An Entrepreneur’s Guideposts

Posted on September 25, 2022 by anentrepreneurswords

Here are 13 concepts by which I live. They are my guideposts and serve as an Entrepreneur’s Primer. They’ve worked well for me, and I’d like to share them with you.

Live today like you’re going to die tomorrow. It’s impossible to know when our “number” will be called. Why waste a single moment on that which is unproductive? And make sure to appreciate those whom you love – you will have regrets after they are gone if you take them for granted.
What you think, will become reality. People who always have a positive mindset produce positive results and live a happy life. We can stack the deck in our favor if we train ourselves to reject negativity. Just as importantly, we don’t allow negative people to be a part of our lives. Our mind is more powerful than we can imagine, and we can use it to shape an amazing present and future.
Never, ever, ever, ever, ever, ever give up. These are the famous words of Winston Churchill, and they ring true as much today as they did in the darkest hours of World War II. The key to perseverance is to make constant tweaks and pivots until what we are striving to accomplish manifests.
Don’t take risk . . . manage risk. Taking risk is like gambling. Our businesses and our lives are too valuable to be betting the farm on Red 32. Instead, we identify the risks and create strategies to contain and mitigate them. Then we can proceed to launch new initiatives without fear.
Laugh every chance you get . . . especially at yourself. It has been proven scientifically that laughter is healthy. Laughing many times every day is good for establishing a positive mindset. When we laugh at ourselves and can be self-deprecating, we show others that we are comfortable in our own skin.
What you give will come back to you in amazing ways. We give because it makes others feel good and us too. And when we give without quid pro quo for the simple joy of giving, our life is fuller and richer. We also remember that gratitude is part of this equation and express our thanks to many people as often as we can.
March to your own tune but do so with purpose. We avoid the herd mentality and are proud of our individuality. But we don’t do so simply to be different. We do so because we have a strong set of core values and a clear vision for our future. We aren’t worried about what others think so long as we aren’t stepping on their toes.
Mistakes are simply the unfinished experiments in the laboratory of life. I love this one! There’s no way to know if we are on the right track unless mistakes are made. If everything is too perfect, then it’s likely we aren’t stretching ourselves to be better. Rather than obsess over our mistakes, we figure out what there is to learn from them and then start a new experiment.
Creativity is a way to express your passion. And passion allows you to see in color. Each of us has a creative streak – it may be buried deeper in some of us, but we all can innovate in some way. Amazing and wonderful things can come about because of the creative process and it’s likely that our passion will be stoked. Life is full of sunshine and light when our creativity is off-the-charts.
The success of a career can be measured in the number of lasting relationships that have been collected and nurtured. I see relationship building as an opportunity to serve. When we are always looking to help others in a genuine manner without the thought of receiving anything in return, we move beyond the transactional aspects of an acquaintance into a true relationship. Putting Good out into the world through service is the Law of Attraction – and in turn, we will attract Good into our lives.
Balance your life – emotionally, intellectually, financially, physically, spiritually and with your family. This one can be tough, especially if we really, really love our entrepreneurial adventure. Here’s a secret. Having this sort of balance has a giant payday. It helps us to avoid burnout and sets the foundation for greater stimulation of our creativity. Besides, who wants to be around a one-dimensional person anyway?
Help others buy your ideas. Do we sell our products and services, or do we help others buy them? There is a massive distinction between the two. Helping someone buy is “customer-centric” and selling to someone is “product-centric.” We will have much more success if we focus on the customer and his or her needs. It’s quite possible our product or service isn’t right for him/her – and that’s just fine. We can then move on to help someone else with the buying decision.
You can’t do this all by yourself. Develop a support network of colleagues, friends, and family. Being an entrepreneur can be a lonely proposition. Being able to share success and failure with others is important to our mental and emotional health. Our friends and family provide safe refuge to which we can turn whenever needed. There is nothing gained by being the macho Lone Ranger . . . except loneliness.

