Go Green, Get Green

About a year ago I bought new bedroom furniture. Instead of looking at local furniture stores, I went to the Internet and searched for it. One of the first things that came up was a company called Green Culture with their slogan “Products for an Enlightened Planet.” I looked around and found a couple I liked, finally deciding on the furniture shown below:

I like the look and was also sold on the fact that I was also doing good for the world so I paid my $3,000 + shipping for a set. While I’m not a fanatic environmentalist, I think these days given the choice most would choose to help if they knew they were doing it, and it didn’t inconvenience them.

Recently I needed a new dining room table, so this time I went shopping at my local Levitz Superstore. While browsing around, I noticed they had the same bedroom furniture with a slightly different bed frame:

When I looked at the price tag of the Levitz version, it was a bit disconcerting! What seemed to be the same product was on sale for $999.99 for the set! A year ago I paid $3,000.

The strangest part is that I really don’t feel all that ripped off. The “help your planet by buying farmed wood products” messaging must have worked on me. Besides, saving the environment is the cool thing to do these days. It’s probably the only subject that can take someone as bland and boring as Al Gore and turn him into a superstar, Academy Award and all. It’s also allowed Whole Foods to reach stellar success by building a nationwide chain that focuses on what’s good for you and your planet.

Once again, using my common sense approach it would seem prudent to add “going green” to my product selection criteria. It is a growing “hot button” among many Americans and it is something that has historically allowed companies to charge more for their goods and services than their not-green counterparts. Good for the the environment and business? Sounds like a win-win. Go green, get green.

Current Product Selection Summary:
My thinking is now being directed towards locating a tangible product for women possessing properties that would allow it to be marketed as expensive, luxurious and/or exclusive. This product should also be constructed of environmentally sound materials, allowing ”go green“ to be an additional focal point of the brand.

Men or Women: Which Makes a Better Target Market?

An interesting article was published in the March 12th issue of BusinessWeek entitled “Gender Gap A Tale of Two Inflations.” The article requires you to sign up with BusinessWeek, so here are a few key points if you don’t want to bother:

• The price of goods women buy over the past 18 months has grown 3.6% while goods that men typically buy has only grown 0.2%. This represents a significant gap!
• Single women spend a higher percentage of income than single men do, and women are staying single longer than ever before.
• Women spend more on themselves than men do.

The unknown that would make a huge difference for profitability of a venture is whether or not the costs for production and marketing are rising faster for women than men. My hunch is no, but sometimes just getting one piece of the puzzle can be very misleading.

Taking my common sense approach to finding my idea, I think I’ll focus on women. Besides the data that says they are willing to spend more on themselves, as a man I don’t know much about things that women regularly spend money on. I know they like shoes and bags and jewelry, etc. But to come up with a good idea, validate it, market it and deliver it in a way that resonates with the female population? That basically means I will either need to start studying real hard, which of course takes time, or I’m forced to follow rule #2 and #3.

Current Product Selection Summary:
My thinking is now being directed towards locating a tangible product for women possessing properties that would allow it to be marketed as expensive, luxurious and/or exclusive.

Product, Service or Hybrid… Hmm…

So I’ve reasoned that makes more sense to sell a high-margin product, which probably means a combination of expensive, exclusive and/or luxurious.

In an attempt to narrow down the possibilities further, let’s explore whether or not a product, a service or a hybrid offering (selling a product with services on top) makes the most sense.

A Service?
My initial hunch is that selling services requires someone to either deliver services themselves or manage the delivery of service. Starting out, this isn’t something I can afford to do from a time or money perspective. With service based businesses, your inventory is measured in man-hours available for sale meaning that if you are selling design services, you have to hire someone to deliver the design and manage the project. That someone has an upper limit of around 1700 hours/year per full-time employee.

Maybe I can develop a web site that matches service providers with customers, which is aways a possibility. The downside is that there are plenty of sites out there already doing this quite well.

A Hybrid?
The hybrid concept is not a possibility. My business would have to sell a product then manage the delivery of services. This is done quite a bit in enterprise software. First companies will buy the software, then they’ll buy customization and a maintenance contract. This is harder to do without matching up service providers, unless of course the product was something can be used with an existing industry’s service offering.

