovations. They just make the product simpler to use and sell it to the mass market, but they've never bothered to innovate by themselves. They are very profitable following that strategy. There is no way that you can reach as many people as WOW does, and they produce things more cheaply than you do.

Recently, the WOW did something that seriously upset you, as a manager of YOU, Inc. WOW created a product that is better than your company's best product. It's not much better, but it is better. And they're going to sell it cheaply. With this new WOW product at such a cheep price, you guess that a huge portion of your customers will switch to it, costing you 75% of our profits. This would be a huge hit to your business, and might even kill YOU, inc. if you don't react.

As a manger, you have three choices:

  1. Give up on all of your current projects and make an all-or-nothing bet on a completely new product, which is better than WOW's product. However, this strategy only has a 40% probability of success.
  2. Shift your effort from developing a low risk, low profit Product A to focus entirely on developing a product that is better than Product A. This new product would be close to, but slightly inferior, to WOW's new product. Keep in mind, though, that this will probably upset some customers who have already ordered Product A.
  3. Finish developing Product A to ensure that you meet your promises to your customers and to preserve the morale of the staff who have been working on Product A.
Which option do you choose?

This was the case posed to 39 business students in one of my classes this morning. We were told that there is only one right answer to the question (and in reality there is only one right answer).

How did these brilliant business students decide?

Choice 1: 12 people.

Choice 2: 14 people.

Choice 3: 13 people.

More than half of the class was wrong (they had to be, given that there is only one answer).

Do you think you got it right?

I'm not going to give the answer here. It's a problem to think about. You can email me if you really want it.

A final note: the actual text of our problem was about 20 pages long so some details have been left out, but I think enough information is included in this story to reason to the right answer.

Tuesday, January 19, 2010

Just Decide Already!

I make a few big decisions every year. Choosing to leave my job to attend business school was a big decision in 2009. Committing to avoid jobs at large corporate companies during my first year in business school so I could pursue entrepreneurship was a big decision this year.

These big decisions require a lot of time, information gathering and thought. I'm comfortable with that type of decision making. The process is thorough. It's analytical. It's informed. It's relatively clear.

Most of the decisions in my life are not that type. It is hard to know how the next book that I choose to read will affect my life. I would never know if 15 minutes writing a blog post or 15 minutes designing my company's beta product is time better spent.

But I do know this: Time spent thinking about which books to read is time spent not reading books. And instead of spending 15 minutes considering the pros and cons of the blog post/product development trade-off, I could just do both.

Sometimes it's best to avoid analysis and just decide.

Monday, January 18, 2010

The Death of the Business Suit

Recruiting season is in full swing at Chicago Booth. People are anxiously learning about the companies that are courting them. They have polished their resumes. And the hallways of the business school are filled with students in tailored, well pressed suits.

The suits thing intrigues me.

Traditionally people wore suits because it was a sign of status and success, something that gave the subconscious message: I am successful, and therefore you can trust me to handle your interests and assets.

Recently it seems as though suits are gaining a negative connotation. Pandering politicians wear suits. Greedy fat-cat bankers on the news wear suits. Criminals wear suits to the court room when they would never wear one on a normal day.

Whereas the suit used to represent success and trustworthiness, more and more, the unspoken message is: I'm wearing a suit because it's expected of me, and because I know that it can help me to get what I want.

Certainly the meaning has not completely shifted. However, the trend seems to be toward the negative. If it continues, the suit will lose its symbolic power. And without the positive association, people will stop wearing it

It could happen. That would be interesting to see.

Sunday, January 17, 2010

Is It Worth the Time and Money?

Consider a business that offers the following service:

You will wait in line for an unknown amount of time - though it will probably be longer than 30 minutes. After which, you will be allowed to buy items that you could by elsewhere for 1/6 the price. If you use the items that you buy, you will be happy and confident for the next few hours, but you will also want to spend more money. If you use the items too much, the next day you might also have a headache and you probably won't be able to think very well.

On the benefits side, you will be surrounded by other people who are doing the same thing. Some of them who are members of the opposite sex may even want to get to know you better.

By now it's obvious that I'm talking about bars, but I'm telling an unusual story. It's a cold, rational way of looking at bars.

I used to love going out. Why the sudden change?

I realized today that my time is more valuable than it was last year. That raises my real cost to go to the bar (and the cost of the lost day if things get a little crazy). I'm also a student now, which means no steady paycheck - I'm living off savings. That means buying a $6 beer is the same thing as giving up two home cooked meals.

I also have a smaller bar-hopping social circle than I used to. That means that I get less enjoyment when I do go out (It's probably important to note that the sex appeal hasn't been added any value for over two years - I've already got a great girl).