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 Warren Buffet-Listening Entrepreneur

Posted on April 3, 2022 by anentrepreneurswords

We all know that life is full of risks. Some are more serious than others. I hold the view that I’d rather “manage” risk than “take” risk. I’ve said before that taking a risk seems a bit arbitrary. “Gee, I think I’ll try to run across this eight-lane expressway right now!” Sounds silly, right? But in a way, that’s what taking a risk seems like to me. While it may not be as spontaneous as this overdramatized example, taking a risk feels like gambling. Meanwhile, managing a risk is calculated. It is studied and planned. Risk mitigation strategies are developed. If I’m to run across the eight-lane expressway, I’m going to figure out every possible way to do so as safely as possible. That’s risk management.

One very important element of risk management is a concept that was espoused by one of the most revered investors of all time, Benjamin Graham (1894 – 1976). And this concept is practiced today by his acolyte, Warren Buffet. The concept is that of margin of safety. Entrepreneurs absolutely must understand margin of safety – but every member of society would benefit from practicing it as well. Graham and Buffet narrowly defined margin of safety as the difference between the intrinsic value of a stock and its market price. I look at margin of safety on a broader basis and define it as the difference between success and failure. In some cases, this difference can be razor thin, and in others, it can be as wide as the Pacific Ocean. The key is to take the steps necessary to push the margin as wide as possible.

In our businesses, organizations, and lives in general, we have an opportunity to become expert at creating margins of safety. One of our companies purchases apartment properties. Because we tend to hold these assets for five to seven years or longer, there can be a great deal of uncertainty about the future. What can we do to stack the deck in our favor and create a healthy margin of safety when we’re looking so far down the road? Obviously, we make year-by-year financial projections that are based upon a set of assumptions. Those assumptions include rent levels, rent increases, operating expense levels, expense increases, occupancy percentages, rates of return on which a sale price can be calculated and various aspects surrounding debt financing. The Excel spreadsheet is quite comprehensive with all these assumptions and projections – but how do we overlay a margin of safety on the process?

With one of our properties, we obtained a certified appraisal as a part of the due diligence process that indicated a value $3 million higher than we paid for the property. That’s a margin of safety right there. Perhaps we budgeted an initial increase in rents of $110 after making several physical improvements but were able to achieve $200. Our assumptions might have anticipated a stabilized economic occupancy of 91%; but we were able to operate at 93%. Operating expenses may have been right on the money, but rent increases averaged 3.25% each year rather than the 3% that we had forecasted. And remember our baseline started $90 higher than the $110 initial increase that was projected. In summary, we pushed several levers to create several different margins of safety that when combined, produced a much better bottom line throughout the holding period than expected. In so doing, we are better protected from market factors that could degrade the future value of our asset.

The principal takeaway here is to find as many margins of safety as possible. If we make decisions based upon 100% optimal results, there’s no room for error. Then a blip in the market or a miss with operations could mean failure. I have learned the hard way that if there’s no way to create sufficient margins of safety, the risk I am contemplating may be too difficult to manage. So, I move on to something else.

Developing the concept of margin of safety is an exercise in positive thinking. We are looking for ways to increase the probability for success – and that’s always a good thing.

The Big and Bold Entrepreneur

Posted on May 10, 2020 by anentrepreneurswords

I saw a video clip the other day of the Haohan Qiao Bridge that stretches 980 feet between two cliffs in China’s Shiniuizhai National Geological Park. It’s a suspension footbridge that is extremely unique in one particular sense . . . it’s made of glass. As you walk (or crawl) across, you see through the glass floor and look straight down 600 feet to the canyon below. We’re told that the glass is 25 times stronger than ordinary glass and if it breaks it is so dense that a person won’t fall through.

