Friday, December 28, 2007

Luck is not a business strategy.

Remember growing up, and being told that if you studied hard and worked hard, you could 'do anything?' Remember your mother telling you, 'nothing is for free' and 'you get what you pay for?' Common sense things like that?

All my reading about gambling (I have been working on a book set in Las Vegas for several years now) make it very clear that no gambler stays ahead forever. They always end up losing what they won. If you came across them when they're on a winning streak and flush with funds, well, that life would look pretty attractive. But the same behavior that brought them money -- risky behavior -- will almost always mean they'll lose it in the end.

To me, buying homes for any other purpose than to live in them, is speculation. (I suppose buying them for investment/rental purposes could also be a business decision, using historical standards.)

Here's the thing I always tell myself. You can make money by working hard, being in a profession that pays well, by saving diligently and investing wisely, by inventing a better mousetrap.

But no matter how you try to make money, you should never forget the risk/reward ratio. The higher the possible payoff --- the higher the risk of failure.

So to take the above examples: working hard? The risk is burnout, losing a fresh perspective, making mistakes. Being in a profession that pays well? The risk is an expensive and time-consuming education. Saving diligently and investing wisely? The millionaire next door route, that might pretty much take your entire work life to get there, if nothing goes wrong.

Inventing a better mousetrap? Most people are incapable of thinking for themselves, much less inventing a better mousetrap. Almost every single person I've seen go into business follows the same exact path as everyone else in that industry; so the only thing they have to distinguish their efforts is, work or luck (getting a great employee, finding a hot product, snagging a good location.) (I hate to bring it up, but there is another route -- cheating and scheming and screwing the other guy, but for most of us, I'd like to believe, the personal and spiritual cost is too high.)

I think it's only once in a blue moon a person comes along with a truly radical and innovative idea, and then everyone else piles on and a whole new thing is created.

I get asked all the time: "WHY DON'T YOU........."

And the answer is, I can't escape the risk/reward ratio. Everything has a cost, in labor, or money, or space, or time, or energy, and so on. Nothing is free.

What brought all this to mind, is the article in the Bulletin about the home owners from California who's property management company did a Houdini. Well, there you go, the risk of being an absentee owner, of owning more than one home. You just always have to take that risk into account.

10 comments:

Jeff said...

Regarding the risk/reward of jobs, I like what Alan Blinder has to say (Fear of Offshoring): Most of the jobs that will be left in the U.S. will be personally-delivered services requiring face-to-face contact (e.g., child care workers, firefighters), “high-touch” services (e.g., nurses, plumbers), or will involve high levels of personal trust (e.g., psychotherapists, lawyers). Any other type of job will get offshored to lower wage regions.

Duncan McGeary said...

I don't know....that maybe what market forces and logic dictate, but what about human behavior.

Too many people like getting their hands dirty, too many people like making things.

Somehow that behavior will out. The economy will morph in some unforeseen direction.

Jeff said...

"Too many people like getting their hands dirty, too many people like making things."

Right, there will always be jobs for some of these people -- mechanics, engineers, builders, because the work has to be done on site.

I was thinking of all the people who got highly educated in information technology -- many of those jobs are "back-office" in nature and can be done overseas.

Nowadays x-rays are examined in India while we sleep, and our doctor gets the report the next morning.

If you're a young person getting an education, the trick is to pick something that can't be moved overseas like that.

Really, both high-skill and low-skill jobs are under threat. The former courtesy of information technology, the latter via immigration of low-skilled workers.

By the way, Krugman has a nice article on this stuff in today's NYTimes.

Jeff said...

So, Duncan, one thing you haven't commented on is whether you've got a sales bump this year from your blog. Surely you have been thinking about it.

Indeed, other small businesses apparently do:

December 27, 2007

Blogging’s a Low-Cost, High Return Marketing Tool

By MARCI ALBOHER

TO its true believers at small businesses, it is a low-cost, high-return tool that can handle marketing and public relations, raise the company profile and build the brand.

