Magazines Love the Green

Following my “Go Green, Get Green” post, I started recognizing a trend in the business press…

Fortune April 2007	Business 2.0 February 2007	Businessweek January 29th, 2007.

Pretty Interesting stuff. Seems like the environment and social consciousness is finally starting to be looked at as something that will make money instead of costing money!

Import, Invent or Distribute?

In an effort to narrow down my product choices, I’ve been trying to decide whether it is better to Invent, Import or Distribute a product. There pro’s and con’s to inventing, importing and distributing. I’d like to explore each and how the rules factor into the decision.

Import:
Import would mean finding some product from another country to bring to the USA and create a market for.

Pros:

• It would seem fairly easy to find something that isn’t already available in the USA.
• No need for R&D.
• Manufacturing would already be handled by another entity.

Cons:

• The weak dollar limits the number of countries available for favorable terms. Basically some parts of Asia and Latin America seem to be my main options.
• If your exclusive supplier is unreliable, the business will operate entirely at the whim of another entity. In order to have any clout, or safety, I’d have to be ordering quite a bit of product at once.
• Shipping adds costs and delays.

Invent:
Inventing means coming up with a new idea, finding someone to design it, engineer it and manufacture it.

Pros:

• Your idea means that there may be limited competition for it once the product is ready to come to market
• If the idea is somewhat radical, my marketing can decide what the most advantageous price point is. In this experiment, I really want to keep the number of transactions to a minimum with high margins on each transaction as that will be easier to manage.

Cons:

• Could cost $25,000 or more just to patent if Iwanted true protection.
• Will be difficult to follow the rules while having the product designed and manufactured.
• Costs for outsourcing design and manufacturing could be very high.

Distribute:
I would define distribution as taking a product that already exists that may or may not be well known and getting a wholesale agreement to resell the product(s). This is what Amazon.com, newegg.com, etc. do.

Pros:

• No need for R&D.
• No need for manufacturing – The game basically becomes marketing and logistics.
• Probably will be easier to find US-based wholesalers to buy from, making it easier to streamline the logistics and save money on shipping.

Cons:

• If I’m selling a brand-name product that is the same as the one you can get at BestBuy.com, it is easy to become a commodity-type business, which goes against my current desires for a product.
• It takes time to find and build relationships with wholesalers.

 It would appear that I haven’t really decided either way just yet. There are pro’s and con’s to each approach. As of right now, my product summary doesn’t change. I will continue to think about how to narrow down my product.

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.

An Inconvenient Truth: Personal Finance Edition: Additional Thoughts

In yesterday’s post, An Inconvenient Truth: Personal Finance Edition, I blogged about the notion that by purely saving you may actually be losing money.

After reading deeper into the article that prompted my thinking, the comments people have about it and talking to a few people I know interested in these topics, I have a few after-thoughts:

• I still don’t understand the hostility most of the commenters have. Of course no one wants to see our economy in trouble. No one wants to see America’s wealth shrink, but isn’t it a possibility at least worth considering? Isn’t it something worth learning about to figure where he may be coming from? You can’t predict the future, nor can you influence the will of the mob. You can prepare yourself for what might happen, whether good or bad, and have contingency plans for those options. Preparation for all likely scenarios is the only way to find consistent returns, in good economic times and bad.
   
• I can expect some people who have a lot of experience in the stock market and have had better returns than market average take particular offense to this kind of thinking. They, most likely, made a lot of money (and value) in the last 5 years. Unfortunately most people are not active investors. They do as the financial planning industry tells them and diversify their assets between market indexes or bonds or cash or REITS or all the above. They hope that “law of averages” works to their benefit. These are the people who concern Mr. Kiyosaki as they think they are getting closer to their goals, yet an argument can be made that the last five years put them further behind. They may not have the ability to live the life they planned for when it comes time to retire due to a reduction of purchasing power.
   
• His view is obviously quite unpopular, yet my studies tell me the motion of the stock market tends to favor the unpopular vote. Technical investors look at the put (a bet the market will go down) to call (a bet the market will go up) ratio as an indicator for market turns. When the sentiment is such that everyone is betting the market will keep going down, it actually tends to reverse, and vice-versa. This is a form of “stepping outside of the mob” and doing the opposite, which takes intestinal fortitude! I can’t say I’ve studied crowd psychology and the economic cycles but my guess is that things aren’t much different. I also know that Warren Buffett has made a lot of money by flanking popular vote.

