Good Summary of "The E-Myth Revisited"

LINK - this is a good summary ,but for those who haven't, get the book and read it! The sequel, "The E-Myth Mastery" I think is very good too, although the first sixty or so pages of it can seem a bit flowery. But once it starts getting into the nuts and bolts about business, it is very meaty I think.

Should a New Entrepreneur Seek Venture Capital?

A lot of entrepreneurs may have dreams of building a business, getting venture capital money, and then building a super great company that will make them rich. I have no personal experience with this (yet anyway), but having studied the subject some, my opinion would be, for a brand-new entrepreneur, do not seek venture capital. Yes, there's the chance you could start the next Google or Facebook and get venture capital and become a billionaire very quickly, but this is extremely unlikely. There's a few bad things that can happen if you are a new entrepreneur seeking venture capital:

1) The business is likely your livelihood. It's how you feed yourself and your family if you have one. And the venture capitalists will know this. If so, they have a lot of leverage over you. They will know if you are desperate or not. This doesn't mean one can't seek venture capital with a new business, but if so, make it where it is purely optional; do not design the business from the get-go where it would absolutely need venture funding. This way, the venture capitalists will not have leverage over you if you can always reject their offer and walk away.

2) You lose freedom and control of your business once venture investors come in. They are in the business to make money, and in exhange for money, you give up equity in the firm, and hence a good deal of control. Now, the company no longer just moves along at the pace you want it to, instead, it has to grow and produce some real results, the kind that the venture capitalists want (it might produce results that are okay with you, but not okay with the venture capitalists). There might be things you want to do, directions you might want to take the business that now you cannot.

3) An inexperienced entrepreneur up against experienced venture capitalists can end up finding themselves made into an employee of their own company. The venture capitalists may well replace you as the CEO with someone much more seasoned and experienced in growing and operating businesses, and you may even find yourself fired from your own company, losing your equity stake.

2 and 3 can be especially stressful if the company is your livelihood. In my opinion, I would first build up a company that I completely own, then, after having built up a level of wealth in this sense, I would look for venture capital when starting up another company. At this point, you are far more experienced as an entrepreneur, maybe even in a position where you could yourself be a venture capitalist. You will have far more leverage over the venture capitalists in the sense that the company is not your livelihood. It is not the primary source of your wealth. You therefore will not be as inhibited about giving up equity in the company and hence control and the venture capitalists will know they can't push you around like an entrepreneur for whom the business is their livelihood.

In addition, two added benefits are that now that you have experience from having built a business already, you are not an inexperienced entrepreneur dealing with the venture capitalists, but rather an experienced one (and thus more able to spot any tricks they might be trying to pull on you), and also, because of this experience, the venture capitalists may be a lot less likely to want to replace you as the CEO, as you're not some inexperienced person in the CEO chair of the company in which they have invested money, but rather a successful person in your own right who already has built a prior successful business, who now is seeking to build another successful business. If anything, that's an incentive to KEEP you in the CEO chair.

I would follow this same strategy regarding partnering with other people to build a business as well. If two or three people decide to partner together to build a business, it can work, but then again, it can be very prone to failing, in particular if the partners' livelihoods are tied to the performance of the business. If two or three people decide to form a company because they feel they can create a company that will make them much richer, it is a lot easier emotionally if each partner already has their primary fortune elsewhere, and thus if the business venture fails, then they've lost money (which can still create hard feelings), but no one is now worrying about how to feed themselves or their family.

Summary of Ways to Build a Business/Wealth

So I just thought I would summarize some various ways to build a business, or wealth anyway:

Franchising and Chaining: This is where you build a business where you create the initial unit, systemize it to make it able to be replicated, and then begin expanding via opening additional units via chaining (where you put up the capital and open additional company-owned units), franchising (whereby you sell a franchise to another person who puts up the capital, assumes the risk, and operates the business according to the systems you have established, and then pays you a franchise fee), or some combination of the two. This can be done with many different types of businesses, in particular with restaurants, hotels, bar shops, hair salons, gyms, car dealerships, etc...new franchise concepts are being created all the time.

Create Brands/Franchises: This is what they tend to do in for example the toy industry, i.e. create franchises whereby in addition to the toys, a whole slew of additional merchandise can be created. Creating such a brand/franchise that is very popular is the Holy Grail in this kind of franchising. Some prominent examples could be Spin Master's Bakugan toys (with a cartoon and tons of merchandise) and Dora the Explorer (a cartoon which Nickolodeon franchised into a whole bunch of merchandise, thus making it a billion-dollar brand).

Although I can't think of any off the top of my head at the moment, I would imagine that franchising in this sense doesn't just apply to toys and cartoons though, it can be applied in other industries as well.

Roll-Up: This is basically where you start a business in a fragmented industry, or buy a business in a fragmented industry, or even buy multiple businesses in a fragmented industry and combine them together, then you take the company public, and use the stock to acquire other companies in the industry to build up an organization with economies of scale, that is greater than the sum of the parts. Like any method, this can be risky though, and I am no expert, but from my understanding there is more to it than just finding a fragmented industry. Two things to remember about a fragmented industry are:

1) Why is it fragmented? Is it fragmented into a bunch of smaller companies just waiting to be consolidated and no one has done so yet, or is it fragmented because the industry is simply structured whereby large firms do not have the advantage?

2) By "fragmented," one means a single, definable industry that is around $10 billion to $40 billion size. For example, the rubber industry is fragmented, but that is a highly-misleading way to look at it, because the rubber industry consists of many smaller actual industries, which can be consolidated. For example, the tire manufacturing industry is part of the rubber industry, but it is consolidated.