What’s interesting about this bridge is the fact that it’s bold, it’s big AND it’s safe (we’ll assume for the moment that what we’re being told about the bridge’s safety is correct). This bridge is the perfect metaphor for what we’re trying to accomplish as entrepreneurs. There’s nothing wrong with small ball, but after playing this way for many years we sometimes yearn to take that big leap across the canyon. Doing so requires that we push beyond our comfort zone and summon a fearlessness that we may not have previously experienced.

What prevents us from taking big and bold action? Often, it’s a question of safety. We’ve invested much in the way of blood, sweat and tears to get to where we are today and we don’t want to risk our bank account, our 401(k), our home, our health, our reputation and yes, the possibility of failure. The risk of failure is likely the Number One reason we don’t take those big and bold steps. The rest of the risks can be successfully managed. We use them as “why not” reasons, but ultimately it all boils down to the chance that we might fail.

What does failure look like to you? Many of us are programmed to abhor failure. In school, getting an F was something to dread. Our parents were disappointed. We thought we looked stupid in the eyes of our classmates. There was real shame associated with this letter grade. Throughout our lives we have been conditioned to avoid failure at all costs. And so, we say things like, “I don’t want to go all-in on my business idea because I can’t afford to put my family at risk.” But at the root of it, we are afraid to get that paper back from the teacher with a red F in the upper right-hand corner.

I’ve said many times that failure is simply an unfinished experiment in the laboratory of life. Failed experiments can sometimes be the only way we eventually get it right. I’ve started numerous business ventures that failed. In one case we raised investor money to fund a particular concept but could not get the traction we were looking for. Within a few months we realized that we were going to fail and so we gave everyone’s money back and shut down the venture. The goodwill from the early recognition of our failure and the act of returning the investment capital enabled us to build even stronger relationships with those investors who have invested in subsequent ventures. Long ago I realized that there is nothing to be ashamed about when we fail and maintain our integrity in doing so. I just haven’t figured out how to go big and bold without the risk of failure somewhere in the equation.

Here’s the bottom line. Step One – think big and then think bigger. Step Two – focus on how to mitigate the risks that could be associated with failing when launching that big (bigger) idea. Step Three – release the ego and realize that failure doesn’t diminish us as individuals. Step Four – create a solid implementation plan. Step Five – GO FOR IT!

Going big and bold is a process to be managed. But it also means that we must get out of our own way to deny the insecurities and perceptions of failure that prevent us from moving forward.

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 Risk-Averse Entrepreneur

Posted on November 10, 2019 by anentrepreneurswords

When is the last time you thought about being eaten by an alligator? When was the last time you contemplated being run over by a cement mixer? Or, how about being beaned in the head by a meteorite? Probably never – right? The risk of any of these things ever happening is so low they never even crossed your mind. But there’s that pesky word that entrepreneurs love to hate . . . risk. As I write this, we’re closing in on the end of the year and it’s a good time to take stock of a lot of things.

Have you ever created a Risk Matrix? If not, let me provide some context. We entrepreneurs tend to rock and roll a lot. We have a lot on our plate and are generally an optimistic bunch. When it comes to the subject of risk, we may not spend much time in contemplation. We roll with the punches and keep moving forward. This philosophy works most of the time – until it doesn’t. Sometimes what interrupts that forward movement is a risk we didn’t see coming.

Here’s how the Risk Matrix works. Slow down for a moment. Stop juggling. Don’t worry about e-mails, sales figures, meetings, personnel issues and the host of other things that occupy our mind throughout the day. Instead become singularly focused on this exercise. Let’s brainstorm for a while and identify all the different risks that we encounter in our business or whatever endeavor in which we are engaged. I know that it may be hard, but it’s very necessary for us to follow through and complete this inventory. We need to turn over every stone even if we believe there’s nothing under some of them. There are competitive risks, operational risks, capital risks and macro risks. It’s important that we not leave a single one off of the matrix.

