This post is about the logical extension of BUYING locally. It's all about INVESTING locally.
There are a lot of topics related to small business and microbusiness that bring out great passion in me. This post is going to be about one of those things that excites me and scares me....makes me crazy and happy...makes me DREAM of a better future.
I'm ready to destroy the Wall Street model.
Why does Wall Street exist? Anybody in Finance will tell you that Wall Street exists for one simple reason: to allocate capital. The Wall Street model of capital allocation may work just fine for pension funds and institutional investors. But I don't think it works well at all for most investors. Furthermore, it's easy to imagine a system of capital allocation that would work better for small business and microbusiness people.
For years, Americans have been working hard. At the end of the week, we shovel our extra nickels and quarters into our IRA or our 401(k). That fund is administered by some lackey on Wall Street. They rate the investments (based on who they are underwriting, not based on any legitimate merit), they run the funds, they take your extra nickels and quarters and they PAY THEMSELVES FIRST.
Don't kid yourself. They pay themselves first. They ALWAYS pay themselves first.
If there is any money left over, you might squeak out some kind of return from Wall Street...at least, you have a chance if we're in a long period of prosperity. There are also a couple of long periods in the last 40 years without much prosperity. But if things are going well and if your fund managers are making enough to pay themselves, you might have enough money for a comfortable retirement.
To me, this model is for shit. And I'm hopeful that RIGHT NOW the stars are aligning for the first time in 150 years in a way that might completely revolutionize finance as we know it.
Look...we've got computers. We've got internet access. Do we REALLY need fat cats on Wall Street to allocate capital for us? Are they really actually good at it? Or is now the right time to take back some control?
Is now the time that we ALL use self-directed IRA tools and learn how to INVEST LOCALLY?
Couldn't that be the next, most logical extension of the movement to BUY LOCALLY?
Everybody THINKS they have a self-directed IRA. If you can buy any stock or mutual fund you want to buy, you would probably tell me that your IRA is "self-directed." Will your IRA allow you to buy, hold, and manage real estate as an investment? Will your IRA allow you to make a private placement in an LLC? There are some TRULY self-directed IRAs out there. Here are a couple:
Equity Trust
Guidant
Bottom line...why would you want to work your whole life and shovel your money off to Morgan Stanley or Goldman Sachs? You're playing their game. They pick the winners and losers, really, and you just hope they are right...or crooked enough to run a Ponzi scheme long enough for you to cash out.
With a truly SELF directed IRA, YOU can make a private placement in a local business...could be a hot dog cart vendor or a person wanting to start a hair salon or a dog grooming business or a shoe store or any one of a million other potential locally owned and operated businesses. Why invest on Wall Street when YOUR investment could be creating businesses and jobs LOCALLY?
The communities that REALLY understand this concept and get out ahead of it are going to be the communities that succeed over the next decade. Economic development doesn't need the inefficiencies imposed by the Wall Street model of capital allocation.
Get out in YOUR community. You already know the benefits of BUYING locally. Now get to know INVESTING locally and see the resulting benefits grow exponentially. Create an investment club. Run a monthly "pitch" meeting. Get some local placements made. We're working on it here in Lawrence, Kansas.
Can you Destroy Wall Street from where you live?
Friday, December 19, 2008
Money
That's a catchy title, isn't it? Money.
Before we get back to revenues, let's talk about Money. Remember, Money is the initial investment capital you need to get a venture off the ground. Americans, it seems, have what I call a "Las Vegas mentality" when it comes to start-up capital.
Why do I invoke Las Vegas? Because it's the great, culturally acceptable American lie! What do I mean by that? Well, have you ever had friends or relatives that went to Las Vegas for a trip? Of course you have. And when they come back, they tell you one of three things:
--I broke even
--I won a little bit of money
--Oh, I won about enough to pay for my trip.
Folks, these people are full of shit! Don Trump and Steve Wynn didn't irrigate the desert and build all those buildings to contribute to your kids' college funds! People LOSE money far, far more often than not when they go to Vegas. If they were honest, they'd say, "Well, I should have brought the title to my house with me so I could have refinanced and kept on gambling while I was out there!"
And frequently, people are full of shit when they are discussing start up capital for businesses. People, it's HARD to find Money. Don't let anybody tell you anything different.
As Americans, we want to believe that, gosh darn it, I'm good enough, I'm smart enough, people like me, and I've got a GREAT, bulletproof business idea. The money will somehow BE there, right? I mean, it's America! We never let lack of money get it the way of buying houses and cars we can't afford! We'll come up with the money somehow!!!