It's still $40 and 20 hours of my time spent on the same activity. I used to think the trade of was worthwhile. Now it's not.

The only thing that changed was me, and the value equation switched direction. Funny how that works.

Saturday, January 16, 2010

Value Isn't Enough to Gain Users

There are too many valuable products on the web to count. I use only a handful of them even though I'm sure that there are others that would make my life better.

There are two main differences between the excellent products that I use and those that I don't. Neither of those differences is functionality.

Difference 1: Products that I use find me. Sometimes a product finds me through a friend who loves it so much that he or she has to tell me about it. Sometimes a product finds me because it is sitting in a spot that I frequently visit. I don't randomly search for products that will make my life better. That would require too much time! Instead, I open the the doors and hope that great products will find me.

Difference 2: The products that I use demonstrate how they fit into my life and make it better. It's obvious that products need to solve a problem. What's less obvious is how the product's solution fits into my life. If your product requires me to change my behavior, it had better be extraordinarily valuable or I'll ignore it. Computers required that I learn how to type, but then extra value a computer provides is worth the effort. If the product fits into an existing space in my life, I can make the change easily. Riding the bus vs. driving a car - I'm going to work either way.

Let's assume that your product is valuable. If you think that most people will search for it, you're wrong. If you think that most people will be willing to change their lives to use it, you're probably wrong. Value is necessary, but not sufficient, for adoption.

Note: if you replace the word "product" with "service" or "idea," the same points hold.

Friday, January 15, 2010

When Irrational Meets Rational

Taxing the "greedy" banks is a popular idea. But the reasons that most people give for supporting a tax on banks is emotional.

"It's not fair that they can make so much money while everybody else suffers!"

That's not a great reason for a tax. Greg Mankiw gets the argument for taxing the banks right.

The linked post gets a little technical, but basically the idea is this:

After the financial crisis, the banks know that they can rely on the government for money when they are close to failure. As a result, they will expand too much and take too many risks. To slow bank growth and raise money for future bail-outs, the government should tax the banks today.

That is a good reason for a tax.

Thursday, January 14, 2010

Ideas that Live and Those that Die

I've been thinking a lot recently about my reasons for blogging.

I spend my entire day with ideas (after all, I am a student), and I've noticed that 99.99% of the ideas that I create have already been created by somebody else. The implication: I am not blogging to flood the world with completely new ideas.

That fact depressed me initially. However, I've realized that it should not.

The most important event in the life or death of an idea is not its birth. In a perfect world, it would be. A great idea would be born and it would grow and spread based on its merit and usefulness. But we do not live in a perfect world. In reality, ideas live and die because people spread them or ignore them. This process is the most important element in the life of an idea, and those with a voice are the gate-keepers who control it.

Each of my blog posts is an addition to that process. Right now, my voice is soft in the crowded world of people who yell about ideas. My voice could grow in strength, or it could remain a whisper. And I'm actually fine with either outcome.

However, I recognize great ideas every day. I even come up with some. Ignoring them would be unjust. This is my way to give them life.

With that in mind, if an idea on this blog is useful or interesting, help me to spread it. If it is not, let me know, then ignore it.

Thanks for reading.

Wednesday, January 13, 2010

Ruining the Final Product

I recently heard this phrase at the end of a meeting: "That went really well! I'm so happy that we were able to incorporate everybody's ideas."

Was the meeting a success?

If placating everybody who was in the meeting was our goal, congratulations to us. We succeeded. If we were trying to create something amazing, we failed. Compromise is an enemy of excellence.

Somebody argued for a push-button keyboard on the iPhone. That argument was rejected outright - the touchscreen keyboard is not a compromise, it is a redefinition. A better product was the result.

Somebody argued that 140 characters is too little text to say anything meaningful. Twitter rejected that argument completely. One of the worlds 20 most visited sites was the result.

The best products and ideas are not great because of what they included. They are great because of what they left out.

Sometimes it's best to put feelings aside and just say no.

Tuesday, January 12, 2010

Just For Fun . . .

Here's a fun activity: Next time you meet with businesspeople who use a lot of jargon, ask them to define a few of the words you don't understand. I'm serious, tell them to speak slowly, then write as they talk.

If they can accomplish the task, put the definitions in your pocket until you have an internet connection. Then check it on Google. See what happens. You may be surprised.

I write this because I realized that yesterday's post was incomplete. Sometimes it is tough to learn business language because people who are supposed to know it use it incorrectly. They define things incorrectly. They mix up definitions. Sometimes they use words they don't understand.

It's too bad. But it is reality. Be aware that it happens, and don't be afraid to ask questions.

The brightest and the most honest businesspeople will be happy to help you understand. The dishonest or incompetent will be less helpful.

Either way, you'll learn something important.