Once we have determined all the risks, we must then figure out how to mitigate them. This will undoubtedly require some strategic thinking on our part. What will we do if our top salesperson walks out the door? How will we respond if a competitor opens a store right across the street? If raw material prices increase by 20% how will we preserve our margins? Suppose our largest client wants to double the amount of business that it does with us? All of these are risks that need to be addressed. And our cataloging of risks has come about based upon the knowledge and understanding we have gained toiling in the trenches day-in and day-out.

Ultimately our Risk Matrix is populated. Perhaps we’ve flagged 20 different ways our train could derail. And maybe there are 30 different mitigation strategies and tactics that we’ve developed to address those risks. Regardless, we’ve spotted the gaps and done our best to plug them as effectively as possible. But there’s still another step to be taken. Suppose that a few of our mitigation strategies or tactics don’t work as advertised? Maybe one or more of the risks leak through and have an adverse impact on our organization. What now? We can solve this by also creating contingency plans for that “just in case” situation where a risk overpowers our mitigation efforts. In other words, what specifically will we do if our mitigation strategy to keep that top salesperson in the fold fails because he/she gets eaten by an alligator? Gee, we didn’t think about that!

I was a Boy Scout, and everyone knows that our motto is “Be Prepared.” Entrepreneurs need to adopt this motto relative to the risks that we face every day. In doing so, we move from being risk takers to risk managers. As individuals the concept is also just as applicable. What personal risks are we exposed to? We deal with personal risks to the loss of our home, car, health and life through various forms of insurance. Perhaps there are other risks that aren’t insurable in a traditional sense, to which we should give thought.

Here’s the bottom line. We can blithely wander through life oblivious to the meteor speeding toward us from outer space. Or we can spend a few minutes once in a while and think about what could conk us on the head and what we can do to avoid the unpleasant side effects.

Opportunities to Fail

Posted on December 23, 2018 by anentrepreneurswords

Some years back we developed an exercise that can be beneficial for every entrepreneur. We all want to manage risk – not take risk. I’ve said it before that taking risk is akin to rolling the dice. Managing risk is an intentional process to minimize or eliminate risk to the greatest extent possible. To this end we created a process called Opportunities to Fail.

Some might say that “Opportunities to Fail” sounds negative and ought to be called something else. But, it is named this way on purpose. Why? Because we believe that whether we succeed or fail is almost totally within our control. Thus, we have the opportunity to succeed or to fail – it’s up to us as entrepreneurs which we choose.

Let’s say that we are considering launching a new division, a new product or service, or embarking upon some other endeavor for which there are numerous risks. The Opportunities to Fail exercise begins with assembling all of the stakeholders from the team and beginning a series of brainstorming sessions. The first such session is that of identifying all of the different risks that are inherent surrounding whatever we are preparing to do. For this purpose we developed a simple Excel spreadsheet on which we log the risks. To each, we assign a numerical value on a scale of one to 10 – both in terms of Probability and Impact. We arbitrarily determined that we would weight Impact 25% higher. So, if a particular risk is assigned a 10 for Probability it means that there’s a high likelihood of this risk being realized. And if that same risk is also a 10 for Impact, it means that if the risk is realized, it could have a very detrimental effect. Thus, the Probability score is 10 and the Impact score is 12.5 (due to the 25% extra weighting) for a total score of 22.5.

Remember that during the first exercise we are only identifying the various risks and assigning Probability and Impact scores – we’re not solving anything yet. Usually this inventory process takes a couple of hours and there may be as many as 25, 30 or even more risks. When someone says, “An asteroid could drop out of the sky and destroy us,” it’s probably time to wrap it up. We then re-order the risks in the spreadsheet from the highest numerical value to the lowest, and circulate it to the stakeholders for a few days of contemplation. Everyone is empowered to offer additional risks during this time frame with their thoughts on scoring.

