Real estate gives you bigger pockets

Real estate.  I am an real estate investor.  I have rental properties.  Something on the side, something my wife and I do on the weekends.  I am a firm believe in real estate as an asset class for many reasons:

  • Everyone needs housing
  • Real estate gives you leverage because banks will loan you money
  • Real estate values tend to increase with inflation
  • Interest rates are at a multi-decade low
  • If done correctly it is passive income
  • It is tax advantages because of depreciation
  • It is an imperfect market (unlike stocks), so  you can find good deals
  • It is a people business; real estate people are willing to share
  • From our experience, it is a solid way to get 8% annually

Real estate can teach you.  From real estate you can learn so many things – negotiations, sales, marketing, accounting, and finance.  Many of the wealthiest people invested in real estate.  No surprise.  It works.  Time helps your money grow.

Bigger Pockets.com.  This is a website, forum where thousands of investors share their experiences and wisdom.  There are also 80+ podcasts where successful investors share their stories – good, bad, and ugly.  You can learn an enormous amount on these podcasts.  This is the type of learning that will help you retire 10 years earlier.

There are numerous real estate books, but don’t overlook this website, forum, and podcasts.  It is a free resource and excellent.  Some good podcasts to get you started.

Podcast #2: Karen Rittenhouse

  • Real estate investing can start out small.  You have to try it.
  • Always be “above board” and honest with people
  • Continually learn.  Karen went from 5 houses to 100+
  • Use outsourcing; her favorite direct mail – postcardmania

Podcast #10: Jay Scott

  • You don’t have to be an extrovert to succeed at real estate
  • To create passive income, you have to set up systems; cannot do it all yourself
  • If you create a good business model, investors will find you and give you money
  • The best way to find a contractor is to go to Home Depot at 730 in the morning – those guys are dedicated, planning the day’s work ahead of time, are busy
  • “Always have 2, 3, or 4 exit strategies as a backup on your house flips”
  • “Those who do best in this industry are those who work ON their business, not IN their business”

Podcast #13: Leon Yang

  • Leon decided not to get an MBA because he saw so many good real estate deal.  He move to Las Vegas because it had the best investment profile
  • Believes now is the best time to leverage up on real estate: interest rates low, lots of potential inflation (“Bernanke is just throwing money out of helicopters”), banks are lending again, many houses are below replacement costs
  • “Inflation is a borrower’s friend.”
  • Do what you enjoy . . .even if you don’t succeed, at least you had a good time

For all the consultants out there.  Remember, always look for ways to scale your work, your business, your income.  Most of us are time = money.  Time is precious, and we all need way to diversify our income.  Ways to have your money work for you.   Even if it is not real estate, find ways to create more passive income.  Best of luck.

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Competitive intelligence: 20 tips

When I was working overseas, I was on a competitive intelligence project.  It might sound super-crafty, and Mission-Impossible, but it was not.  It was actually quite boring.  Lots of meetings to share information, and try to piece together the competition’s strategy and tactics.  Very ethical and process-driven initiative.

Some tips on competitive intelligence.

