Following the Whatsapp Piper

Pied PiperIt will be interesting to see how many startups change direction and try to follow the tune of Whatsapp’s moneyless trail to the pot at the end of the rainbow.  It can be easy to say to yourself, “hey, I can give away my service for a year too” and then watch all your opportunity evaporate before you can charge the first 99 cents.

Most technology innovations are out-paced, out-classed, and ou- performed so quickly that the only opportunity to make any money may be the first 99 cents charged the day you launch the business.

I would caution that for every free business that becomes successful, somehow, there seem to be more which reach at least short term success (3-5 years) by charging a fair price for providing a good service or product.  If you can’t make the first 99 cents then maybe it just isn’t worth the time risk to see if you will make the last 99 cents either, for many reasons.

Markets Trending Positive Today. You?

Markets have gone through a corrective downturn and may be finished with the negative trend for now, so it’s back to the positive side.  What do you own that is worth owning in a up-trend?

During a downturn we would ask a different question, “What do you own that you shouldn’t during a down-trend?”  Anything already languishing is a good answer.  The point here is to always have an eye on what’s worth owning, or as a business owner, what’s worth doing.  Your business has both tangible and intangible elements within it.  Both are required or you couldn’t be in business.  Plans, hopes, goals, dreams are all intangible along with goodwill and good intentions.

Today, align your management style with utilizing the things you know work well and focus on moving forward with the few things you are really good at managing.  That doesn’t mean you should take any opportunities off the table, just focus on the best ones for now, since the markets, and thus business in general, are on shaky ground.

Case in point: Yahoo tried hard to follow the trend of Google in expanding into the universe of web services.  Google is good at identifying potential opportunity, designing a platform, and throwing it on the web for everyone to try.  If it works out and the demand is there, they maintain it, otherwise they just let it languish for a while and then quietly pull it off the menu.  Yahoo just does not work well in that mode.  They are better at focusing in a few areas, developing good core, demand-based solutions, and offering it to the world in a solid usable form.  Yahoo has leaned out their process and gone back to their core offerings which give them the best position in the markets they know.  If you pull up their menu of offered services you will see that a few things are gone.  One thing they are bringing back is an effort in broadcasting which they began in the late 1990’s and actually did well with until the markets sank after the new century began.  It will be interesting to see if the new formula works.  My guess is they have a stronger plan this time around and we just need to see if works out.

Never give up, keep refocusing your effort on what you are best at.

Corporate Econ Disconnected From Society Econ

Large corporations continue to find ways to reduce overhead and sell enough to each other, distributors, and retail companies in order to raise earnings.  This is great for stock investors and does a lot for those employed by them.  At the same time we see that economic numbers in the real society which includes small business owners and employees continue to wane.

Housing is still sliding since many can’t borrow, charity accounts continue to receive smaller gifts, employment is lagging and falling behind corporate earnings, people are still finding ways to reduce spending, and overall the numbers leading into next year just don’t look good.  And we haven’t even seen the effect of higher taxes yet!  What will that be like?

The disconnect is really an important concept to understand because without understanding this, it’s easy for a business owner or investor to look at corporations as the lead indicator of whether to expand business and invest at higher risk levels.  The news media would have everyone believe that Citigroup’s earnings and the earnings of other companies mean the economy is getting better.  It just does not work like that.  If you own the stock of a company and it goes up on positive earnings news, then your economic outlook may be better, but this does not mean others who own no shares are doing better.

So which is it?  Is the country seeing a better economy in the very near future or not?  Ask around, talk to friends who own a business, ask family about their jobs, and you can get a better idea of what is really going on out there.

How do we overcome the duality of trends?  Invest in large corporations if you can, the better ones of course, and expand your business into areas which have been showing stable or growing demand.  Keep a cautious mindset and don’t let generalities like blue chip earnings numbers lead you into an overly optimistic strategy that could cost you more than you expect.  Down the road a few years, when we wise up a bit and let business owner/entrepreneurs do their thing which makes this country great, we will be able to afford optimism and the risk involved.

I’m not saying “Don’t invest, don’t expand business”, but on the contrary, I believe this is one of the best times to do so, but you better be extremely cautious!

Is Goldman Sachs Window Dressing?

Today’s news from Goldman Sachs ($GS) is interesting in more ways than just the negatives they predict for the economy.  I can’t help but wonder about the timing of their statements.