A lame example: a new hammer that has a site listing current handy men trained on how to use this special hammer. The issue here is that if it is really that special, someone may have to train new handy men on this whiz-bang new hammer, then the public would have to be educated on why they should demand this new hammer from their handy men. Sounds like a lot of work! Generally this is fine and expected of a new venture, but my rules won’t allow me to effectively pay for and manage such things.

A Product? 
Finding a product to sell seems like the most sense. The various aspects of developing and delivering the product can be outsourced. Selling a product can easily be purely transactional, as long as the product is simple and easy to use and/or appreciate (a pet rock for example!)

Summary:
I think it is safe to say I can start narrowing down my thinking to a tangible product possessing properties that would allow it to be marketed as luxurious and exclusive.

Market Selection Through Buffettology

Warren Buffet of Berkshire Hathaway is widely regarded as the world’s most successful investor. He has turned investor’s seed money of $105,000 into over $40 billion during the course of his lifetime by using a method referred to ”value investing.” Mary Buffett, the Warren’s daughter, explained his methods for investing in her book titled “The New Buffettology.”

Mary explains that the core of Buffett’s strategy is based on finding a company that holds a durable competitive advantage and/or ridiculously high inventory turnover. A durable competitive advantage is something like a patent, brand equity, simple product, etc. that allows a company to maintain high profit margins. Such companies have low fixed costs and low R&D costs. They create a product and that product is able to remain the same without much change over many years. Coca-Cola can do this, pharmaceuticals can’t.

Warren Buffet has made more money than any human being, save Bill Gates, by simply looking for and purchasing companies that posses a durable competitive advantage (while on sale during a bear market of course). If he’s lucky, these companies will also offer high inventory turnover, which makes for very, very attractive long-term profits.

If I am to create a successful business by selling a tangible product (not that I need to sell a product, but I may as well entertain the idea) that requires neither my time nor my money I suspect whatever I sell should have a durable competitive advantage of some sort. My product will need to have high margins and the way to do that is through creating an air of exclusivity.

The real difference between a Bic pen and a Mont Blanc is some metal around it. At the core, the two devices are meant to do one thing, offer a tool for transferring thoughts to paper. However, a Bic costs 30 cents. Mont Blanc “Writing Instruments” will cost you into the hundreds. Does it cost that much more to manufacture a Mont Blanc? Probably not. But the brand is designed around exclusivity and luxury.

Bic competes on costs, making it a commodity price-oriented product with very low margins. The problem with competing on price is that gaining a competitive edge means making less money, or another way of looking at it is over time you’ll need to be doing the more work to maintain the same income. Mont Blanc competes on emotion, meaning price has nothing to do with it. That gives Mont Blanc the scent of a durable competitive advantage.

For me, I think its safe to say that I prefer the opportunity to come up with an idea for a luxurious product to a commodity product. I’d even go so far as to say I cannot sell a commodity product if I wanted to becuase I will most likely be charged a per-transaction fee by the vendors who handle the logistics side of orders. This will eat into a commodity product’s already non-existent profit margins, making it much harder to reach my goals.

My Next Steps to Financial Freedom

Given that I am starting from nothing, I should probably be spending some thought on a product idea if this experiment is to be a success.  The steps I will be following to get my new business up and running are:

1. Identify a market demographic that would make a “good one”, though more thought will need to go into theoretically what a “good one” is based on the rules of my experiment. I do know I need to take into account my financial goals and make sure the market and inherent profit margins are big enough to at least get me there.
    
2. Identify an untapped need or typical problem for the target market that I’ve identified in step 1. 
    
3. Think of solutions that will ”tap the need” or solve the problem that has been identified in step two. This solution should be refined to a point that it can be packaged. This will be my idea!
    
4. Start finding vendors who can validate the usefulness of the idea… I am not allowed to validate the idea myself as that would take entirely too much time and violate the rules. If the idea comes back false, I will have to go back to thinking more starting with step 1, though sometimes some of the greatest innovations haven’t tested with potential customers very well. Sometimes people just don’t know they need something until they have it.
    
