Yesterday I finished a monologue by Manuel F. Ayau titled Not a Zero-Sum Game in which he explains the basis of economics with common sense passages like:
Understanding that in a market economy a person can only get rich by enriching others torpedoes claims to the moral high ground of those who propose that government redistribution of wealth is a means to alleviate poverty.
[In a market economy], one cannot "make a fortune" at the expense of others, but only by offering others a better deal and, thereby, making them richer.
On some levels some type of wealth is built through fraud (see the mortgage industry over the past 5 years), cronyism (see Iraq), and other nefarious means, but on average most entrepreneurs create wealth through efficiency improvements. Google makes so much money because they make advertising more targeted and automated. I do well because I help people get more exposure on Google at a rate much cheaper than what it costs to buy that traffic directly from Google.
You can take wealth creation and distribution as a concept and move it away from our own industries to everyday trade and consumption. For example, I had an eye appointment and just got my prescription today. Rather than paying retail in the store I decided to hunt online to save money. And that worked out well because
I found a discounter
that offered free shipping on a bulk purchase
there was no sales tax
I ordered enough that I got a $60 rebate coupon from the manufacturer
I found an affiliate link for a coupon that got me another 15% off my order (before the $60 rebate)
The net result is that I saved hundreds of dollars today due to the efforts of the above people. But if the government takes away their incentive to take risks in the hopes of profit (through higher taxes), then those cost savings to me as a consumer disappear. Thus I pay more to get less. Worse yet, as government spending increases it drives up the costs in most marketplaces it touches because it is not as efficient as individuals are.
As ugly as that chart is, the situation is even uglier than that. If I am only taking home ~ 37% of my earnings and many of my customers are only getting 37% I get hit both directly and indirectly...I get a smaller piece of a smaller piece.
The WSJ article also highlights 2 more frighting issues
While Mr. Obama also proposes an alternative minimum tax (AMT) patch, he could instead wind up with the permanent abolition plan for the AMT proposed by the Ways and Means Committee Chairman Charlie Rangel (D., N.Y.) -- a 4.6% additional hike in the marginal rate with no deductibility of state income taxes. Marginal tax rates would then approach 70%, levels not seen since the 1970s and among the highest in the world.
And the article also states that Obama is a protectionist who dislikes free international trade.
Mr. Obama has also opposed other important free-trade agreements, including those with Colombia, South Korea and Central America. He has spoken eloquently about America's responsibility to help alleviate global poverty -- even to the point of saying it would help defeat terrorism -- but he has yet to endorse, let alone forcefully advocate, the single most potent policy for doing so: a successful completion of the Doha round of global trade liberalization. Worse yet, he wants to put restrictions into trade treaties that would damage the ability of poor countries to compete.
All trade is from individual to individual. When intermediaries exist it is typically because they lower cost and/or make trade more efficient (like the use of cash does). If we block foreign trade we increase the cost of goods and services to our poor because they will not be able to benefit from the division of labor driven by lower overseas labor costs. Read Underdeveloping Indiana to see how absurd blocking free trade is as an international economic strategy.
The true reasons the US economy is so screwed up right now is because the government is already too big, we use our military in an attempt to force our view of the world onto other countries (economically inefficient and ineffective), and the average American feels entitled to consume more than they can afford while suffering from uncompromising intellectual sloth.
I can't vote for McCain because I would feel like I was promoting the spread of unjust wars, torture, and murder.
But I can't really vote for Obama if he wants to kill both my incentive to work and the economy.
If you live in the United States, at what point would a tax hike be high enough to make you work less or move overseas? A 65% to 70% tax rate would probably do it for me!
[Update: a reader pointed out a couple other taxcharts that did not look as scary as the above charts. You would think you could trust the WSJ, but I probably should have done more research before posting this...too often I let emotions get the best of me.]
Many businesses are still stuck around the concept of working on weekdays while working little on weekends. I actually like working weekends and then try to take some time off during the work week. Why?