Be forewarned. Start-up capital for entrepreneurs, for small businesses and microbusinesses, is hard to find. In all likelihood, you are going to self-finance your venture. DON'T get me started on Matthew Lesko and his bullshit about grants. I'll save that for another post, somewhere down the road.
Money is the number one reason why people fail in their attempt to get started. If you don't have money, be prepared for a very difficult, illiquid market for start-up capital. People toss around terms like "venture capital" and "angel investor" like they were nothin'...like there are people walking the streets with assloads of money that are JUST SEARCHING for business ideas...just like yours!
It's not true. Now, there are creative financing strategies out there and people to help you figure out creative ways to raise money. But it's probably not going to look anything like what you think it might look like.
Before we get back to revenues, let's talk about Money. Remember, Money is the initial investment capital you need to get a venture off the ground. Americans, it seems, have what I call a "Las Vegas mentality" when it comes to start-up capital.
Why do I invoke Las Vegas? Because it's the great, culturally acceptable American lie! What do I mean by that? Well, have you ever had friends or relatives that went to Las Vegas for a trip? Of course you have. And when they come back, they tell you one of three things:
--I broke even
--I won a little bit of money
--Oh, I won about enough to pay for my trip.
Folks, these people are full of shit! Don Trump and Steve Wynn didn't irrigate the desert and build all those buildings to contribute to your kids' college funds! People LOSE money far, far more often than not when they go to Vegas. If they were honest, they'd say, "Well, I should have brought the title to my house with me so I could have refinanced and kept on gambling while I was out there!"
And frequently, people are full of shit when they are discussing start up capital for businesses. People, it's HARD to find Money. Don't let anybody tell you anything different.
As Americans, we want to believe that, gosh darn it, I'm good enough, I'm smart enough, people like me, and I've got a GREAT, bulletproof business idea. The money will somehow BE there, right? I mean, it's America! We never let lack of money get it the way of buying houses and cars we can't afford! We'll come up with the money somehow!!!
Be forewarned. Start-up capital for entrepreneurs, for small businesses and microbusinesses, is hard to find. In all likelihood, you are going to self-finance your venture. DON'T get me started on Matthew Lesko and his bullshit about grants. I'll save that for another post, somewhere down the road.
Money is the number one reason why people fail in their attempt to get started. If you don't have money, be prepared for a very difficult, illiquid market for start-up capital. People toss around terms like "venture capital" and "angel investor" like they were nothin'...like there are people walking the streets with assloads of money that are JUST SEARCHING for business ideas...just like yours!
It's not true. Now, there are creative financing strategies out there and people to help you figure out creative ways to raise money. But it's probably not going to look anything like what you think it might look like.
More on The Three M's...
Let's dig into The Three M's just a little bit more.
I am not going to spend much time on Management for right now. Some small business people are great at management...some are not very good. I work with a lot of technician entrepreneurs. If they can manage their own time, anyway, they can successfully run a microbusiness. At least they might be able to provide self-employment, if not a thriving, employee-hiring, growing business. As their skills improve, they can grow. 'Nuff said.
Market is a tricky little bastard. Most prospective entrepreneurs tend to assume they will have a market. They are passionate about their idea. Their supportive friends and family usually pat them on the back and tell them how great the idea is and how they'll be their first and biggest customer.
I know a lot of bitter small business people...bitter because their friends and family didn't support the actual business the same way the supported the idea.
But maybe they wouldn't be so bitter if they had done actual market research instead of just relying on feedback that is basically biased to be good. If I had a dime for every person who showed up in my office assuming that their product/service was so good it would more or less sell itself, I'd be retired and on the beach right now.
Market is the M most likely to cause an entrepreneur great anxiety in the early days of business. Far, far more often than not, REVENUES for a start-up or early-stage ventures come in significantly BELOW the projections.
We'll talk more about revenues soon. Oh, yes...yes we sure will!
I am not going to spend much time on Management for right now. Some small business people are great at management...some are not very good. I work with a lot of technician entrepreneurs. If they can manage their own time, anyway, they can successfully run a microbusiness. At least they might be able to provide self-employment, if not a thriving, employee-hiring, growing business. As their skills improve, they can grow. 'Nuff said.
Market is a tricky little bastard. Most prospective entrepreneurs tend to assume they will have a market. They are passionate about their idea. Their supportive friends and family usually pat them on the back and tell them how great the idea is and how they'll be their first and biggest customer.
