Columbia, MD is a created city built by James Rouse and the Rouse Company. It was built on farm land in Howard County halfway between Baltimore, MD and Washington DC. Rouse is hailed as a visionary and a great person but not everything done always met the smell test. Continue reading
We have been working with a nearby company, Annapolis Clean Carpet to help them move up in the ranking in the different search engines. We have had some problems with it at first, but let me tell you the general idea.
No one truly knows what the algorithm is that the search engines use to figure out ranking. They don’t want you to know it because otherwise everyone would try to game it and that would defeat the purpose of their algorithm. People try and game it as it is of course, but the search engine algorithms get smarter all the time. Continue reading
TV Shows Business Model
The other day, House of Cards was filming at a church right around the corner from where we live in Baltimore. Quite a site, with trailers all over the parking lot, food trucks, generators, limos, hundreds of people from the actors to all the support staff.
There were tens of thousands of dollars being spent on this and it was just one scene from one show. How do they afford this? Continue reading
I have heard this elsewhere but it was brought home again in the book “The Ultimate Sales Machine” by Chet Holmes. The model that he touts in large parts of the book is also similar to how many people sell on the internet.
Essentially the Strategy that Many Use on the Internet
Google uses this model in many ways. For them it isn’t so much about providing education as information, which is not that different. By offering something of value for free, they attract a large audience that then becomes attractive to sellers and so Google makes its money on advertising. They are able to provide advertisers with more targeted advertising than almost any method of advertising in the past.
Many other people use education to sell on the internet. They offer a free ebook, free information on their website, a free webinar with information that is useful to people to attract them. Then they offer a subscription or more in depth offering for a fee and that is how they make their money.
Expand Your Audience
What Chet Holmes points out in the book is that usually only about 3% of people are looking for your product or service at any time. There are a lot more that might be helped by it and save money using it but they don’t realize it and therefore aren’t looking for it.
Educate and Direct
If you advertise or promote your product or service, you will attract the 3% but not the other group which is many times that size. It is just not on their radar screen. However, if you offer education that helps them, they will pay attention. Things like, 7 Things You Can Do to Double Your Sales, or 10 Things You Should Know About Indoor Pollutants in Your Home, etc. Then you can pick compelling information that also makes a case for your services or products.
By doing this you are not only appealing to the 3% but to the 30 or 40% of the population who probably have need of your product but don’t know it.
You can do this through advertising, meetings, trade shows and other means.
Tuck Business School is usually ranked in the top 5 in the country. Its professors are well known in the area of business strategy and have come up with some important ideas and concepts.
One of them is Vijay Govindarajan. He grew up in India in a lower middle class neighborhood in a one bedroom house with his parents and five brothers and sisters. Electricity couldn’t be counted on. He figured that India had few resources and lots of problems. If he wanted to get ahead he was going to have to be innovative. He feels that the only way to move up, either as a person or a corporation is to be creative and innovate.
Vijay went to Harvard Business School on a Ford Foundation scholarship. The scholarship required that he spend two full years in India after graduation. But then he got a job offer from Harvard Business School and they required him to start work one week before the full two years were up. Neither Harvard or the Ford Foundation would budge and Vijay had to pay the Ford Foundation back for his business school education.
He was struggling to get by when a more senior professor suggested that he try doing some consulting on the side. He did and loved it and found that it provided a great synergy to his teaching and research. He was able to get in and see what companies were doing and not just do things from an ivory tower more theoretical approach.
One key idea this has led to is Reverse Innovation. Reverse innovation is the process of inventing or designing products for use in underdeveloped or emerging markets. Then you bring those products back to the wealthier countries.
Example / Inspiration
He came up with this idea of course while consulting. In this case, he was consulting with GE. He saw that they had developed an ultrasound for the Chinese market that only cost $5,000 and was portable. In the US an ultrasound machine with similar function costs $300,000. GE brought this machine to the wealthier countries and sold a ton of them. But they didn’t understand what they had done because it was such a small event in such a large company. Vijay picked up on this and used it as a focus for his research. He also told GE’s CEO Jeffrey Imelt about his discovery and Imelt jumped on the idea. He made it a major focus for the following year.