I’m not entirely sure what all this means for me and my financial freedom strategies. My security blanket plan still revolves around the “put my retirement funds in a safe, secure index fund” strategy. However, the purpose of my experiment is to see if it is possible to reach financial freedom much quicker by building a business using mostly passive thought. I also like to think that there is merit to acting contrary to popular belief, as popular belief is what got most Americans (by definition) deeply in debt with little chance of a safe retirement. This is why my rules were inspired by common excuses for not using a business as a vehicle to reach financial freedom.

If all this works, it is a greatly accelerated alternative to the “buy & hold index funds and bond funds strategy”. If it doesn’t, I learned a heck of a lot for not much time or money.

An Inconvenient Truth: Personal Finance Edition

In a recent post I noted how once you are living beneath your current means its more important to increase your income than decrease your expenses while you are on your journey to financial freedom. Really it’s a combination of living beneath your means while also expanding them that I’m going for. In fact. as a somewhat cryptic article by Robert Kiyosaki for Yahoo! Finance states, when you’re purely saving your money you are probably actually losing value even though the price may be going up. Sound crazy? It’s been happening for the last few years.

It’s funny to me to read the comments following his article. I think people find what he’s saying too hard to swallow. After all, it’s far easier to discredit than to adjust behavior, especially when the entire financial planning industry has been telling people that investing for the long term, diversifying and paying down their mortgage is the right thing to do! I think a lot of people missed the point, which is the stock market may look good now but you have to take a bigger picture approach to your personal finance strategies… Especially if you don’t have a lot of time between now and retirement.

Allow me to illustrate Kiyosaki’s point. Let’s assume you are of the young, aggressive saver type. You had some market timing savvy and placed all of your retirement savings in a 401(k) / NASDAQ index fund January 1, 2002 thinking you found the bottom of the dot-com fallout. January 1 2007 shows a pretty nice gain over the past five years. The problem is that the value of your investment actually decreased when compared to gold and other currency markets. Using some figures for the NASDAQ, gold cost / ounce and the Euro, we see the following:

Year	NASDAQ in $	NASDAQ in EURO	NASDAQ  in Gold Ounces
1/1/2002	$1,979.08	2162.65 EUR	~7.00 Ounces
1/1/2007	$2,434.92	1840.29 EUR	~3.93 Ounces

At face value, the price of the NASDAQ has gone up quite a bit over the 5 year period. In a vacuum you may even be quite happy with your investment choices. On a global scale however, you’ve actually lost quite a bit of wealth in the process. Whether we realize it or not, our purchasing power has gone down even with recent increases in asset prices. With easy access to debt, Americans continue to borrow from a bank. As they make purchases their borrowed money gets deposited in another bank. As that money is deposited, it gets lent out 5-10 time’s over, creating new dollars out of nothing and making existing dollars have less value in the process.

America is an import economy. When our dollar buys us less overseas, eventually that comes back to hurt us. Luckily we’re as willing to go into debt as other countries are willing to finance our over-consumption – to the tune of ~$500,000,000,000 in 2006. This easy access to debt has allowed us to create phantom wealth in our homes and borrow against it to continue buying junk that we couldn’t afford on our actual income.

The complexities of why this happens are far to great for this little blog of mine, the implications are much easier. As the devaluation of the dollar continues to ripple through the US economy, people are going to find that the 401(k)’s that are increasing in price continue to lose purchasing power.

Running to “risk-free investment vehicles with historical returns of 10%” may actually prove to be much riskier than my new business venture. If it works the returns are infinite (no time, no money). I’ve printed money for myself. If it doesn’t work, I may have to pay back some debt which I’ll be sure is manageable. The funny thing is that at this rate I can actually make money by borrowing (a dollar 5 years ago is worth 25-50% of what it was today!)

How can you combat all this? That is the $500 billion question. Some may argue that I am comparing apples to oranges, but the real concern is that historically a country with huge amounts of debt has found themselves with a depression or prolonged recession, which is really worse than poor returns. Another argument can be made that we buy goods and services here with our $US so all that matters is that those dollars are increasing.

Starting a business that will work for you in times of noth recession and expansion is one way of keeping up with the devaluation of our currency. Theoretically as your costs rise, so do the prices people will need to pay for those goods. I’ll do great if the economy continues to expand and I’ll do just fine if the economy tanks. This is why I believe my business will give me a better chance at financial freedom than my retirement accounts alone!

Flavors of Personal Finance Blogs and Financial Freedom Goals

I must confess that prior to starting this blog, I hadn’t spent much time looking at what other personal finance blogs exist in the “blogosphere.” Yesterday I was curious if Google had picked up on my blog yet so I did a Google search for “financial freedom for free blog.” The first result that popped up was 2million – My Journey to Financial Freedom. I read for a while then started clicking on links in the author’s blog roll only to discover the messages are fairly similar to 2million.