Monday, January 11, 2010

Intelligence Is Not the Issue

I have intelligent friends. Most have an undergraduate degree or higher. The ones who don't could earn one without much trouble if they wanted to. They read widely, and I can converse intelligently with them about almost any topic. That's one of the reasons that we connect.

However, I have been surprised recently by a subset of my friends. Conversations with people from this group are generally smooth and fun. I don't know much about Freudian psychoanalysis or Jungian archetypes? No problem, my friend can explain it to me. My friend doesn't understand what a mathematical limit is and why it's important? Not an issue. I can describe the concept and significance in a few minutes. They will understand.

However, the minute that I use words like "call option," or "variable cost" my friend's eyes go blank. I offer to explain. The usual response: "No thanks."

Sunk costs, opportunity cost, options, margins, etc.: these are important concepts! They shape our world! But for some reason, this group of my friends does not care to learn about them. Why?

I don't think it's because the ideas are too complicated. They are quite simple. It might be because the ideas are boring, but I doubt that's the main reason. Everybody has read something for an English Lit or History course that is more boring (and much less useful).

I think it is a gut reaction. We have all felt it. Somebody says a word like "index fund," and we are reminded that we don't understand, even though we know we should. It's the same unpleasant feeling most of us get when we realize we have to do our taxes. We should know this stuff by now, and we're ashamed that we don't. Instead of facing the shame, we shut down.

Shutting down may help in the short run, but it doesn't change things. Business ideas and language are not going away. In fact, they're becoming more important as the world's wealth grows. Avoiding ideas is no longer an option.

The good news is that nobody is born knowing this stuff. I'm at one of the top MBA programs in the world and I learn new language and concepts every day. It is an ongoing process.

This stuff is not that difficult to learn. The toughest part is admitting that you don't know something that you should know, swallowing your pride, and starting to learn.

Note: If you don't believe me that smart people know very little about economics and business, check out this video.

Sunday, January 10, 2010

Thinking Critically and Taking Responsibility

Lane Wallace has an interesting article in The New York Times titled "Multicultural Critical Theory. At B-School?"

The central theme is excellent: business schools are wise to teach their students multiple ways to think critically about problems. Then when these students become business leaders, they will be able to analyze a problem with many perspectives. After all, an economist looks at a problem through a different lens than psychologist. Both are valuable views.

She cites the University of Chicago Booth School of Business as a school that is resisting this change. The MBA program "has decided to keep its disciplined based approach," she writes.

She is correct that we are keeping our discipline-based approach. She is incorrect that we are resisting multiple perspectives to problem solving. I've only been at Chicago Booth for one quarter, but I've already begun the process of honing my abilities think critically as a(n):

  • Economist
  • Accountant
  • Financier
  • Political Scientist
  • Historian
  • Marketer
  • Psychologist
  • Statistician
  • Software Developer
  • Philosopher
  • Ethicist
  • Ethnographer.
These are the styles of thought that I can remember employing thus far, but I am certain that there are more.

Ms. Wallace is correct that Chicago Booth does not force us to use all of these perspectives, and some classes are extremely heavily weighted toward a single discipline. However, Chicago Booth students learn as many ways of thinking about a problem as we would like (and the school actually does set a minimum number of disciplines that are required to learn). The ultimate decision rests with us. We determine our own learning paths.

I personally agree that more perspectives are beneficial, and hence I will be taking classes in many subject areas. That is my decision. Some of my classmates will focus deeply on one style of thought. That is their decision.

We Chicago Booth graduates will live the rest of our lives with the decisions that we make while we are here at school. I do not think I could find a single student here who does not appreciate that fact. We take our education seriously. We know that we are preparing ourselves for the world after B-School.

We will do what we think is best, and we will live with the consequences. If we have not learned to broadly enough to succeed, we will suffer the setbacks. We understand.

That is how the real world works.

Saturday, January 9, 2010

A Nation of Problem Solvers

Every once in a while, I am uplifted by foreign perceptions of America (and Americans, by association):

The Atlantic article "How American Can Rise Again" recently contained one such example:

This fall in Sydney, the head of an investment bank laid out for me the ways that profligate spending in the United States had brought the world close to financial disaster, and the future problems that would be created by America’s looming federal deficits. Then he said, “And we will look on in awe as you avoid catastrophe at the last moment—again.”
We may skirt disaster, but its good to know that there is undying (and sometimes bewildered) faith that we can pull through.

Thursday, January 7, 2010

Money is Best When it is Made

I'm in business school. As a result, I have become ultra sensitive to the media's extraordinarily vocal displeasure with business and business leaders. It seems that I can't pass one day without hearing more angry rhetoric.