Many companies time news that they do not want discussed. For instance, at 1:02AM this morning the WSJ published an article titled Two More Banks Fail. During the weekday it is hard to beat others to the scoop, but it is much easier to do on weekends.
In the constant blur of noise it is easy to get distracted on weekdays. But on weekends it is much easier to be productive because not as much is going on.
If I go to the park today I pay $3 for parking and there will be lots of people out and about. On weekdays parking is free, fewer people are using the same resources, and there is less traffic.
I recently had a useful web based service built but kept forgetting to use it on a daily basis. I set my IE homepage to that tool so I would remember to use it. Since then it has helped up make some great business decisions (as well as add context showing how good or bad some past decisions were).
I recently added support suite software to this site, but am so used to answering everything through the forum and through email that I do not remember to log-in to the support suite section of the site. I set my Firefox homepage to the support suite ticket page today, and presumably I will remember to look at it every day.
Patterns can be hard to break and hard to build, but if we give ourselves cues and reminders change is easier. Now I only need to think up a strategy to start using that elliptical machine that I bought a few weeks back!
I am usually a fan of creating niche sites that are easy to link at and in profitable categories. In some cases generic sites can do well because they allow you to expand wherever the money is.
Sites like NexTag can buy mortgage ads on Bankrate because they already have enough volume that it makes it easy for them to quickly build inventory whenever an arbitrage opportunity comes about.
From an SEO standpoint generic websites are great for creating top 10 lists and other egobait driven publishing strategies which allow you to tap into link equity from established bloggers and other publishers.
A site about coupons or reviews is heavily focused on a traffic stream of people looking to spend money.
A site about trivia focuses on a traffic stream of people looking to waste time who will engage in quizes and zip submit offers.
The downside to many generic sites is it is hard to build a loyal following, but as long as SEO is driven by links maybe you don't need a following to make a lot of money.
Warren Buffet's quiet partner goes by the name of Charlie Munger. Charlie has a 500+ page book full of gems. Before becoming heavily involved in the investment field, Charlie worked at a law firm, where his top tip for attracting clients was:
It's the work on your desk.... It's the work on your desk. Do well with what you already have and more will come in.
The more I think about it, the more I don’t believe customer-centricity is the key. It’s not a goal, it’s a by-product. It comes as part of the package (often unconsciously) with another principle that is a little more concrete: product-centricity. Product-centric leaders, the ones that are obsessive about what gets shipped out the door, are customer-centric by nature. They understand the importance of that magical intersection between product and person, the sheer power of amazing experiences. The iPhone is amazing. Disney classics are amazing. My first search on Google was amazing. Steve, Walt, Larry and Sergey wouldn’t have it any other way.
It’s the idea that the founders are doing something that they think is useful for themselves, And, then, eventually perhaps, coincidentally, perhaps accidentally, they discover that the product or service that they have built because they wanted to use something like this is that of great interest to lots of other people.
When you build for yourself you can build a product for one (ie: no demand), but the cost of failure is low, one of the core ideas in Clay Shirky's Here Comes Everybody. It is so fast and cheap to test things online that if you are passionate and aggressive success often happens accidentally. PageRank was an academic project for finding authoritative citations that just happened to turn into a search engine.
Building a well known brand and a sustainable business model in a competitive marketplace is challenging, but if you break things down into pieces and do something every day eventually you win marketshare. People who become successful have large goals like "become the leading source in our market" or "increase profits 150% year over year" but most people who actually achieve those types of goals set smaller goals and work toward achieving them every day.
One of my better habits is writing a to do list. When I scratch things off the list there is a sense of accomplishment which drives further activity. Sometimes the accomplishments are moral victories, learning how to create a little bit of code, or improving the graphical interface of something, while other projects are much more complex, like writing a book or hundreds of training modules. As long as growth is sustainable then all is well. If you stop growing in a growing marketplace then you need to evaluate what you are doing wrong.
