Tag Archives: FOMO

The Moat-Building Entrepreneur

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We know from our history lessons that in medieval days, members of noble families often lived in castles. These fortresses were imposing in appearance and have stood for centuries – a testament to their design and construction. Castles were built over a 900-year timeframe which is truly amazing. These structures were protected by a wide range of defenses including various forms of artillery, arrows, boiling oil, tar and sewage, and there are even reports of diseased dead bodies being catapulted at assailants. Finally, deep wide ditches were dug around many castles and filled with water, requiring access via drawbridges. In fairy tales we heard about moats being home to alligators, crocodiles, and other horrible monsters though it is doubtful that in real life moats were populated in this fashion.

So, what is your moat? Strange question you ask? I have written several times in the past about how important it is that entrepreneurs differentiate themselves from their competitors. In 2007, Warren Buffet was speaking to a group of University of Florida MBA students and had this to say about differentiation.

“I don’t want a business that’s easy for competitors. I want a business with a moat around it. I want a very valuable castle in the middle. And then I want…the duke who is in charge of that castle to be honest and hard-working and able. And then I want a big moat around the castle, and that moat can be various things.”

“The moat in a business like our auto insurance business at GEICO is low cost. I mean people have to buy auto insurance, so everybody’s going to have one auto insurance policy per car basically, or per driver. And…I can’t sell them twenty…but they have to buy one. What are they going to buy it on? They’re going to buy it based on service and cost. Most people will assume the service is fairly identical among companies, or close enough, so they’re going to do it on cost, so I gotta be the low-cost producer. That’s my moat. To the extent my costs get further lower than the other guy, I’ve thrown a couple of sharks into the moat.”

Thinking about differentiation in terms of a moat is a slightly different perspective than I have had in the past. I have viewed differentiation proactively as an opportunity to exploit. Buffet seems to be seeing it from a defensive standpoint – thus his moat analogy. Either way, we get to the same place. There must be a reason that people want to do business with us beyond our charm and good looks.

I am advocating for a combination of defense and offense with respect to differentiation. On the one hand, I am looking for products and services that have high barriers to entry. Perhaps this is due to substantial capital requirements; extremely complex aspects to the product or service; maybe it is a patent; or perhaps there is a vertically integrated process that is extremely difficult to replicate. All those factors become the moat. They make it hard for competitors to easily jump into our space and make inroads.

Now let’s play offense. Simply keeping our competition at bay does not ensure success or profitability. It is what we do inside the castle that really counts. We can sit on a throne, eat rich foods, and get fat (dumb and happy), or we can exploit the opportunity we have to function in an arena where competition may not be as intense. This might take the form of developing a premium product, or a marketing strategy that creates FOMO – the Fear of Missing Out. Maybe exploiting the opportunity looks like the streamlining of an internal process that produces even greater profits. The point is that with a moat in place we can take our endeavor to an even higher level than ever before.

Differentiating ourselves as entrepreneurs is essential to our success. Doing so with a dual strategy of building a moat and exploiting the opportunity allows us to play defense and offense at the same time. 

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

The FOMO Entrepreneur

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We live in an age of acronyms. I guess they are a form of shorthand. LOL, YOLO, DIY, IMHO, SMH, MTFBWY, FUTAB and ROTFL. If you guessed them all correctly you are in the mainstream of cool. And for those of us who are a bit more advanced in years, here’s the translation in order – Laughing Out Loud (LOL); You Only Live Once (YOLO); Do It Yourself (DIY); In My Humble Opinion (IMHO); Shaking My Head (SMH); May the Force Be with You (MTFBWY); Feet Up, Take a Break (FUTAB), and Rolling On the Floor Laughing (ROTFL).

There’s another acronym I’d like to explore today – FOMO. Give up? It’s the Fear of Missing Out and it can be deadly for entrepreneurs. One of the best examples of the FOMO concept is the crypto currency craze and more specifically, Bitcoin. It’s not important to understand the basics of Bitcoin. What’s more instructive is to understand what has happened in the marketplace. On August 15, 2010, the value of one Bitcoin was $.07. By August 1, 2015, the value of one Bitcoin had risen to $283.04. On November 9, 2016, right after the Presidential election, the value of one Bitcoin had increased to $726.36. On August 1, 2017, a single Bitcoin was worth $2,787.85. By December 20, 2017, the “value” had jumped to $18,486.51, and by February 4, 2018, the value had plummeted back to $8,922.61. Incredibly, in November 2021, Bitcoin soared to more than $67,000, then cratered to below $20,000 in the summer of 2022. Riding a roller coaster at Cedar Point would be considered like a leisurely stroll in the park compared to the volatility of Bitcoin.

Unfortunately, there are hundreds of thousands if not millions of individuals who have jumped into Bitcoin worldwide. Some have used their life savings to buy a stake. Many think they are investing. Most hear the siren song of making a quick buck without truly understanding the risk profile or even the basics of how crypto currencies function. What drove some people to plunk down $18,486.51 for a single Bitcoin on December 20, 2017, and within 46 days, see their position shrink to $8,922.61? When examining the case studies, it’s apparent that many people were motivated by the Fear of Missing Out.

FOMO is dangerous because it’s an emotional reaction. We work hard to build our businesses, and much of our success comes from analyzing data and making decisions based upon fact – even when it comes to understanding consumer sentiment (which may be emotional in itself). FOMO is impulsive in nature and flies in the face of logical decision making. We face this dilemma every day in one of our business units that is focused on acquiring market-rate apartments across the country. Apartment investments have been hot for the past few years and the fundamentals have been strong. As a result, prices have been driven higher and returns are lower. Press releases abound announcing acquisition after acquisition. It’s easy to feel the pressure to adjust our investment thesis to keep up the pace of our own acquisition initiative. But experience has taught us to resist this temptation.