5. Start finding vendors who can build my idea.
    
6. Start finding vendors who can communicate my idea exists (sales and marketing).
    
7. Start finding vendors who can handle the logistical aspects of delivering my idea to the customer (including ongoing customer support).

Since I now know what I need to be thinking about to discover my idea, I will spend some of my free thinking time on finding my idea that will set me free. I can do this at the gym, on my commute home from work, in the shower, before I fall asleep at night, etc. Really anytime where I am mostly alone and have plenty of spare bandwidth in the brain!

The 4 Core Requirements for Finding Financial Freedom Through a Business

At the very core, there are four things you will need as a starting point in order to be successful as an entrepreneur, especially if you are willing to invest no time and no money in building your business. They are not rocket science, they are really just the only four things that cannot, and should not, be outsourced at the onset of a new business venture.

1. A basic understanding of accounting. The ability to read and interpret P&L statements, balance sheets and statements of cash flow. If you cannot interpret these 3 sets of information, there is no way to determine the real health of any business. They are what will enable you to hold your vendors accountable and spot any inconsistencies before they become a problem. I feel I have a grasp on basic accounting. I’d also estimate that anyone in corporate America who has held a middle management job with any budgetary or P&L control should also have a grasp on these basic principles. If you have an accountant you can truly trust, how well you are able to interpret these statements becomes a little less important as they will interpret them with you.
    
2. Leadership. You can’t go at it alone, even if you are using Other People’s Time, you will need to be able to find the right people for what you need to get done and convey the mission, vision and values of your company. A recent study showed that a vast majority of leaders feel they are above average, while their direct reports beg to differ. Knowing this, I’ll refrain to comment on my own level of competence! I will say that this has been a major area of study for me for the last few years.
    
3. The ability to communicate. Communication falls into a couple areas for entrepreneurs, arguably most importantly having to do with sales and marketing. In my experiment external sales and marketing will be the responsibility of someone else. However, in order to attract Other People’s Money I will need to be able to communicate why my product or business is something worth giving me money for and why I think investors or creditors will get their money back, plus interest or capital gains.
    
4. A product, or at least an Idea for a product. Many people starting out think the product is the most important aspect of your new business. I disagree. Preparing yourself mentally by building up my knowledge of basic accounting, leadership abilities and communication (sales & marketing) abilities will be far more of a determining factor of an entrepreneur’s success. To be completely honest, I have yet to decide what I plan on selling. I’m literally starting this experiment from nothing. No money, no time, no idea. The focus of many future posts will be how I will narrow down what I will be selling.

In a Globalized Economy, Ideas Can Set You Free.

I recently read The World Is Flat by Thomas L. Friedman. It’s a fascinating book on many levels as it explored, in-depth, the economical, sociological and political implications of the Internet and technology.  According to Friedman, we’ve now reached ”Globalization 3.0.”

I will save the general book review for others, however the point that I found most fascinating is that efficiencies afforded only recently through technology and the Internet has enabled large companies, who 20 years ago wouldn’t want to service any company short of the Fortune 1000, to now actively search for business amongst the little guys. They want to give people like me the benefit of their billions of dollars of R&D into their area of expertise in a nice little package offered for a ”pay as you need” pricing structure.

If you have a idea for a business you can, in theory, simply outsource the R&D to an engineering firm in India. You can outsource the design of your logo, product packaging, website and sales collateral to a design firm in Argentina. If you are selling a tangible product, and it’s not like you have to these days, then you can outsource your manufacturing to China. You can outsource getting your product here and all the details of distribution and fulfillment to reputable U.S. companies like UPS or DHL. The same goes for Sales, Marketing, Customer Service, accounting, legal, etc.

I aim to see how far I can take this concept of outsourcing everything. It would seem that just about every aspect of your business, except the original business concept – your idea, can be managed cheaply and efficiently by someone else’s employees, trucks, warehouse space and knowledge thanks to Globalization 3.0.