The second meeting of the group will take place within three or four days of the first, and is devoted to risk mitigation. We look at the highest scoring risks and discuss ways that we will prevent the risk from coming to fruition. In addition, wherever possible we also add a contingency plan in the event that somehow the risk “leaks through” our mitigation program. This way if a high-risk item bites us, it doesn’t kill us. We have found that there’s a natural breakpoint in the list. Perhaps there are 17 risks that rank at 14 or higher, and then there’s a gap with the next grouping of risks starting at a score of eight. We generally don’t worry too much about low-scoring risks as their Probability is usually low, and even if they happen, the Impact is minimal. Instead we spend our time ensuring that we have robust mitigation and contingency plans for the most dangerous risks.

At the end of the second meeting we ask this simple question – “Are we totally comfortable moving ahead with this endeavor?” If there is still fear and trepidation, then it means that we haven’t sufficiently mitigated one or more of the risks. Or it could mean that there is something nagging in the back of the minds of our team that still need to be put on the table. It’s at this point that we engage in additional discussion and mitigate further until we have total buy-in; we modify our endeavor to the point that everyone is comfortable, or we determine that should not move forward at all. The ultimate objective is to either move ahead knowing that we aren’t going to fail, or not to move forward at all.

A few days later a third meeting of stakeholders occurs. Each member of the group reaffirms his or her belief that we have adequately mitigated the risks and should proceed. Then we brainstorm for ways to Exploit the Opportunity. This is a lot of fun. We spend our time looking for ways that we can enhance the opportunity and make it even bigger and better than we initially envisioned – without adding new risks.

Utilizing the Opportunities to Fail exercise is a liberating experience. It puts us in a position to manage risk rather than take risk, and allows us to choose success.

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 124 – Do the Hustle.

This picture taken on October 18, 2015 shows a participant jumping off a platform for a wingsuit flight from Tianmen Mountain in Zhangjiajie, central China’s Hunan province. Some 16 participants from 12 countries are taking part in the extreme sport event. CHINA OUT AFP PHOTO / AFP / STR (Photo credit should read STR/AFP/Getty Images)

An Entrepreneur’s Primer

Posted on April 1, 2018 by anentrepreneurswords

Here are 13 concepts by which I live. They are my guideposts and serve as an Entrepreneur’s Primer. They’ve worked well for me and I’d like to share them with you.