My mentors, Dan & Brad spoke last night and stressed that the key to a successful business is leads and sales. You might add a third, which is conversion. Just because you have a lead doesn’t guarantee a sale, so conversion is important as well. Although if you have enough leads you can overcome poor conversion.
Play to Your Strengths
They pointed out that some people are able to excel at both, but many people have a knack for one or the other. So team up and let each person do what they are strongest at. One generating leads and the other closing business. Sometimes the whole is more than the sum of the parts. Each of you should make more money teaming up.
We were also reminded that business owners don’t care how many ads you run, whether they are in position 1 on a Google search or anything else like that. They care that they are getting leads, making sales and growing their business. If you can deliver leads, they aren’t going to care what position they are in.
Listen and Question vs. Pitch
Find out from them how many leads they are getting currently. How much is an average sale and what is the average margin or profit per sale. Then you can figure out where they are now. Then ask given their current resources, how much extra capacity do they have to do more work. If they are maxed out, that is a different discussion.
Most companies have more capacity to do work that they an utilize. Then take that number and multiply out and figure out if they could get the leads and the sales, how much extra in sales and profit that would be. Then ask them what they are doing to get there. If they are just going to do more of the same, they might not make it to that goal. They need a new channel and strategy to bring in more sales. That would be you!
Listen, Diagnose, Prescribe
By finding where there pain is and where their dreams and vision are you are gaining information and leverage so you can better sell them but more importantly so you can better help them. If it doesn’t work for both parties you probably won’t make a sale. So don’t just pitch them and sound like everyone else touting why they are great. Listen, diagnose, and then prescribe.
I know I have already done a post on passive income. I was sitting down one day and wrote out some more by hand. Sorry if some of this is a repeat.
Passive Income vs. Active Income
What is passive income and why do you want it? Basically passive income is making money while you sleep or vacation. How would you like to go on vacation and come back with as much or more money as when you left? (And not because you hit the lottery while you were on vacation.)
This is basically your salary, your paycheck. The problem is that you are trading time for dollars. You only get paid for the hours that you work. If the work is something that a lot of people can do, it doesn’t pay well. For example, washing dishes or digging ditches. You can be really good at it and you still won’t make much money.
The more unique your skills, the more you can make per hour. Lawyers make $200-500 per hour and sometimes more. A doctor is similarly highly paid because of their specialized knowledge. But even among doctors, some with unique skills are paid much more than other doctors.
BUT. They still only get paid while they are working. If they take time off or go on vacation, they aren’t making any money. So their income is capped by the hours they can work unless they have another source of income.
Passive income is not dependent on how much time you put in, but on how smart you are in how you use your time, resources and money. Passive income can take various forms. Following are a number of examples of passive income.
One way many people do it is investing in stocks or bonds. The assumption is that you will receive income from dividends and also that the value of the stock will go up over time. The problem is that sometimes the value drops so you not only aren’t getting passive income, you are losing money.
Another way is to loan money and earn interest. A wise person once told me that smart people (and often also wealthy people) earn interest and that foolish people (and usually poor) pay interest.
Hard money lenders
One example of this are hard money lenders. These can be anybody. There is a doctor locally who is a well known hard money lender. They lend money to people rehabbing houses. Frequently they take a fee of 5% of what is loaned and the interest rate is often 12-15%. Why would someone borrow at such high rates and with such high fees? Hard money lenders are more flexible than banks. (But they aren’t stupid. If you don’t perform, they will end up owning your house, although for most, this isn’t their goal.) You don’t need all the paperwork associated with a bank loan. It can be done much faster. And what if you have a ding on your credit and can’t get a bank loan? The hard money lender only cares about if the deal makes sense and not your credit rating.
You would never use a hard money loan to buy a house and rent it out. You would lose your shirt. The loan makes sense when you buy a house, take 1-3 months to fix it up, then sell it. So you are only paying the high interest rates for a short while and if you did the rehab right, you have significantly increased the value of the house and you will make a nice profit despite the high interest rates.
But, for the hard money lender, rather than making 2% interest in a bank account, they are getting 5% of what they loan and then 12-15% interest. And, if the rehabber is fast, they can do this with their money 3-4 times a year. It only takes them a few years to double their money.
Book and Music Royalties
If you write a book or write a song or sing a song that is popular, you can earn a lot of money on the royalties. Of course, many people write books and songs that aren’t that popular and never make much money. But the idea is that you put in the time on a one time basis and then you can make money from it for years to come.