  1. Linkedin resumes. People say all kinds of things on Linkedin.com.  Once I did a market sizing partially based on resume bullets (e.g., “I managed a $25M revenue product line of ABC product”).  It’s amazing how much people will tell you about their projects.  I guess personal pride trumps corporate discretion.
  2. Who are they hiring? What kind of roles?  Where are they hiring them?  What are the key areas of responsibility?  http://www.Indeed.com is the best.
  3. What patents are they filing? See what technology they are looking to fence in.
  4. Search for presentation at http://www.Slideshare.net  People post work stuff all the time
  5. What are the competitor’s suppliers and customers saying?. Suppliers know if the business is up, and what they are ordering.  Customers can tell you a little bit about the sales pitches they have seen etc.
  6. What is the hometown newspaper saying?  Small papers often run local stories (e.g., revenues etc) that get buried on the 10th page of Google results.
  7. Read forums.  Forums are where people really speak their mind.  Dig up industry forums and see what people are saying about a product or competitor.  This also applies to all social media: your competitors facebook, twitter, instagram, etc.
  8. Conduct a survey.  Pay people for interviews or conduct industry surveys to see what customers think about you and your competitors.
  9. Use word clouds.  Take an online brochure from your competition, and copy/paste all the words and drop them into http://www.wordle.net  See what the major words that keep getting repeated.  Chances are those at the key attributes, benefits that the competitor is positioning on.
  10. Interview experts.  There are numerous industry experts who pride themselves on knowing what is going on with ABC company or XYZ organization.  Reach out.  People love to be heard, and often, it is only a phone call away.  On one project, we reach out to Wall Street analysts and even got a copy of their excel models.
  11. Download their 10K and investor relations presentations.  If they are a publicly traded company, they are very transparent with their bosses (investors).  Often time, they will come right out and tell you their strategy.
  12. Talk to your own sales people.  Your sales people bump into their sales people all the time.  They trade stories, bump into each other in lobbies, and often used to work together.  Sales people know SOOO much about the competition, but often don’t realize that it is a gold mine for marketers.
  13. Scour trade shows.  All B2B industries have trade shows where they show their wares to customers, vendors, and create alliances.  Lots of brochures, opportunities to chat up vendors, and find out details.
  14. Refine an excel model.  Your understanding of competitors improves over time.  Put together a simplistic income statement for your competitors (what you know about their revenues (volumes x price), their cost-of-good-sold (materials, labor, production costs), their SGA (total headcount, overhead, sales channel) to estimate their profitability and product strengths.  Test your assumptions.
  15. Analyze your own market share trends. Take the effort for real win-loss analysis by deal, by competitor.  Often times, you know what your problem is, but are not admitting it.  Institute a process and track market share over time.
  16. Look at the disruptors. Are you spending too much time looking at the predictable competitors?  Don’t forget to look for disruptive innovation – the ones who are offering “less for less” like Hyundai in cars, or IKEA in furniture.
  17. Compare prices and features.  Some companies have interactive design and quotation features on their websites.  Essentially, you can price out a product that is equivalently “spec”ed to yours and compare the price and value.   For example, configure your own John Deere tractor here.
  18. Search with key words.  A few good key words to include in your google search:  “site:org” for only websites from non-profits and industry groups, “forum” to find forum threads with the inside scoop, “pdf” for published materials.
  19. Create a safe and structured way to get information.  Once you let your people know that this an important initiative, and it is ethical and useful, they will start to send you tid-bits of information.  Piece all those together, and continually connect people within your company with data that is both helpful and strategic.
  20. Protect yourself.  All these tips to find out more about your competitors are the exactly same tactics they are using on you. Teach your people to value information and explain how it can potentially harm the place they work. 

competitive intelligence

Saving the client $1,300 on Sunday

Tomorrow, we have 2 workshops, totaling 30 people.  It amounts to 1,900 pages of color printing and binding.  Since Fedex usually charges 69 cents per color printed page (retail), it comes out to approximately $1,300 in just printing.  Cray, cray.

Right thing to do.  I live 4 miles from one of my company’s offices, so I poured my coffee into my 20oz Contigo carrier and went to the office.   My wife came along to keep me company.  I got my money’s worth out of the color printer seen below.  Poor thing.

printing on sunday

Not glamorous.  Did I get my MBA to print copies on Sunday?  No.  Would it have been a deal-breaker if I just got Fedex to do the prints?  No.  Was it completely worth the time and effort to print at the office, and take the prints to Fedex for binding?  Yes.

PS: Told my sister this story and her response. . . bye bye trees.  So, the first question might have been – are the prints really necessary for the success of the meeting?  Will let you know after tomorrow. . .

Consultants are hired to be the bad guys

Sometimes the consultants are the bad guys:  People hire consultants for many reasons, one of which, is to be the bad guys.  Look at this article about how Deloitte is helping some of Iowa’s public universities cut costs here.

Deloitte restructuring

Consultants usually stay behind the scenes.  This is surprising in the sense that consulting firms like to stay in the background and let their clients take the spotlight, for good and bad.  Ideally, the client is making all the presentations internally and externally.  Not in this particular case:

Representatives for Deloitte Consulting presented various scenarios for Iowa’s three public universities to the state Board of Regents on Thursday, including the restructuring of human resources and technology services by eliminating jobs in an effort to save tens of millions in annual operating costs.

Earning money the hard way. These consultants are really earning their fees, right? Damn.  That is definitely not staying in the shadows.  When you are holding public town halls to talk about cost reduction, you are truly being hired to be the bad guy. 

Be careful.  Judging from this article, it looks like there was a mini-uproar because Deloitte was not providing enough detail on their expenses here.  This is a slippery slope because, honestly, consultants do spend money when travelling.  They work hard (yes, I am in the lobby working on powerpoints right now), but they also eat well and stay in hotels with 20-30% tax.