Luckily, one can always look for a balancing view by checking other sources. Take this excerpt from a speech that I read recently:

But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man's capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made -- before it can be looted or mooched -- made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can't consume more than he has produced.
It's unfortunate that this particular speech comes from such an old source. It was published in 1957 in Ayn Rand's Atlas Shrugged, spoken by the brilliant character Francisco d'Anconia.

I would not argue that every business-person is good and honest, but many are. And those many are extremely valuable. They enable production which allows the world to consume.

Wednesday, January 6, 2010

The Two Decisions that Consume Half of Your Income

What if I told you that just two decisions determine how you will spend 50% of your after tax income?

Would you want to know what they are?

If you knew what they were, would you spend lots of time thinking about those decisions? Would you give up six days of earnings just to think about the decisions? Six weeks? Six months? Six years?

I didn't realize until yesterday the situation that the average American family is facing, but it is essentially what I described above. In fact, the average American economic unit spends about 50% of their after-tax earnings on two things: $24,643 per year on two items.

The items are actually obvious. They are 1) Shelter, and 2) transportation. For most people that means 1) a House/Apartment and 2) a Car.

If you're not constantly investing in improving your earning power, 50% of your financial future could be determined just by these two financial decisions.

Just stop and think about that for a minute . . .

I'm not arguing that spending more time on either of these decisions is a financial silver bullet. But the decisions seem pretty important.

They're certainly more important than I realized.

Regarding the questions above. I ran some numbers, and if I were in a situation similar to the average American family, I would definitely be willing to give up 6 weeks of earnings to make a better decision about my car and home. No reservations. If I could save 5% just on the price of a home by taking that time off, I'd definitely come out positive in the long term.

Tuesday, January 5, 2010

Where Does Your Money Go?

A very interesting image from shows the average annual expenditures of U.S. Consumer Units (note that a "consumer unit" actually counts as 2.5 people; "household" might have been a more descriptive term):

For a full size image, click through to

I'm more interested in how the numbers break down into investments and necessary spending vs. discretionary spending. Take a look at this:

UPDATE: A little hard to read, but in declining size, the categories are (Mixed, Necessary, Discretionary, Investment and Risk Management, and Misc.)

The "mixed" spending category shows things like house and vehicle expenses, where people have a great deal of flexibility in their spending, but they still need the items contained within. This category contains almost as much spending as the other categories combined.

The other surprising area is the "Investments and Risk Management" category. It's tiny - only about 6% of income!

So here's the interesting part: Imagine if the average "consumer unit" were to shift 1/3 of their spending away from the house and car - it seems reasonable that an average unit could live on ~$16,000/year of housing and car payments).

Then, they place this money into the investments category. That's about $8,000/year, which grows!

Best part: the rest of the family's life is unaffected.

Consider that when making a house/car choice. Tough decisions, but they seem worthwhile.

Note for those who care: this is how I categorized.

  • Mixed: Housing-Shelter, Housing - Utilities Fuels; Public Services (these vary based on size of home); Transportation - Vehicle Purchase; Transportation - Other expenses and transport; Transportation - Gas, Motor Oil; Housing - Household furnishings, equipment; Personal Care
  • Necessary: Pensions, Social Security; Food - at home; Health Care; Housing - Household Operations; Housing - Housekeeping Supplies
  • Discretionary: Entertainment; Food - Away from home; Apparel and Services; Alcoholic Beverages
  • Investments and Risk Management: Cash Contributions (savings and retirement); Education; Life, other personal insurance; Reading
  • Miscellaneous: Miscellaneous
  • Note: Tobacco was removed

Monday, January 4, 2010

Funny Competitor Convergence

I've been analyzing competitors in the online personal finance space. After signing up for 10 services and spending time using each, I've been surprised by how similar most are. In fact, five of the services handle the same 9 tasks.

Of those five, one is clearly the most complete and one is clearly the easiest to use. In a world of perfectly informed users, the other three should go out of business quickly.

But they haven't. In fact, some of them are growing their user bases.

Question: Why?

My Answer: Trying all 11 services required about 12 hours of my time. There aren't many people with that much free time to invest in finding the best. And once people choose, switching takes time and energy. Even an adequate service can grow . . . for a while.

Saturday, January 2, 2010

Creating Value in a New Context

I've recently joined a web-based start-up as the head of marketing. This is going to be a completely new experience. Why? The company only has 3 people (including me).

At my last job, I became comfortable "adding value" to my company. I knew what needed to be done, and I did it. However, that company had 200 people, and I spent a large portion of my time dealing with other people within the company.

Now, I have a new concern. I don't have to worry about pleasing superiors. I need to add value for customers, many of whom I won't even know personally.

It's a new challenge. And I'm excited.

Time to start experimenting.

I'll post results, learnings and thoughts here.