Live today like you’re going to die tomorrow. It’s impossible to know when our “number” will be called. Why waste a single moment on that which is unproductive? And make sure to appreciate those whom you love – you will have regrets after they are gone if you take them for granted.
What you think, will become reality. People who always have a positive mindset produce positive results and live a happy life. We can stack the deck in our favor if we train ourselves to reject negativity. Just as importantly, we don’t allow negative people to be a part of our lives. Our mind is more powerful than we can imagine and we can use it to shape an amazing present and future.
Never, ever, ever, ever, ever, ever give up. These are the famous words of Winston Churchill and they ring true as much today as they did in the darkest hours of World War II. The key to perseverance is to make constant tweaks and pivots until what we are striving to accomplish actually manifests.
Don’t take risk . . . manage risk. Taking risk is like gambling. Our businesses and our lives are too valuable to be betting the farm on Red 32. Instead, we identify the risks and create strategies to contain and mitigate them. Then we can proceed to launch new initiatives without fear.
Laugh every chance you get . . . especially at yourself. It has been proven scientifically that laughter is healthy. Laughing many times every day is good for establishing a positive mindset. When we laugh at ourselves and can be self-deprecating, we show others that we are comfortable in our own skin.
What you give will come back to you in amazing ways. We give because it makes others feel good and us too. And when we give without quid pro quo for the simple joy of giving, our life is fuller and richer. We also remember that gratitude is part of this equation and express our thanks to many people as often as we can.
March to your own tune, but do so with purpose. We avoid the herd mentality and are proud of our individuality. But we don’t do so simply to be different. We do so because we have a strong set of core values and a clear vision for our future. We aren’t worried about what others think so long as we aren’t stepping on their toes.
Mistakes are simply the unfinished experiments in the laboratory of life. I love this one! There’s no way to know if we are on the right track unless mistakes are made. If everything is too perfect, then it’s likely we aren’t stretching ourselves to be better. Rather than obsess over our mistakes, we figure out what there is to learn from them and then start a new experiment.
Creativity is a way to express your passion. And passion allows you to see in color. Each of us has a creative streak – it may be buried deeper in some of us, but we all have the ability to innovate in some way. Amazing and wonderful things can come about as a result of the creative process and it’s likely that our passion will be stoked. Life is full of sunshine and light when our creativity is off-the-charts.
The success of a career can be measured in the number of lasting relationships that have been collected and nurtured. I see relationship building as an opportunity to serve. When we are always looking to help others in a genuine manner without the thought of receiving anything in return, we move beyond the transactional aspects of an acquaintance into a true relationship. Putting Good out into the world through service is the Law of Attraction – and in turn, we will attract Good into our lives.
Balance your life – emotionally, intellectually, financially, physically, spiritually and with your family. This one can be tough, especially if we really, really love our entrepreneurial adventure. Here’s a secret. Having this sort of balance has a giant payday. It helps us to avoid burnout and sets the foundation for greater stimulation of our creativity. Besides, who wants to be around a one-dimensional person anyway?
Help others buy your ideas. Do we sell our products and services, or do we help others buy them? There is a massive distinction between the two. Helping someone buy is “customer-centric” and selling to someone is “product-centric.” We will have much more success if we focus on the customer and his or her needs. It’s quite possible our product or service isn’t right for him/her – and that’s just fine. We can then move on to help someone else with the buying decision.
You can’t do this all by yourself. Develop a support network of colleagues, friends and family. Being an entrepreneur can be a pretty lonely proposition. Being able to share success and failure with others is important to our mental and emotional health. Our friends and family provide safe refuge to which we can turn whenever needed. There is nothing gained by being the macho Lone Ranger . . . except loneliness.

Entrepreneur concept with young woman reaching and looking upwards

FOMO

Posted on February 25, 2018 by anentrepreneurswords

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.

A Tip From Warren Buffet

Posted on August 6, 2017 by anentrepreneurswords

We all know that life is full of risks. Some are more serious than others. I hold the view that I’d rather “manage” risk than “take” risk. I’ve said before that taking a risk seems a bit arbitrary. “Gee, I think I’ll try to run across this eight lane expressway right now!” Sounds silly, right? But in a way, that’s what taking a risk seems like to me. While it may not be as spontaneous as this overdramatized example, taking a risk feels like gambling. Meanwhile, managing a risk is calculated. It is studied and planned. Risk mitigation strategies are developed. If I’m to run across the eight lane expressway, I’m going to figure out every possible way to do so as safely as possible. That’s risk management.

One very important element of risk management is a concept that was espoused by one of the most revered investors of all time, Benjamin Graham (1894 – 1976). And this concept is practiced today by his acolyte, Warren Buffet. The concept is that of margin of safety. Entrepreneurs absolutely must understand margin of safety – but every member of society would benefit from practicing it as well. Graham and Buffet narrowly defined margin of safety as the difference between the intrinsic value of a stock and its market price. I look at margin of safety on a broader basis and define it as the difference between success and failure. In some cases this difference can be razor thin, and in others, it can be as wide as the Pacific Ocean. The key is to take the steps necessary to push the margin as wide as possible.

In our businesses, organizations and lives in general, we have an opportunity to become expert at creating margins of safety. One of our companies purchases apartment properties. Because we tend to hold these assets for five to seven years or longer, there can be a great deal of uncertainty about the future. What can we do to stack the deck in our favor and create a healthy margin of safety when we’re looking so far down the road? Obviously we make year-by-year financial projections that are based upon a set of assumptions. Those assumptions include rent levels, rent increases, operating expense levels, expense increases, occupancy percentages, rates of return on which a sale price can be calculated and various aspects surrounding debt financing. The Excel spreadsheet is quite comprehensive with all of these assumptions and projections – but how do we overlay a margin of safety on the process?