The first step in avoiding the pitfalls of FOMO is recognizing our susceptibility to it in the first place. This can happen if we have a clear set of standards that guide our approach to the way we operate. Without these standards we are very vulnerable to being tugged or pulled to follow whatever hot trend happens to emerge now. With standards, we can test against that trend to see if there is alignment. If there’s not, we must have the discipline to resist pursuing it. 

The second step is to carefully analyze the risks associated with pursuing the trend. This should be a rigorous exercise that identifies all the possible ways things could go wrong and what sort of impact would be felt. Take Bitcoin for example. I’m positive that many Bitcoin buyers have done no risk analysis and really believe they are “investing.” They are just gambling. It’s one thing to speculate with money that one can afford to lose. It’s another thing to put half your life savings on Red 32.  

Finally, FOMO can be avoided when we eliminate the emotion of envy. I doubt many Bitcoin investors believe they have been driven by envy. But when they see others “making” huge amounts of money on their Bitcoin “investments” they want to get in on the action too. When I was 10 and another kid had ice cream, I wanted ice cream. I secretly envied the other kid with the cone. FOMO to some extent is the same thing. When others are doing well, let’s rejoice in their good fortune without having any feelings that we are somewhat inferior if we don’t experience the same good fortune.

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

FOMO

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We live in an age of acronyms. I guess they are a form of shorthand. LOL, YOLO, DIY, IMHO, SMH, MTFBWY, FUTAB and ROTFL. If you guessed them all correctly you are in the mainstream of cool. And for those of us who are a bit more advanced in years, here’s the translation in order – Laughing Out Loud (LOL); You Only Live Once (YOLO); Do It Yourself (DIY); In My Humble Opinion (IMHO); Shaking My Head (SMH); May the Force Be With You (MTFBWY); Feet Up, Take a Break (FUTAB), and Rolling On the Floor Laughing (ROTFL).

There’s another acronym I’d like to explore today – FOMO. Give up? It’s the Fear of Missing Out and it can be deadly for entrepreneurs. One of the best examples of the FOMO concept is the crypto currency craze and more specifically, Bitcoin. It’s not important to understand the basics of Bitcoin. What’s more instructive is to understand what has happened in the marketplace. On August 15, 2010, the value of one Bitcoin was $.07. By August 1, 2015, the value of one Bitcoin had risen to $283.04. On November 9, 2016, right after the Presidential election, the value of one Bitcoin had increased to $726.36. On August 1, 2017, a single Bitcoin was worth $2,787.85. By December 20, 2017, the “value” had jumped to $18,486.51, and by February 4, 2018, the value had plummeted back to $8,922.61. Riding a roller coaster at Cedar Point would be considered like a leisurely stroll in the park compared to the volatility of Bitcoin.

Unfortunately, there are hundreds of thousands if not millions of individuals who have jumped into Bitcoin worldwide. Some have used their life savings to buy a stake. Many think they are investing. Most hear the siren song of making a quick buck without truly understanding the risk profile or even the basics of how a crypto currency functions. What drove some people to plunk down $18,486.51 for a single Bitcoin on December 20, 2017, and within 46 days, see their position shrink to $8,922.61? When examining the case studies, it’s apparent that many people were motivated by the Fear of Missing Out.

FOMO is dangerous because it’s an emotional reaction. We work hard to build our businesses, and much of our success comes from analyzing data and making decisions based upon fact – even when it comes to understanding consumer sentiment (which may be emotional in itself). FOMO is impulsive in nature and flies in the face of logical decision making. We face this dilemma every day in one of our business units that is focused on acquiring market-rate apartments across the country. Apartment investments have been hot for the past few years and the fundamentals have been strong. As a result, prices have been driven higher and returns are lower. Press releases abound announcing acquisition after acquisition. It’s easy to feel the pressure to adjust our investment thesis to keep up the pace of our own acquisition initiative. But experience has taught us to resist this temptation.

The first step in avoiding the pitfalls of FOMO is recognizing our susceptibility to it in the first place. This can happen if we have a clear set of standards that guide our approach to the manner in which we operate. Without these standards we are very vulnerable to being tugged or pulled to follow whatever hot trend happens to emerge at the moment. With standards, we can test against that trend to see if there is alignment. If there’s not, we must have the discipline to resist pursuing it.

The second step is to carefully analyze the risks associated with pursuing the trend. This should be a rigorous exercise that identifies all the possible ways things could go wrong and what sort of impact would be felt. Take Bitcoin for example. I’m positive that many Bitcoin buyers have done no risk analysis and really believe they are “investing.” In reality they are just gambling. It’s one thing to speculate with money that one can afford to lose. It’s another thing to put half your life savings on Red 32.

Finally, FOMO can be avoided when we eliminate the emotion of envy. I doubt many Bitcoin investors believe they have been driven by envy. But when they see others “making” huge amounts of money on their Bitcoin “investments” they want to get in on the action. When I was 10 and another kid had ice cream, I wanted ice cream too. I secretly envied the other kid with the cone. FOMO to some extent is the same thing. When others are doing well, let’s rejoice in their good fortune without having any feelings that we are somewhat inferior if we don’t experience the same good fortune.

You can also listen to a weekly audio podcast of my blog. What you hear will be different than what you read in this blog. Subscribe on iTunes or wherever you get your podcasts. You can also click on this link – Click here to listen to Audio Episode 85 – Liars.

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.