Deloitte expenses

A few tips, when on a “bad guy” project:

  • Follow the process.  Restructuring, organization design, and cost reduction projects have always existed, and they will in the future too
  • Document everything.  When companies hire you to fix things, a lot of things can change – including the client-side sponsors, executives, and project leads
  • Use benchmarks to create anonymity; compare them to other standards
  • Work in teams; go to interviews together; present results together
  • Be upstanding; don’t give them any dirt to work with; stay out of the limelight
  • Do the work, and forget about it; be at peace because these are changes that must be made in order for the organization to be successful
  • Don’t drink too much

Back-handed compliment: “You are a workaholic”

I do a fair amount of work in the hotel concierge lounge.  Lots of snacks, stimulus, and a nice large marble table to spread-out and work.

Last night, I was the last to leave at 10pm, and this morning I was one of the first in the door at 630am.  The concierge person said, “I have been here 6 years, and you work more than anyone else I have seen.  You are a workaholic:”

A few thoughts:

  • Sadly, I took a little pride in that statement.  Clearly, I am putting in the work.
  • Important to find your good work rhythm and place – where do you work the best? (hotel desk, hotel bed, hotel lobby, Starbucks), when do you work the best (am, pm), how do you work the best (in silence, with Pandora blaring Grateful Dead)
  • Clearly, the Marriott person has not seen McKinsey people burn the mid-night oil; they may not be the most efficient, but they definitely spike high on rigor
  • San Pellegrino is a nice perk, even if I never use the swimming pool
  • It’s not always like that.  The night before, I got 8 full hours of sleep
  • Drucker always asked if you were working smart (effective), or just working hard (efficient).  When people call me a workaholic, Drucker would not be impressed

20140417_130017

Foreign aid, a few charts and graphs

After reading some news this morning, I wanted to re-post this from 2 years ago about US foreign aid.  For my non-American readers, hope you find this not-too-boring.

Consultants make tables and graphs.  That is a large part of what we do.  Please see some visualization of data below.  When you see the graphs, it’s obvious that US foreign aid has been sporadic, and a bit inconsistent.  Can easily confuse people.

Greenbook.  The US government publishes something called the Greenbook (245 page pdf) which shows where all the US foreign aid goes, but you can get the same information on this website in a more useful and friendly way.

1. The US government gave out $38B in economic aid in 2010.  This represents about 1% of the US national budget.  There was $15B in military assistance, but will ignore that for now.

2. US foreign aid has been going up for the last 10 years.  Shown in the graph, aid was relatively flat at $15-20B (based on inflation adjusted 2010 dollars) between 1965-2000.  The current level of $38B is where it was in 1953 time frame.  For a good discussion on the trends of US foreign aid, look here.

US Foreign Aid Trends 1946-2010 - Graph3. Foreign aid goes to approximately 180 countries.  It is clear that US foreign aid gets scatter to almost every country in Africa, Eastern Europe, Latin America and Asia.

Foreign Assistance by Country - Map4. On the surface, it looks like the aid is somewhat evenly distributed.  Without doing a “foreign aid per capita calculation”, Africa and Asia appear to get about 1/4 of the total spend.  Latin American and Eastern Europe share less than 20% of the aid.   The Middle East trails with 9% of spend.  The non-region specific aid probably includes some SG&A overhead costs and generic assistance.

2010 US Aid by Region - Graph5, The Middle East number (9%) is understated since Afghanistan (#1 recipient) and Pakistan (#2 recipient) are counted in Asia.  Also, Egypt (#5 recipient) is counted in Africa.  Israel receives no economic aid, but instead receives $2.8B in military assistance.

Top 10 recipients of US aid - Graph

6. US foreign aid comes in many different forms.  We build schools, provide drug therapies, dig wells, and even ensure fair elections.  In the table below, you can see that US aid comes in 8 high-level buckets, with peace/security and health being the top two.

US Aid by Category - Table7. Each category can then be broken down into finer parts.  For example, the US spent $9B globally on health-related aid.  The majority of this is spent on HIV/AIDS, compared to Malaria which only gets 1/10th of the funding.

Health Related Foreign Aid - Table

8. Poverty is everywhere  In this chart below, you can see that in rural India or Pakistan, more than 70% of the people live on less than 2 dollars per day. The Economist points out here that 1 bad harvest can completely wipe these people out.