With one of our properties, we obtained a certified appraisal as a part of the due diligence process that indicated a value $3 million higher than we paid for the property. That’s a margin of safety right there. Perhaps we budgeted an initial increase in rents of $110 after making a number of physical improvements, but were actually able to achieve $200. Our assumptions might have anticipated a stabilized economic occupancy of 91%; but in actuality we were able to operate at 93%. Operating expenses may have been right on the money, but rent increases averaged 3.25% each year rather than the 3% that we had forecasted. And remember our baseline started $90 higher than the $110 initial increase that was projected. In summary, we pushed a number of levers to create several different margins of safety that when combined, produced a much better bottom line throughout the holding period than expected. In so doing, we are better protected from market factors that could degrade the future value of our asset.

Developing the concept of margin of safety is an exercise in positive thinking. We are looking for ways to increase the probability for success – and that’s always a good thing.

Alligator Food

Posted on January 22, 2017 by anentrepreneurswords

When is the last time you thought about being eaten by an alligator? When was the last time you contemplated being run over by a cement mixer? Or, how about being beaned in the head by a meteorite? Probably never – right? The risk of any of these things ever happening is so low they never even crossed your mind. But there’s that pesky word that entrepreneurs love to hate . . . risk. As I write this we’ve launched a new year and it’s a good time to take stock of a lot of things.

Have you ever created a Risk Matrix? If not, let me provide some context. We entrepreneurs tend to rock and roll a lot. We have a lot on our plate and are generally an optimistic bunch. When it comes to the subject of risk we may not spend much time in contemplation. We roll with the punches and keep moving forward. This philosophy works most of the time – until it doesn’t. Sometimes what interrupts that forward movement is a risk we didn’t see coming.

Here’s how the Risk Matrix works. Slow down for a moment. Stop juggling. Don’t worry about e-mails, sales figures, meetings, personnel issues and the host of other things that occupy our mind throughout the day. Instead become singularly focused on this exercise. Let’s brainstorm for a while and identify all of the different risks that we encounter in our business or whatever endeavor in which we are engaged. I know that it may be hard, but it’s very necessary for us to follow through and complete this inventory. We need to turn over every stone even if we believe there’s nothing under some of them. There are competitive risks, operational risks, capital risks and macro risks. It’s important that we not leave a single one off of the matrix.

Once we have determined all of the risks we must then figure out how to mitigate them. This will undoubtedly require some strategic thinking on our part. What will we do if our top salesperson walks out the door? How will we respond if a competitor opens a store right across the street? If raw material prices increase by 20% how will we preserve our margins? Suppose our largest client wants to double the amount of business that it does with us? All of these are risks that need to be addressed. And our cataloging of risks has come about based upon the knowledge and understanding we have gained toiling in the trenches day-in and day-out.

Ultimately our Risk Matrix is populated. Perhaps we’ve flagged 20 different ways our train could derail. And maybe there are 30 different mitigation strategies and tactics that we’ve developed to address those risks. Regardless, we’ve spotted the gaps and done our best to plug them as effectively as possible. But there’s still another step to be taken. Suppose that a few of our mitigation strategies or tactics don’t work as advertised? Maybe one or more of the risks leak through and actually have an adverse impact on our organization. What now? We can solve this by also creating contingency plans for that “just in case” situation where a risk overpowers our mitigation efforts. In other words, what specifically will we do if our mitigation strategy to keep that top salesperson in the fold actually fails because he/she gets eaten by an alligator? Gee, we didn’t think about that!

I was a Boy Scout and everyone knows that our motto is “Be Prepared.” Entrepreneurs need to adopt this motto relative to the risks that we face every day. In doing so, we move from being risk takers to risk managers. As individuals the concept is also just as applicable. What personal risks are we exposed to? We deal with personal risks to the loss of our home, car, health and life through various forms of insurance. Perhaps there are other risks that aren’t insurable in a traditional sense, to which we should give thought.

