Sheep & Wealth Creation

I’m at my core an inventor.

While this is easy to romanticize in the age of Sergei Brin and Mark Zuckerberg, these highly successful stars are the visible tip of an iceberg, in which, fitting the metaphor, many more are underwater.

The problem is historically, inventors are more likely to end up like Nikola Tesla (brilliant, broke) than Thomas Edison. Extracting the value from inventions requires the attitudes of Carlos “Slim” Helu or at the very least, Steve Jobs whose cash motivation was far greater than his co-founder, Steve Wozniak. Steve Jobs’ genius was his ability to shape Apple products enough, then stir consumer desire enough to “overpay” for them, i.e. engineer products worth far more than the sum of the required parts.

May we all learn from his model – RIP.

Peter Thiel in Zero to One mentioned he has an interview question in which he asks founders where the world is mistaken. I think this is more than just an interview question – it’s critical to thinking about founding a business.

Since I’m already over-using metaphors, I need to drop another: Wayne Gretzky’s now over-used but still true cliché “skate to where the puck is going to be, not where it has been” – and this is where it comes together.

In short, there’s only a few ways to get this metaphorical puck: (1.) execute faster, so you simply reach it first, or (2.) the competitors are all mistaken about where the puck is in fact going, which happens, or (3.) be lucky and simply already in the right position.

While none of the above are inherently defensible, they can of course lead to a short term gain which can be capitalized into a working moat.

Steve Jobs believed the world was mistaken, and actually did want a tablet computer, contrary to Microsoft’s previous endeavors.

Mark Zuckerberg had the forsight to believe MySpace and Friendster were both mistaken in their execution of connecting people.

Larry Page and Sergei Brin believed Yahoo’s human curation, Alta Vista’s crude spidering and other players were all mistaken.

None started as obvious successes. A steady capitalization of wins led each to dominance.

So, in your business, what is the world mistaken about?

To date, I’ve been bootstrapping SwiftCloud, patiently building component applications, which stand on their own. Individually, they’re just innovations, not truly disruptive. The value will become clear as multiple separate components (all in the B2B space – CRM, marketing, e-signature, etc.) come together into a tightly integrated whole and mini-brand.

Moats: Not what they used to be

I think the tech world is wrong about a major factor: moats.

In the technology world, we see companies like Uber with obnoxiously high valuations – more than Fedex and Capital One, based mostly on FOMO – Fear Of Missing Out by investors.

I call Ponzi.

Granted, this is bias, so I’ll examine it. Why might Uber truly be worth $50,000,000,000? Income – revenues. Some think the company can bring in $2 billion in revenue this year.

Income doesn’t mean much – profits do.

At what cost is Uber generating revenue? And how defensible is this moat? Sure, they’re growing 300% per year, but losing $470,000,000 to do it. It’s easy for entrepreneurs to feel like slack-jawed idiots if not growing this fast.

We live in an era of disruption, and companies are being valued based on their old-world moat multiples. The fact is, we’re in an age of gunpowder. Whatever moat you think you have is in many cases, not as wide or useful as you think.

Furthermore, I see “the groupon effect”: we condition people to expect more for less, free, smoking bargains. Groupon promises retailers new traffic, but what really happens is they get deep-discount-seekers, who quickly move on to the next groupon. The vast majority don’t stick around and become solid paying customers.

The moment Uber raises their prices, we’ll see driverless cars (from Tesla? Peer-based self-driving car lending from getaround?), and the bubble deflates.

The envelope of profit I believe is drastically overvalued, and the investors will be left holding the bag.

When gunpowder moved from China to Europe, it disrupted warfare. Disruption is when a better, superior system upends the status quo. Shortly thereafter, gunpower rendered swords and castles largely irrelevant – expensive, drafty, useless homes impossible to defend, and hard to get out of. We had moved to tanks, then aircraft. Castles were easy to hit.

Cash flow is the land grab our era, and it’s more fluid than it used to be.

Your Choice: Start a Business, or Fail at Personal Freedom

Let’s assume you like money, and living well, and also having time to do what you want to do.

Fair? I think I’ve cast a wide net.

Pretty much everyone wants this. We all want to live the 4 hour workweek, but the mechanics of what he describes in the book are heavily dependent on getting paid for results, not your time.

Which doesn’t fit most “jobs” i.e. typical employer relationships.

For that reason, you have only a few choices as I see it:

  1. Be born wealthy. Statistically speaking, there’s a 99% chance this is not your lot in life.
  2. Work in “Service Asymmetry”, i.e. pro athlete, movie star, very popular musician, in which millions or billions consume your product and thus you get paid very handsomely, can have a very short career and amass wealth quickly. Statistically, most people won’t succeed (or even try) at this. Most pro athletes end up broke anyway due to spending habits.
  3. Rapid asset accumulation, combined with high ROI, relative to your standard of living. If you live super cheap, make $130k/yr, save $70k/yr after taxes, then you could retire after just a few years… this doesn’t work if you make $60k, save $10k/yr – it simply follows the conventional gold watch plan (retire after 35 – 40 yrs of work). Statistically, most people won’t earn this kind of income AND keep their expenses low enough to make this work- $130k/yr is good income, but most people’s lifestyle pretty quickly rises to match as they follow the house / mortgage / kid / car pattern. Your goal here is your passive residual income exceeding your lifestyle expenses (burn rate liftoff – i.e. making $10k/mo/net rental income or investment yield with expenses < $10k/mo)
  4. Build a business and be successful at it. That 2nd one is a kicker, but if you have a day job wherein you get paid for time, this seems to be your only logical choice as I see it. Am I wrong? Comment below. Fortunately, the internet has created as many opportunities as hazards, and turbulent times favor upstarts not incumbents. Easier said than done, I know, but fortunately, new ways of thinking about this can drastically lower your risk and cost to get moving – i.e. the lean startup or pivoting from service to product.
  5. Redefine your employer relationship to get paid for metrics and results, not your time. For some, this will work – sales professionals for example, but for the majority, their job descriptions are probably too complex for their employer to actually accept this. Besides, automation favors the business owner, not you, so over time, they get more results for less of your time, and can then load you up with more tasks – so like it or hate it, the business owner has a financial incentive for you to stay hourly in most cases, then systematically optimize your workflows (while they reap the benefits, not you).

When just a child I loved robots.

I was born in ’75, so the early 80’s was a time of industrial automation, and fears over automaking robotics, bold claims for the future, and Tang. The inevitable future to my 8 year old logic was that some employer would own a fully robotic factory, and get all the money, while paying fewer and fewer employees. The first plant to go fully robotic would enjoy wider profit margins, affording more robots, outspending on R&D + advertising, and ultimately make the best company and dominate the market.

I was an odd kid. But am I wrong?

The market domination would then lead to an arms race, in which most of the humans would get displaced by the most cost-efficient production method, and while price competition would thin margins over time, the damage would already be done to the workforce.

So this is our world, like it or not. The real question becomes then, what side do you want to be on?

If you can’t beat ’em, join ’em. So I became a robot.

Ok, so that’s a joke for my wife – but I did side with employers and had similar concerns over the classic labor vs. capital power struggle (summed up nicely by friend Max: “What struggle? Capital won.”), which is why I’ve always bootstrapped. The good news: there’s never been a better time to bootstrap and start a business part time on the side, then grow the income to replace your day job – so you truly can live the 4 hour workweek if you choose.