Poverty Graph

9. The US is generous in its aid, but inconsistent.  One of the key elements of building trust is consistency.  So, when I downloaded the foreign aid data on a few of our key frenemies (friend + enemy), I can see why they are a bit confused on whether the US is a friend or a foe. Download the entire data set (all countries, all economic aid, 1946-2010).

10. The US gave $4.6B in economic aid to Afghanistan in 2010.  This is more than we gave the country for 56 years from 1946-2002.  Understandably, a lot of this has history mixed up with the cold war, but it is not surprising that they might feel America is trying to force a “all-of-a-sudden” type relationship.

Foreign Aid to Afghanistan - Graph11. The US gave $1.9B in economic aid to Pakistan in 2010.  As you can see in the graph below, it looks like a yo-yo.  It went from a high in the early 1960s, then dropped 90% to almost nothing in the early 1990s.  Looks like a U shape and a U-turn in policy.

Foreign Aid to Pakistan Graph12. The US gave $1B in economic aid to Iraq in 2010.  This is a lot of money – more than most countries receive from the US in aid – but it is only 1/8 of what Iraq received 2005.  Digging deeper, it looks lie 2/3 of the “economic aid” was actually the Department of Defense helping out with “security assistance”.  Does not sound very economic to me.

Foreign Aid to Iraq Graph13. Mexico received about $622M in aid in 2010.  We all too often forget our neighbor.  US aid increased dramatically to Mexico, but in the form of more funding for narcotics control.  If you read the news, the drug / gang violence in Mexico is at an all-time high.

Foreign Aid to Mexico Graph

14. US governmental aid is just a part of the equation.  A reader wisely pointed out that the US government makes up just a small portion of the larger US overseas philanthropy. Completely agree.  Don’t have to look any further than the Bill & Melinda Gates Foundation, Kiva.org, or a local church to see that Americans are eager to assist and invest in the developing world.  Thanks for pointing that out.

15. US private capital flows were $161B in 2010.  That is more than 4x more than what the US government sends overseas for development assistance.  Look at this report from the Hudson Institute that shows how the contributors to overseas philanthropy are changing.

Remittances - Foreign Aid

Direction, leadership, and trust

Tonight I told a client that I believe there are really only 3 things that distinguish high-performing organizations from losers.  Direction, leadership, and trust.

Direction:  Too many companies do not know what they are trying to achieve.  They rest on their laurels from previous hit products.  They acquire new companies.  They mimic competitors.  They optimize profits to satisfy Wall Street.  Basically, they are lost.

Leadership.  The average tenure of CEO, CMO etc. is very short.  People are either coming/going in the executive suite, and there is a lack of consistency.  People are unsure whether they should really believe in leadership, or whether it is a passing fad. When is the last time you saw real servant leadership?

Trust.  What is the culture? Is there a climate of learning, innovation and tolerance? Are there mentoring moments, and naturally-forming relationships?  Are there lots of new hires who were recommended-in by current employees?  Do people know what their responsibilities are. . .or are there numerous approval meetings and silly hierarchy.

Leadership direction trust

Perhaps this sounds naive, but I believe this is true.  Know what you are trying to achieve, demonstrate your passion and competence.  Have people follow you.  Develop a culture of trust, where non-fatal errors are okay.  Innovate to a solution.  Teamwork.

What is missing in your organization?

  • Direction?
  • Leadership?
  • Trust?

Or something different?

MOOCs continue to grow, disrupt, and democratize education

Massively Open Online Courses (MOOC) have been around in their current form for about six years.  They continue their march to democratize education.  If you are not familiar with these free online courses taught by some of the best professors in the business, please see my post from 18 months ago here.

I still believe MOOCs have the potential to completely disrupt higher education, especially for the 3rd and 4th quartile institutions; they just will not be able to charge $40K per year for a mediocre higher-education, when there are free (all be it), different learning opportunities online.  This logo is to enroll in an online course from John Hopkins on Data Science.  Big think.

Coursea course John Hopkins

MOOC momentum.  This article notes a few big, startling statistics.  MOOCs continue to scale, drive quality, and disrupt education. My commentary shown in (red color).

  1. $60 million invested by Harvard and MIT to launch edX (real money)
  2. $21.1 million in venture capital funding that Udacity has raised (real money)
  3. 1.7 million students who have registered for a Coursera class (scale)
  4. 150,000:1 student-to-professor ratio in a fall 2011 Udacity class (scale)
  5. 98% of professors are rejected by Udacity (quality)
  6. 33 universities that have partnered with Coursera (social proof)
  7. 6%–15% of revenue is paid to partner university from Coursera (business model)
  8. 5% pass rate in MITX’s only massive open online course (quality)

Not a new thing. In many respects, distance learning has been around for a while.