I know a lot of bitter small business people...bitter because their friends and family didn't support the actual business the same way the supported the idea.
But maybe they wouldn't be so bitter if they had done actual market research instead of just relying on feedback that is basically biased to be good. If I had a dime for every person who showed up in my office assuming that their product/service was so good it would more or less sell itself, I'd be retired and on the beach right now.
Market is the M most likely to cause an entrepreneur great anxiety in the early days of business. Far, far more often than not, REVENUES for a start-up or early-stage ventures come in significantly BELOW the projections.
We'll talk more about revenues soon. Oh, yes...yes we sure will!
Thursday, December 18, 2008
The Three M's
In this post, my goal is to share with you, the reader, the most critical things I learned in business school. Although my undergraduate work was in Philosophy and Russian, I did go back to school for my MBA.
The first important lesson I got in the MBA program was The Rule of 72. 'Nuff said.
The second important lesson was The Three M's. The Three M's are the critical success factors for all businesses. As important as The Three M's are for big business, they are even more critical for small businesses and microbusinesses.
What are those critical success factors?
Management: can you manage the enterprise or put together a team that can?
Market: can you sell this product/service to enough people (and for more than it costs you to provide it) to make it worth your while?
Money: can you get the required initial capital investment to get the business up and running?
Small businesses and microbusinesses need to understand these critical success factors and how they apply to their business. Frequently, we are working with technician/entrepreneurs who are doing all their own actual WORK. They might even be a little overwhelmed. That's why The Three M's are so important--if the things you are working on are NOT related to one of the critical success factors, you must ask yourself whether or not it is worthy of your time. Frequently, it's not.
Next up: more on The Three M's. We'll talk a little bit more about what each means.
The first important lesson I got in the MBA program was The Rule of 72. 'Nuff said.
The second important lesson was The Three M's. The Three M's are the critical success factors for all businesses. As important as The Three M's are for big business, they are even more critical for small businesses and microbusinesses.
What are those critical success factors?
Management: can you manage the enterprise or put together a team that can?
Market: can you sell this product/service to enough people (and for more than it costs you to provide it) to make it worth your while?
Money: can you get the required initial capital investment to get the business up and running?
Small businesses and microbusinesses need to understand these critical success factors and how they apply to their business. Frequently, we are working with technician/entrepreneurs who are doing all their own actual WORK. They might even be a little overwhelmed. That's why The Three M's are so important--if the things you are working on are NOT related to one of the critical success factors, you must ask yourself whether or not it is worthy of your time. Frequently, it's not.
Next up: more on The Three M's. We'll talk a little bit more about what each means.
Wednesday, December 17, 2008
Where are all the small businesses and microbusinesses?
I'll tell you where they are. They are too busy running their damn business to spend all day redirecting you from their Twitter feed.
Who am I looking for? I'm looking for hairstylists, plumbers, landscapers, owners of housekeeping companies, moving companies, roofing companies, and insurance agencies. I don't see too many of them posting on Twitter. They are busy generating revenues the old-fashioned way: answering the phone, greeting people, and learning how to ASK for business face-to-face.
These are the people I work with every day. Seriously, they do not have time to read the same formulaic bullshit that starts out:
"NINE TIPS for..." (and of course they promise you that your whole business will be revolutionized if you just sprinkle the fairy dust on your keyboard)
Running a small business/microbusiness is HARD WORK. There are no shortcuts. There are no easy tricks or quick fixes. When people act otherwise, it pisses me off.
Next post: Do you know what The Three M's are? I will be giving away half of what I learned in the MBA program in my next post.
Who am I looking for? I'm looking for hairstylists, plumbers, landscapers, owners of housekeeping companies, moving companies, roofing companies, and insurance agencies. I don't see too many of them posting on Twitter. They are busy generating revenues the old-fashioned way: answering the phone, greeting people, and learning how to ASK for business face-to-face.
These are the people I work with every day. Seriously, they do not have time to read the same formulaic bullshit that starts out:
"NINE TIPS for..." (and of course they promise you that your whole business will be revolutionized if you just sprinkle the fairy dust on your keyboard)
Running a small business/microbusiness is HARD WORK. There are no shortcuts. There are no easy tricks or quick fixes. When people act otherwise, it pisses me off.
Next post: Do you know what The Three M's are? I will be giving away half of what I learned in the MBA program in my next post.
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