That tool is blogging, though small businesses with blogs are still a distinct minority. A recent American Express survey found that only 5 percent of businesses with fewer than 100 employees have blogs. Other experts put the number slightly higher.

But while blogs may be useful to many more small businesses, even blogging experts do not recommend it for the majority.

Guy Kawasaki, a serial entrepreneur, managing partner of Garage Technology Ventures and a prolific blogger, put it this way: “If you’re a clothing manufacturer or a restaurant, blogging is probably not as high on your list as making good food or good clothes.”

Blogging requires a large time commitment and some writing skills, which not every small business has on hand.

But some companies are suited to blogging. The most obvious candidates, said Aliza Sherman Risdahl, author of “The Everything Blogging Book” (Adams Media 2006), are consultants. “They are experts in their fields and are in the business of telling people what to do.”

For other companies, Ms. Risdahl said, it can be challenging to find a legitimate reason for blogging unless the sector served has a steep learning curve (like wine), a lifestyle associated with certain products or service (like camping gear or pet products) or a social mission (like improving the environment or donating a portion of revenues to charity).

Even in those niches, Ms. Risdahl said that companies need to focus on a strategy for their blogging and figure out if they have enough to say.

“As a consultant, blogging clearly helps you get hired,” she said. “If you are selling a product, you have to be much more creative because people don’t want to read a commercial.”

Sarah E. Endline, chief executive of sweetriot, which makes organic chocolate snacks, said she started blogging a few months before starting her company in 2005 to give people a behind-the-scenes look at the business.

The kind of transparency is a popular reason for blogging, particularly for companies that want to be identified as mission-oriented or socially responsible.

A typical post on sweetriot’s blog described the arrival of the company’s first cacao shipment from South America and how Ms. Endline met the truck on Labor Day weekend after it passed through customs at Kennedy International Airport.

She wrote about climbing aboard to inspect the goods and then praised the owner of Gateway trucking company, who helped her sort through the boxes so that she could examine the product.

“At sweetriot we don’t use the word ‘vendors’ as we believe it is about partnership with anyone with whom we work,” she wrote.

For companies in the technology sector, having a blog is pretty much expected. Still, Tony Stubblebine, the founder and chief executive of CrowdVine, a company that builds social networks for conferences, said that one of his main reasons for blogging is to show that his business model is different from the typical technology start-up.

“Everyone in Silicon Valley is focused on venture capital funding and having an exit strategy,” he said. “Because I’m not focused on raising money, I can focus on my customers, since they aren’t a stepping stone to some acquisition or I.P.O.”

He added: “I’m trying to create a community of help for small Internet businesses like mine. My blogging philosophy is like the open source model in software. It’s sort of a hippie concept. If I can help other people, it’s personally rewarding. And those people will likely pay it back in some ways.”

Mr. Stubblebine said he gets new customers largely by word of mouth, and he uses the blog as a way to share news with friends and people who wield influence in his industry as well as a reference check for customers. “That’s why I cover the growth of the company.”

David Harlow, a lawyer and health care consultant in Boston, said he started his blog, HealthBlawg, as a way of marketing himself after he left a large law firm and opened his own practice. Besides, he said, blogging was easy to get started and the technology was straightforward.

Now, after about two years of blogging, Mr. Harlow said he was pleased with the results. He gets about 200 to 300 visits a day, he said. He has also become a source for publications looking for commentary on regulatory issues in the health care field and has even gained a few clients because of the blog. In addition, he has formed relationships with other legal bloggers (who call themselves blawgers) and consultants around the country.

Many small business bloggers achieve their goals even if only a handful or a few hundred people read their blogs. But some companies aim much higher.

Denali Flavors, an ice cream manufacturing company in Michigan that licenses its flavors to other stores, for example, is a small company with a limited ad budget. It decided to use a series of blogs to build brand awareness for Moose Tracks, its most popular flavor of ice cream.