TV and Movie Royalties
Similar to book and music royalties. If an actor is in a TV show or a movie, they will get royalties whenever it is shown or a DVD is purchased. If it is popular in reruns, they can make money for years for the short period of time they did the acting. However, this isn’t true for all actors. Performing on stage is like having a salary. You only get paid for the performances you act in and the salary is limited by the size of the audience in the theater. But for TV and movies there are two effects that make for a much greater income. The first is that the audience can be in the millions and therefore the pay is greater. The second has already been mentioned in that you not only make money at the time, but each time it is show in the future which can’t happen with a play or musical.
Inventors, Patents and Royalties
Another way is to be an inventor. You can then patent the product or process and license it to a company who pays you a royalty for the use of the invention. Another way is to create a company around the invention that grows and if run well, allow you to step away while other people run the day to day business.
Starting a business
Some people start a business and they spend even more time working on it than they did when they had a job working for another company. The key is to create systems so that other people can be trained to do the work and you don’t have to be putting in crazy hours all the time. There is a great book on this topic called the eMyth Revisted by Michael Gerber.
Another way is to write a piece of software or an app or plugin which people then buy. Or you can set up a marketing / sales funnel on the internet which brings in leads or sales automatically for you.
These are just a few ideas for passive income.
Do you think sports players are paid too much? Why are they paid as much as they are? Is it just because they are good at what they do? If so, why does a professional lacrosse player with tremendous talent have to work a job as well as play lacrosse, whereas a baseball or football player makes enough money to retire after a few years of playing if they want to?
And why are they paid so much more than people who have other jobs who work just as hard. It can’t be because of physical danger. Otherwise we would pay police and firemen and miners a lot more money. Many people don’t understand it and are angered by it, like this article in TeenInk.
It is because of the leverage they bring. People like watching the games. Lots of people! Companies need to sell their products and they are always looking at different ways to market and advertise their products. So the large audience that the athlete’s generate is very attractive to the advertisers.
It is like a cycle that reinforces and gets stronger as it goes along. The companies advertise on television and radio because they know they have a large audience and they can determine some general interests of the audience so they know which products to target. The radio and television companies then pay the teams for the right to broadcast the games. The larger the audience, the more they will pay.
So that is why football and baseball teams can afford to pay so much more than a lacrosse team for instance.
But once this is set up, you have a lot of people with a vested interest in having it continue and helping it to grow. If the audience grows, advertiser will pay more, the teams will receive more money and the athletes will be paid more. The local newspapers, even though they aren’t directly involved in the way radio and TV are paying fees to air the game, they write about the games and the athletes because it helps sell newspapers. The writers and the TV and radio announcers have an interest in promoting the sport and games as well because it gives them a job and the more popular the sport, the more they are likely to get paid. Just not as much as the athlete’s.
Before they formed unions, the athlete’s were actually underpaid. If their abilities get enough people watching that the advertisers, the TV and radio stations and the teams are making millions or billions of dollars, the athlete’s should be getting a cut of that.
It is similar to television stars. The more people who watch a show, the more the actors will be paid.
Passive income should be everyone’s goal. It is how you can retire and enjoy yourself. What is passive income? It is income generated by doing little or no work.
Most people who work for a living are doing what is known as trading time for dollars. You work 10 hours and get paid 10 times whatever your hourly wage rate is. So if you make $10/hour, that would be $100 and if you make $50/hour that would be $500.
But what happens when you take vacation or time off? In some cases, companies have agreed to pay their employees for vacation time. But if you provide a service, such as a lawyer or a doctor, you don’t get paid for the time you don’t work (unless you are working for a company on a salary basis).
Granted, because of education, and providing a needed service, some people earn a very high $/hour amount, but they are still trading time for dollars.
Many small business people start the business because they have gotten laid off and decide to start a business, or they think they are going to be the next MacDonald’s or Starbucks. Although others just want to make a living. But many people don’t understand what is involved in running a small business and trade the rat race for something worse. As owners of a small business, they are responsible all the time. They can’t turn it off at the end of the work day. And they end up working harder and longer than ever.