We just had a pretty good run from near Dow 10,000 to near 10,900.  Year to date Goldman Sachs had probably outperformed most of their peers and has had plenty of trading opportunity.  Not knowing what their current portfolios look like in their eyes, it does seem odd that in the midst of all the news and portfolio managers who have said “No double-dip recession”, that here comes Goldman with a big negative.  Who does this serve?

If we follow the money a little bit maybe it serves Goldman more than investors.  Many investors have only recently added exposure to their portfolios.  If Goldman made enough in trading so that their portfolio return is somewhat irrelevant, then maybe helping the markets prepare for a harsh economy also helps Goldman window dress some accounts and funds prior to year end, and also can help them move to better positions for the coming year, and an eventual positive market.  How should we take this?

As business owners we must take it with a grain of salt, maybe a whole pound of salt!  I don’t think investing in private accounts is necessarily effected by this, but should we view it as a short term negative and in reality a buy signal?  To me it almost seems like they are saying the poker players at the table all hold bad hands except Goldman, and now they are waiting for everyone to fold.  They may have a full house or they may be bluffing but if everyone else is holding a bad hand it doesn’t matter.  So how do we follow this lead?  Don’t be the last one out and don’t be the first one out!  This hand may be played over the next 2-3 quarters but it is going to end way before the night is over.

In other words, keep playing, don’t bet to high for now, but realize the next hand may deal you some good cards, as long as you still have something left to bet.  Is business investing a poker game?  Only some of the time.  In the short term it really can look like gambling more than investing.

So when should we be willing to deploy new ventures, take risks in marketing, and put hedge money back to work?  If you have long term goals you must continue to work forward toward them, at the same time you may want to adjust your timing for anything that increases overhead.  To me it seems like the best time may be after the first of the year.

Today’s article on Goldman Sachs from Bloomberg:

Stock Markets Are Wrong Today

Wow, look at that!  A big upside in the markets!  Are the traders wrong or is the media just gunning with the wrong story?  Do you really believe the markets should be up on hype about companies buying more computer infrastructure?  What does that have to do with the bottom line for companies other than computer manufacturers?  Something isn’t right here.

Business owners already know that gross, margin, and net are the only things that matter when evaluating whether a company is doing well or not.   At the beginning of the day we all know that you have to make a profit or nothing matters.

We have the news media telling us computer purchases are a reason to buy stocks.  Those computers are a commodity expense only and have nothing to do with earnings in the end, unless properly utilized.  If these companies were buying more pencils would we hear about it?  Would we say they are going to write more info on paper faster and thus the economy will get better?  We are at a point when companies need to upgrade hardware to keep up with software.  It isn’t an economic expansion event.

Reality is, if they are not investing in humans but are investing in technology you can bet the future is a lower standard of living for the population and a higher standard of technology and efficiency for companies.

There is no reason to drive the markets up on this news.  We have increasing taxes, increasing government debt, fewer jobs… you get the picture?  The markets should only rise if the economy is rising, the standard of living is increasing, and profitability is realistic.

Do you buy computers because you expect sales to increase or do you buy them to increase your efficiency and keep up with software?  Maybe the best investors are business owners.

Grow Your Business, NOW

Most business owners are rightfully using caution in their business growth plans.  With the economy remaining in a slow pattern and apparently higher taxes beginning next year, it is definitely a good time for caution.  It may not be a good time for the same old business style.

Part of caution should be utilization of re-thinking your business model and to grow the business in a more cautious way, maybe more aggressive at the same time.  In the 1990s and into this first decade of the new century, one method of growth involved simply throwing money into new ideas and see which ones would stick.  Google has done well with this model, and of course they also have the cash pool to afford excess risk.  For the rest of us who don’t have billions of dollars to burn, it’s much wiser to truly think your way through the problem of how to grow your business.

Now is the time to take a more cautious and prudent approach to growth.  Notice that I still expect a good business to grow, even in this economy, through wise management and good growth tactics and strategies.  Diligence can save your business.  Reducing overhead and expenses are a given but after you reduce costs you still need to grow the business in a meaningful way, especially if you have good competition.  More on this later…

It’s Friday! Not my favorite day for buy/sell

Friday’s are correctly referred to as Freaky Friday in Disney movies, although they are referring to an inter-body experience.  In this case, watching business markets on a Friday can be about the same.  It’s funny how it can go one way, then another, then another, and simply not do what’s expected.  Although Friday is freaky it is also a good day to set up Monday which is usually not nearly as freaky. 

I usually avoid business decisions on Friday and focus more on weekend decisions like which brand of golf ball to use or which amusement park to take the family too.  Every now and then a decision on which angle to cast a fly is appropriate as well.