Are you doing too many repetitive tasks that software or a cron job should be able to do?
Does your site lack viral marketing components?
Does your site do a poor job of prequalifying leads?
Are you selling to the wrong market?
Are you pricing too cheaply and attracting the wrong clients?
Are you doing a poor job building perceived value?
Is your conversion process broken?
Are you doing a poor job of transferring value?
In nearly every growing business at some point in time the answer to every single one of those questions is yes. Each is an area for improvement.
With employees I can come off as being under-appreciating and/or too demanding, largely because I expect people to work as hard as I do, and maybe 2% of people do. When you have the attitude of making incremental daily improvements it is hard for some people to grasp it until you beat it into their heads. I have found it hard to teach most people - especially if they work remotely.
You really need to find that 10% of people who want to add value...and then you need to find the 30% of those who's loyalty exceeds their greed. It is hard to find good workers. As software gets cheaper I suspect it will only get harder to find and retain quality employees as more of the quality people decide to work for themselves, which means that you need to create ways to get customers to do your marketing for you.
I think the key to smoothing out some of the friction with workers is to teach people to set their own score card. Daily contact off the start is needed to set expectations and keep things progressing. But over time have them ask themselves each day what they did to add value, make a difference, and remove market friction. If you are active in your marketplace, are receptive to feedback, are aggressive with push marketing, give away value, and keep trying to build value each day, eventually the profits roll in. It might take a couple years to work out well, but eventually it does.
I just came across AnswerSniper, a $147 software product created to help you find open questions to answer on Yahoo! Answers by keeping you up to date with the latest open questions for keywords you select. Can you imagine paying for software for the privilege of finding questions that need answered, and then trying to be the first person to answer each of them?
If you are committed at that level, why not just create something like AskDaveTaylor.com or your own forum so you at least build content, brand equity, and a traffic stream you own in the process?
Worse yet, on Yahoo! Answers you are not answering questions in a small community where you can build a strong personal brand, but on a huge network where it would take a serious time investment to build a personal brand. Just doable perhaps, but probably beyond the opportunity cost for most folks.
What is even more absurd about buying such software is that Yahoo! Answers offers RSS feeds of new open questions (open SEO questions), so all you need to do is subscribe to the feed to get notifications of new questions. Want to track multiple keywords? Use Yahoo! Pipes and/or subscribe to multiple feeds.
Maybe there are more features I do not see or some things I am not fully appreciating. Do you think AnswerSniper is an unneeded product or a testament to how saturated the web is becoming? Or both?
The Yahoo! Answers Pollution Problem
About a year ago I answered a few questions just to get to a second level rating and learn what the site was like, but many of the top selected answers are people working inside the same companies who asked the exact same questions. And that pollution is only going to grow, especially as more internet marketers create internet marketing products focused on Yahoo! Answers. Plus the link equity keeps getting spread thinner as more questions are asked AND the average quality of the service drops due to pollution by marketers - those trends do not bode well for the long-term viability of Yahoo! Answers as a traffic source.
The issue in not just an issue of being someone else's user generated content versus becoming a destination, but also an issue of supply and demand. There is a lot of supply of low quality content. And there is a lot of demand for the much more select high quality content. And for Google to keep their market position they need to keep getting better at understanding which is which.
Right now a lot of weight has been put on domain trust, but as more sites add user generated garbage to their sites, site authority driven algorithms will require a lot of algorithmic refinement or manual intervention by the search engines.
As the web gets more competitive the answer to sustainability is not more content, but deeper content. In the time it takes to answer 100 Yahoo! Answer questions you could write 10 blog posts. In the time it takes to write 10 blog posts you could write 1 feature. And 5 years from now, content like the Blogger's Guide to SEO is going to be worth far more than 100 of my average blog posts. In a month you will not remember reading this post.*
It is hard to build a lasting brand that changes with the market if you are a username on a large heavily polluted site.