But, a business doesn’t have to be a slog. It can be a form of passive income. What you need to do is set up systems, so everyone knows what needs to be done and how it should be done. You train good managers. Ultimately, the business can run effectively without you being there. At that point you can retire, or start a new business and do it again.
So, how do you get money working for you? You do it by various forms of investment that will generate a passive income. Examples?
Many people do it by investing in stocks and bonds. These pay dividends. If you build up a large enough portfolio, it will generate enough money to replace your income. In addition, frequently, if you have invested wisely, the value of the shares will increase in value over time which will add to your net worth. This is also passive.
Other people do it by investing in real estate. Granted, it is work to manage a property, but you aren’t getting paid by the hour. You still receive rents whether you are on vacation or not. And if you get a large enough portfolio of real estate, you can hire a manager, so you can truly be hands off. You still have to manage the manager but you don’t have to deal with the day to day headaches.
Then there are royalties. If you invent something and patent it, you can license it to different companies and sit back and collect royalties. It used to be that to open a can, you used a can opener to punch a hole in the end. Ermal Fraze invented the pull tab and made a fortune. Or Robert Abplanalp who invented the modern aerosol valve and also made a fortune.
Or, think of JK Rowling and the royalties she is making off the Harry Potter books and movies.
Then there are musicians and actors who receive royalties every time a movie is shown or bought or every time a piece of music is played. They don’t have to act or sing or play each time to get paid. They can get paid for what they have done while they are sleeping.
So whatever you do, try to figure out a way to turn it into a royalty stream or some way to create a passive income.
Supply and Demand and Ice Cream
Despite the name of the article, it is really about supply and demand. The basic idea of suppy and demand is basic to economics and business.
Here is an example. It is a really hot day and you are somewhat hungry and you have a chance to buy an ice cream cone. How much would you pay for it? You finish that and you are still hot, so you buy another. But how much would you be willing to pay for a third, fourth or fifth cone? Not much if anything. So the supply has exceeded demand and the price goes down.
Now, lets say that there are 4 people and there is only one ice cream cone to be had. They will fight over being able to get the cone and the price will end up higher than normal. In this case, demand exceeded supply and forced the price up.
Chinese and Fine Wine
Well, the same thing is happening with wine. There are many newly wealthy Chinese and a number of them have developed a taste for good wines, particularly from the Bordeaux area in France. There are so many Chinese and so many newly wealthy ones that it doesn’t take all that many to impact wine prices.
Typically if demand is driving prices up, you just make more until supply and demand balances and the price stabilizes. If you or you and other companies get over zealous and make too much, then supply will exceed demand and the prices will come back down again.
But with wine, it is different. Yes, you can make more wine, but the wines with a name and reputation are only grown in one place and there is no easy way to increase supply. That means there is only one direction for prices to go and that is up.
The Chinese obsession with red wines led to a bubble in prices in Bordeaux in 2011. A top wine like Chateau Lafite was going for $23,000 a case or almost $2,000 a bottle.
But, we said a bubble, implying that prices also came down despite no increase in supply. If there was no increase in supply, then there must have been a decrease in demand. Why would that happen?
Dutch Tulip Bulb Mania
Tulips were introduced to Europe from Turkey in the late 1500s. People really liked them. The more spectacular the variety, the more valuable it became. By the early 1600s, people being people were speculating on them and the price of tulip bulbs went up. Everyone wanted one and the prices went above anything reasonable or sustainable, but people figured prices were going to keep going up and they had been going up quickly, so better jump on the bandwagon and buy one.
But, it was artificial demand, stoked by people buying on speculation. When enough people decided they weren’t going to buy at the inflated prices, the process reversed and prices started to tumble.
Something similar happened to the wine market, where the prices started to drop after 2011 for the most expensive bottles and are now 40% lower than they were at the peak. But this means that they are still well above where they started. Even though the speculation has died out, the new added demand from China has probably permanently increased wine prices, at least at the high end.
One thing that has slowed down Chinese consumption is that a lot of the wine was given as gifts and over the last year or so, there has been a crackdown and conspicuous gift giving is much more frowned upon now.
Ironically, many people said the Chinese were new to the game and didn’t know what they were doing. But, unlike many Westerners who buy these top wines, they are actually drinking the wine. A number of Westerners buy the wine to cellar as an investment.