Why is this better? Why is this so revolutionary?

1. Online education scales well.  Some of the largest classes, can have 100-200K concurrent students.  Listen to the interview of Daphne Koeller (one of the founders of Coursera) here.  Coursera currently has 9 million students enrolled in more than 100 courses, provided by 40+ institutions.  Scale, scale, scale.

2. Currently, it is mostly free.  Not clear how long this will last.  Coursera and Udacity are both for-profit, while edX is non-profit.  Certainly, there are potential freemium models (e.g., charging for lecture notes, study guides etc), but nothing has really been proposed.  The big three MOOCs have deep pockets.  There many potential revenue streams from certificate programs, recruitment centers, study guides, feeder programs for other learning institutions.

3. It will democratize higher education.  Thomas Friedman – writer of The Lexus and the Olive Tree, and The World is Flat, wrote a bullish article in the NY Times in January 2013 where he imagines how this can really uplift people who do not have access for 1st class education here.  In many ways, it is the exact opposite of the recent US online education meltdown where 2/3 of American students – unprepared for both the financial burden and responsibility – signed up for classes and degrees that they did not complete or benefit from. The average US kid (yes, kid) has $26,000 in student debt.

4. What’s the best way to think through this problem?  Professor Morten Hansen, UC Berkeley, posted a fascinating post on the potential that online courses has to disrupt Executive education.  He mentions 2 things:

4.1 Application of Christensen’s disruption theory from Innovator’s Dilemma to education. This clearly applies.  Less for less.  Lower quality services for dramatically lower price.  Have traditional universities overshot (too high a spec, and too high a price) customer’s expectations?  Are they serving a need that the customer’s don’t value (e.g., Intel building more powerful chips, when people wanted energy saving ones)

4.2 Two types of knowledge – codified and tacit.  This is from a 1990 HBR article entitled – What is your Strategy for Managing Knowledge. This is the first time I heard of this, but it makes sense.  Some codified knowledge can be recorded easily (commoditized) without it losing its meaning and value.  Other knowledge requires some personal or tacit understanding.  The main thrust of the argument seems to be that a lost of Executive Education is codified knowledge, therefore, easier to commoditize.

Top-tier universities will be fine.  There are probably more than 20+ reasons why established, reputable, and branded, top-tier universities will continue to be successful. In fact, they will be able to flourish and extend their brands.

3rd and 4th quartile schools will hurt. It is really the 3rd and 4th quartile universities who are at risk.  Namely, how much value are they providing to their graduates – in learning, job placement, alumni network, skills – compared to motivated students who take the opportunity cost money (sometimes $hundreds of thousands), and educate themselves.  This would make Joseph Schumpeter proud.  Creative destruction.

Data analysis in 20 minutes

Consultants are in the business of taking messy, unorganized data and turning it into information, and hopefully, some insights.  Here is a simple example of excel clean up, and the steps to copy, paste, filter, sort, and cleanse data.  For most consultants, the data cleansing would 7-10 minutes (takes some trial and error) and the graphics would be another 10 minutes, if (s)he knew what graph they wanted to make.

Challenge:

Solution:

Here are the outputs.   Sorting of the 465 retailers from highest discount to lowest.

465 retailers

Unsurprisingly, the retailers with the lowest discounts are the generalist retailers and gas stations.  After all, who does not need something from BP or Walmart?

Lowest discounts

Steps #1 – 12 to clean the data and make these simple analysis.  

We have lots of consultants on this websites, and other left-brained people so this maybe basic for some.  Also, there are likely easier, smarter ways to do this, but this is for education, so don’t be snobby.  Some people might learn from this.

Filtering, sorting, copy, pasting.  Analyst basics.  Here we go. . .

http://www.cardcash.com/merchants/

step 1

step 2 and 3step 4-5step 6-7step 8

step 9

step 10-11

step 12

Practice makes perfect.  Nothing is worse than a slow consultant, so practice. Hope this was helpful.  Note that the website is always updating their inventory of discounted cards, so your results might be different (if you don’t do it on 10/2/2014).

If you want a copy of the starting excel (step #1) and the final clean one (step 12), leave me a message below, and I will send you the excel.

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