* If you do, leave a comment one month from today and prove me wrong. ;)
It is much easier to get people to impulse purchase a one time $79 product than it is to get people to join a higher value but higher price-point recurring program. When I changed my business model the sales rates changed significantly. Just before changing the model the sales rate for the ebook peaked at an all time high. And just after launch the sales rate for the membership site was even greater than my best sales rate for the ebook, but then sales slowed down a bit. As I refined the some of the marketing strategies, order volume has picked back up again.
The area where sales really dropped off was the areas you would expect to fall most - cold search leads and affiliate traffic. It makes sense too, because when you are selling a membership site you are largely selling trust in your brand, and building trust is a process. It requires more of a presell. Those who are unfamiliar with you will take a lot more to convert than those who have grown to know, like, and trust you over time. Those who have read this site for a long time are much more likely to become members than less qualified prospects who just discovered this site today.
I still have a bunch of ideas for warming up cold leads which I will get to try over the coming months, but some of them requiring sourcing from other providers, and that is a process. The cool thing about changing your business model is that you learn a lot about different sales strategies...it also shows you the different strategies needed to sell different ideas. And it is a bit of a thrill to one day just pull the plug and switch everything. You can try to predict what will happen, but your predictions will usually be wrong. In the shift there will be hidden good deals and hidden bad deals. Just to highlight a couple, out of dozens of them...
Hidden good deal: when setting up the ability for SEO Book buyers to get a free trial my programmer turned that free offer process into something that required setting up a Paypal subscription. That prevented many non-committed people from joining. Which works out nicely for me as I don't spend more time servicing people who were not really interested in the first place.
Hidden bad deal: when I emailed affiliates about changing my business model, many affiliates that had no sales or traffic were demanding and rude. A single sentence in that email probably wasted over 10 hours of my life.
I theorized before changing my business model that as a result the customer quality and value of customer interaction would sharply increase while my frustrations with the worst customers from yesteryear would diminish. That turned out better than expected as well.
Some of the people who bought my ebook in the past would buy it but then be lazy, see no results because they did not read the book or do any marketing, and then basically try to get $20,000 worth of consulting out of me for their $79, not listen to my advice when I give it, and then do a reverse charge after sending me a few 15 page emails and wasting hours of my time.
The problem was that there was no recurring opportunity cost to customers, so many of them felt it was their job to abuse me and treat me like a machine. And so then I started thin slicing to guess "is this a person who I can help or a person who will just waste my time?" but that thin slicing turned off some customers. My wife thought I was slow to respond and I sounded a bit like a jerk when we first spoke. :(
The nice thing about my current price point and member registration is that it is just beyond the impulse purchase range, so I am selling to the right customers. And since it is an ongoing training program, it attracts the type of customers who want to do work vs those who want a free ride or a person to outsource the blame upon. The community has been both fun and rewarding. I have been surprised at how well it has worked out. I just wish I would have been a better listener when NFFC gave me so much great advice back in 2005!
One huge disconnect I still have is that many people who reference this site today are still referencing how great the book is (but it no longer exists as an individual entity, only as part of the training program). The domain name, years of content creation and market participation, and all the money spent on advertising all work to make that well remembered, and I need to work on shifting that...which is probably a lot harder that it sounds.
We spend so much time worrying about public relations, link building, and all kinds of external stuff...that we do not set our businesses up to establish and build relationships, and get the most out of what we are already doing. If you do well with the traffic you already have then you can always invest more in public relations, ppc, advertising, and link building.
OK, stop and think about your application. Do you really need to be a standalone site? Do you really want to write user registration code, or would you be better off taking your application and bringing these other sites where there are lots of users already and where they have already expressed both their personal information and their connections to other people?
The answer to that is of course you want to be your own destination. Writing registration code once means you can re-use it over and over again on various projects. If you can program a successful widget or application then you are not the type who thinks registration code is a roadblock.
Some of the most successful viral applications (like Paypal and YouTube) leveraged other platforms for growth, but a large part of their success was that they also chose to be destinations.