Here’s the bottom line. We can blithely wander through life oblivious to the alligator lurking around the corner that wants to eat us. Or we can spend a few minutes once in a while and think about what could bite us and what we can do to avoid the unpleasant side effects.

The Anatomy of an Entrepreneur

Posted on July 24, 2016 by anentrepreneurswords

As entrepreneurs exactly who are we? What makes us tick? Is there some sort of DNA gene that we can point to? I’ve thought a lot about some of the exceptional entrepreneurs I’ve known over the past four decades and have identified some of their traits and tendencies that stand out.

Let’s start with creativity and innovation. Entrepreneurs use their creative powers to innovate and find a better way to do something. Elon Musk has to be one of the most prolific entrepreneurs when it comes to innovation – Tesla Motors, SpaceX, Pay Pal and Solar City come to mind to name a few. Often, creative entrepreneurs are also visionaries. They have an uncanny ability to see into the future and understand what their customers will want and how their company needs to be designed to win. GoPro CEO Nick Woodman, is one of the foremost visionaries in America today. Who could ever have imagined a series of high definition video cameras that are small, durable and light enough to capture our daily adventures – daring and mundane? And successful entrepreneurs understand risk. Rather than taking risk they are adept at managing it.

When they get knocked down, great entrepreneurs get back up – over and over and over. They are amazingly resilient and don’t see failure . . . only opportunity. Walt Disney was fired by his employer, the Kansas City Star, because he supposedly lacked creativity. That didn’t seem to impact his storied career. When things don’t work out as planned they are flexible and know how to adapt and make the best of every situation. Top flight entrepreneurs are persuasive and can convince others to say yes. They do so through the power of their passion. Does Steve Jobs come to mind? Look what he convinced us to buy! Along with their persuasive powers, successful entrepreneurs are strong communicators in both verbal and written formats.

Entrepreneurs are assertive – the great ones are less aggressive than assertive. They have a healthy degree of empathy and are sensitive to the feelings of others. Entrepreneurs at the top of their game have a certain amount of charisma. They can be sociable and gregarious – even if those aren’t their core tendencies. Without charisma an entrepreneur will find it tougher to raise money, develop important relationships and influence others. Billionaire entrepreneur Sir Richard Branson is one of the most charismatic leaders on the planet. And he has woven his charisma into a tapestry of empathy and caring about other people.

Culture King is another descriptor for the cream-of-the-crop entrepreneur. Ben Chestnut is the founder and CEO of MailChimp fits into this category in the ways he has empowered the 500+ members of his team. Hand-in-hand with a strong culture is a smart entrepreneur’s ability to delegate. According to a 2013 Gallup survey of Inc. 500 CEOs, an average three-year growth rate of 1,751% was realized where the CEO had a high Delegator talent. Entrepreneurs typically have a high sense of urgency and tend to be very self-structured – there’s no way anyone is going to tell them what to do! Entrepreneurs simply don’t want to be a cog in someone else’s machine. Most entrepreneurs also have the ability to juggle many things at once and in fact need to feel the rush and excitement of pursuing multiple projects and initiatives simultaneously. Finally, ultra-successful entrepreneurs are generally positive and optimistic people. They don’t dwell on mistakes and never play the victim.

Remember the DNA thing I mentioned at the beginning of this blog? Well, there may be something to it. A February 17, 2016, research paper published in the Austin Journal of Molecular and Cellular Biology reported on the Dopamine Receptor D4 Gene and concluded that entrepreneurs have a higher tolerance for risk-taking in part, due to this gene (Link to research publication.). Apparently genetics govern approximately 30% of what makes one an entrepreneur. But that leaves 70% to a wide range of personality traits and tendencies.

There are many such traits and tendencies that are identified with entrepreneurs. No one person possesses them all, but the more to which we lay claim the closer we come to attaining world class status.

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