Going back to my post on the definition of financial freedom, there are two sure-fire ways to get there at a relatively young age. The Millionare Next Dooris the inspiration for most personal finance blogs I’ve run across. It teaches us that the typical millionaire saves their money and lives quite frugally. They cut coupons, send in rebates and eventually accumulate have a high enough net worth that a modest, low risk return on equity will be enough to cover your monthly expenses without cannibalizing your capital. 

The financial planning industry generally tries to teach the same concepts. They tell us: ”diversify your holdings so you don’t have too much exposure to any one thing.” “Cut up your credit cards so you can’t spend more than you make.” “Pay off your mortgage early so you reduce your fixed expenses.” They also say you should spend your time clipping coupons, buy used cars, shop around for everything, only invest in no-load mutual funds, etc.

The only problem I have with this is that there are only so many things we can think about in a day. What really matters is how much you keep. I’d argue that it’s easier to figure out how to make an extra $10,000 per year than cut $2,000 per year from your budget. Also there is an upper limit on how much you can cut your spending or how much you can save with coupons, the sky’s the limit on the income side. 

If you have credit card debt, get out of debt quickly. I’m on board with this. Common sense tells us paying 15-20% interest in after-tax dollars on $6,000 debt for a big screen TV is not fiscally smart and will stand in the way of your financial freedom. I also agree that you should live beneath your means, maximize your contributions to your 401 (k), insure your home, your income, your body and your wealth. These are the basics of personal finance, and its covered very well in many other places. This gives you the security blanket.

Personally, I spend less than I make, I maximize my retirement account contributions with a no-load index fund, I own my own home, my lifestyle is insured for just about anything that could happen and I have access to cash that will cover 3 or 4 months of living expenses if I became unable to produce income on my own.  At this point I tend to focus more on controlling income than controlling expenses, while also not getting into consumer debt, so the amount of money I keep every year is going up. Could I cut things out of my life to save more? Probably, but with my current security blanket plan. I’ll still be a millionaire (in today’s dollars) by my mid 40’s and a multi-millionaire (in today’s dollars) by the time I can even begin taking distributions from my retirement accounts without penalty. 

So, I already have a plan in place to be financially free later in life. I also have the utmost respect for what 2million is doing, especially how open he is and how tenacious he is about setting and keeping goals, but my stance is that after I design and implement a “safety blanket plan”, I’d like figure out how to be free even sooner without sacrificing the quality of life that I’ve built for myself.

Most financial planners and personal finance guru’s tend focus on achieving the first definition of financial freedom (save money, live frugally and eventually you will have enough to retire). There are far better places to put your money and/or, more importantly, your mental bandwidth than figuring out how to save an extra $15.00 a month. The true purpose of this blog is to find ways to accelerate the process by focusing not on net worth, but on accelerating the rate that my passive income is increasing. It begins with building a business using none of my time and none of my money, but will ultimately end up in other asset classes. Because my current income sources cover my expenses, the profits from this new business venture will simply produce additional opportunities to accelerate my passive income-building activities until that income is greater than my expenses and I am financially free.

The real core of my strategy has been in education, which is something I would have to assume most personal finance bloggers believe very strongly in as well. Where I seem to differ is that I’ve never been as interested in new ways to spend less and save more, but on how to better understand financials, how to build leadership skills, how to allow myself to put faith in other people’s abilities, and how to increase my communication skills. These are the core skills that will ultimately allow one to exponentially increase their income, hopefully most of which is passive!

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.

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 Goal, Part 1: “Begin With the End in Mind”

That’s Stephen R. Covey fancy way of saying “before starting on any journey, make sure you set a goal!” By doing so, I know that I will be more focused and able to weigh options to make sure whatever decision that I’m making along the way are leading me down the right path. Now that I understand the definition of financial freedom, it’s now time to set a goal.

This post is “part 1″ because there are a few key components to effective goal setting. I like to use the S.M.A.R.T. method to ensure the greatest chances for success.

At this current stage, I’m willing to say my goal is as follows:

I aim to build a business following five specific rules, designed to require none of my time and none of my money in the process. Within the next X years, this business will provide me with $100,000 / year of profit, thus allowing me to retire and live a comfortable lifestyle.

There are some aspects of this goal that will most likely change or continue to be defined. For instance, I still need to define a time-frame that is reasonable. I also need to look at what sort of income is realistic. While financial freedom essentially means I can stop working and have my passive investments pay my bills, I may want to make more than I currently spend for some added security. This goal will become more specific as I work through what my outsourced team members say is possible, but it is great to get a start down “on paper. ”

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.