If you create a destination vs exclusively being a platform on another site, you...
have more direct contact with your customers (which often creates new revenue streams)
make it easier for reporters to contact you. Public relations is huge for spreading viral stories and growing viral networks (look at how many times Plentyoffish was in the press)
create something that is easy to link at, where you control the link equity and attention and use it to profit as you wish (ads, market new related ideas, change your business model, etc.)
can extend your offering out into related fields and/or create a premium service
are more likely to receive funding if needed and can sell your business for a higher price point (since your business has more of what Warren Buffet considers a moat around it)
Consider some of the add ins that sold for millions or billions of dollars because they chose to become destinations
If Paypal was not a destination, eBay could have killed them and/or bought them for a small fraction of their potential value.
If Del.icio.us or MyBlogLog was just a Firefox extension would Yahoo! have bought them?
If Feedburner was a browser plug-in of some sort would Google have paid an estimated $100 million for them?
If YouTube was not a destination could they have competed with Google Video and got bought for $1.65 billion?
Overture, which pioneered the paid search field, once had a dominant market-share, but was afraid of becoming a search destination because they thought that it could cost them syndication partnerships. The day AOL signed on to syndicate Google's ads, Overture became irrelevant as a business force. They bought a couple search engines in an attempt to become a destination, but it was too little too late. And Overture was bought by Yahoo! for about 1% of what Google is worth today. The pioneer in the paid search model that drives the current web economy sold for about the same price as a marginally profitable free video hosting site, largely because Overture failed to become a destination. Oops.
The Federal Reserve is somewhat like a market maker, or at the very least a market influence, on the value of currency. Google acts in a similar value, placing value on and evaluating the value of information and collections of information.
Reading this blog post about Ben Bernanke and replace words like credit and inflation with paid links and search spam and you can see (and perhaps even respect) how Google manipulates the press, why Google's guidelines are often forced to be removed from reality, and search engineer editorial action is often harsh beyond reason.
Here is an excerpt from the blog post about Ben Bernanke:
The last time a slowing economy failed to moderate prices was the 1970s. Even as the economy slid into recession, we had major spikes in the prices of energy, food, clothing.
What is particularly worrisome to me is that as we have slashed interest rates 225 basis points, consumer loans -- mortgages and revolving credit -- have actually moved higher.
Gentleman, this is a major problem. And our internal, non-public projections forecast it is only going to get worse for the next 4 quarters . . .
Paying a PR firm is not much different than buying PageRank, other than it perceived by Google as being cleaner.
And if you are big into economic stuff here is some more good stuff...
First, Warren Buffet's Berkshire Hathaway Annual Report [PDF] offers a lot of great business strategies and insights. If you have never read any of his letters, make sure to read from the heading on page 5 or 6 about Business - The Great, the Good and the Gruesome right on through to the end of that section a couple pages later. You can also read Warren's older reports here.
This is the worst housing recession in US history, and there is no sign it will bottom out any time soon. At this point it is clear that US home prices will fall between 20% and 30% from their bubbly peak, that would wipe out between $4 trillion and $6 trillion of household wealth. While the subprime meltdown is likely to cause about 2.2 million foreclosures, a 30% fall in home values would imply that over 10 million households would have negative equity in their homes and would have a big incentive to use "jingle mail" (i.e. default, put the home keys in an envelope and send it to their mortgage bank).
Some of the early lending institution losses are being socialized by inflation and other sources
Countrywide - an institution that was more likely insolvent than illiquid - has been bailed out with public money via a $55 billion loan from the FHLB system, a semi-public system of funding of mortgage lenders.
What is happening is just the consequences of rational economic behavior. In most US states mortgages are non-recourse loans; thus, if a home owner defaults on its mortgage then banks take over the collateral - the home - via foreclosure but once that happens it cannot go after the borrower for any difference between the value of the original mortgage and the current value of the property.