John Nardini, who runs marketing for Denali and is responsible for the company’s blogs, said he has experimented over the last few years with different types of blogs to see which would generate the most traffic. One blog followed a Denali-sponsored bicycle team that was raising money for an orphanage in Latvia. Another tracked the whereabouts of a Moose character that would show up at famous landmarks around the country.

But by far the most successful blog, in terms of traffic, turned out to be Free Money Finance, a blog that has nothing to do with Denali’s business. Mr. Nardini’s plan was to create a blog with so much traffic that it could serve as an independent media outlet owned by Denali Flavors, where the company could be the sole sponsor and advertiser.

He chose personal finance because it is a popular search category on the Web and because he knew he would not tire of posting about it. And post he does, about five times each weekday.

He uses free tools like Google Analytics and Site Meter to understand how people are finding the site and which key words are working. Free Money Finance receives about 4,500 visits a day and each visitor views about two pages, which means they see two ads for Moose Tracks ice cream. The effort costs about $400 a year, excluding Mr. Nardini’s salary.

The site also accepts advertising, which earns the company about $30,000 to $40,000 a year, all of which Denali donates to charity. “We run ads because it legitimizes the site; it’s really not about the money,” Mr. Nardini said. “We’re hoping people will go into Pathmark, see the Moose Tracks logo and say, ‘Hey, I just saw that on the Web site I go to every day.’ ”

Duncan McGeary said...

Well, Jeff, I didn't do it for the business.

If and when I have a website, I'm not sure I'll do it even then. Or I'll start a second blog.

It's seems easy for me to blather on about one thing or another.

But if I start consciously using it as a 'promotional' tool, I think the focus would automatically shift, my credibility would automatically suffer.

I still haven't checked any of the numbers, how many people visit. I'm afraid I'll end up watching the stats, adjusting my level of 'controversy' to get more hits, adding in names, talking about other bigger names, that kind of thing.

Just little blog is just between you and me.

BilboBend said...

Luck is not a business strategy.

*

Success is being in the right place at the right time, folks that bought RE in Bend in 1998, and dumped the pigs in 2005 were successful,

However those that did so were 'lucky', because only a liar could call the trough and crest.

There are ways to 'minimize' risk, but luck is the essence of making it big.

I do agree that the 'web' is a complete fucking waste of time, the only way people make their site 'sticky' is to give shit away. That's NOT how money is made.

Google makes all the money, and buys all the high traffic sites, its been this way since 1995, sure anybody can get a website, but so fucking what. I know dozens of morons who buy shit at Walmart for resale to make money on ebay, who makes money ?? Ebay & UPS. That said even UPS is hurting these days, and EBAY is fucked, after buying SKYPE, forever fucked.

Having trading-cards when you did years ago was pure luck, get over it. Strategy?? Yeh, folks who win like to say they had a strategy, but shit happens in waves, and nobody can predict HERD behavior.

Today Bend is fucked, its an OVER-SOLD little desert town. The 'lucky' ones will be those that assist people in leaving to get their ever last nickel.

bruce said...

Re: Right, there will always be jobs for some of these people -- mechanics, engineers, builders, because the work has to be done on site.

That is exactly why we should be putting more resources into alternative energy, because it requires onsite people to build and run it. In addition to the long-term environmental good, it has positive economic consequences both short and long term.

bruce said...

Dunc, check this out on the commercial RE scene in Sacramento:

http://sacrealstats.blogspot.com/2007/12/elk-grove-commercial-real-estate.html

Duncan McGeary said...

"Having trading cards when you did....? Get over it!"

I'm still traumatized.

About the only good thing that can be said is that it taught me all the things NOT to do....

Duncan McGeary said...

Bruce,

I'm telling ya, the commercial bubble is occurring almost unnoticed around here, and it's just as big if not bigger.