There are strategies and ways to go about finding fragmented industries that are good targets for building a company in.

Buy-and-Build: This is very similar to the roll-up strategy, but is done by private equity firms, and instead of taking the company public and using the stock to purchase new companies, they use forms of financing such as debt to be able to buy companies. Again, this has its own share of risks (if the economy bottoms out and the company is in a recession-prone industry, what was a manageable level of debt can very quickly become unmanageable). Private-equity firms will usually use buy-and-build strategies to build up a company that is greater than the sum of the parts, and then either sell the company to a larger private-equity firm, or take the company public via an IPO. Much of the consolidation that has occurred in the various fragmented industries throughout the economy over the past few decades has been due to private equity firms.

Automated Internet Business: This is a business in which is to a good deal automated and exists solely on the Internet, providing a service. I do not know much about these types of businesses, but I am sure that there is much potential for creating such businesses, just one has to think up new ideas. This type of business is one that can be very easy to start, or at least easier to start (requiring no major expenses on land or a building or capital for example), but yet can generate a lot of money for the owner.

Something to remember---the Internet is still very young. Thirty years from now, there will be a whole slew of new Internet businesses that were created whereby many people will be thinking to themselves, "Why didn't I think of that!?" But one doesn't need to try to create the likes of the next Google or Facebook, if anything, that might be involve too much competition. What I am talking about here are small Internet businesses, for example one that you could grow to generate say a few million dollars in income for youself a year. It has been done, although I have no idea how to do it (and if I did, I wouldn't tell the idea for obvious reasons :D), but I mean that would be an awesome amount of money, so what I would suggest is just do what I am doing, i.e. research and brainstorm constantly.

Also keep in mind that if you find an un-filled niche in a type of Internet business that is easy to start, you will very quickly end up having a slew of competitors, many of which may have no inhibitions about blatantly copying your website and service. If you can, try to find a business with harder barriers to entry.

Ecommerce: There is still a lot of potential I think to create a sizeable business via ecommerce as well. Amazon may be dominant, but that doesn't mean other companies can't be started to compete. Build a really good and sizeable company and Amazon may even buy it, for example they purchased Zappos (footwear ecommerce business) and Quidsi, Inc (owner of Diapers.com and Soap.com, along with some other brands now).

There are other ways to build a fortune or business I am sure, but these are all the big ones off of the top of my head for now.

Summary of Mistakes People Make in Starting a Business

So I just wanted to write a quick summary of some common mistakes people make in starting a business to avoid:

1) Start the business based on the line of thinking that since they know how to do the technical work of a profession, that they know how to run a business that does that technical work. For example, the hair stylist who starts their own hair salon, the chef who starts their own restaurant, the car mechanic that starts their own repair shop, etc...knowing how to do the technical work of a profession doesn't mean you know anything about operating a business that does that technical work. You might be a fantastic chef, that doesn't mean you know anything about operating a restaurant!

2) Start the business without understanding the need to create and build business systems to automate the processes of the business. This is what leads to many people who start businesses becoming chained to their business, having essentially bought themselves a job instead of creating freedom for themselves. The business thus detracts from their life as opposed to adding to it. The business will need systems so as to make it where it can operate and function without the owner being present at it all the time, and if the owner does need to be present, they can work ON the business as opposed to working IN the business. The systems make sure that the quality of the service provided is not dependent on the whims of the employees, as they follow the rules of the systems established. This makes sure the accounting, the financials, the greeting and treatment of customers, the washing of the dishes, etc...whatever, is done properly, where customers get the same experience irregardless of who is employed.

3) Starting a business based off of the thinking, "What business can I start that will make me rich?" This is terrible thinking for starting a business. Something always important to remember is that the world is made up of billions of people, and all of them have all sorts of problems in their own lives. Most people do not want to hear about other people's problems. Take your own life. You probably have a slew of problems, along with dreams and goals of your own. Think random people you pass on the street want to hear about them all, or even care? Ha! Nope. Nobody cares about your desire to become rich or to do this or do that, or see this or that, or visit this place or that place. Nobody cares about your sick grandma in the nursing home or your father developing Alzheimer's or your credit card debt problems, etc... (well okay, maybe some might, but I'm talking about the general population) as most people have problems of their own.

BUT...what people DO care about is, what is it that you can do to help solve their own problems? What can you do to make their own lives easier? Find ways to do this, and offer it as a product or service that is of excellent quality and priced reasonably well, something that satisfies a real need for people, and people will come to you in droves.

So as opposed to thinking, "What business can I start that will make me rich," seek to fill needs, solve problems, make things easier for people, streamline systems better than competitors, and if someone else is doing something, see if you can do it better/faster/cheaper.

Now of course, not all businesses are about solving needs, sometimes a product/service is just something people want because they like it (an extreme example, Beanie Babies, which gave their founder a $4 billion (yes that billion, with a "b") net worth. If you are lucky enough to create such a good/service, GREAT, but the chances of coming up with such a thing can be very slim. One can find success here though, for example, the Snuggie, the "blanker with sleeves" (BASICALLY A ROBE YOU WEAR BACKWARDS!).

Franchising and Chaining Article

Good article on the subject of franchising and chaining as it relates to building up a business: Should You Sell Franchises or Build a Chain?

Study of Business Models

So I became curious on the subject of business models, for example, are there a bunch of business models that exist that one can study? After some Googling, I did not see all that much, however I discovered this academic study, which according to it, despite being talked about all the time, there isn't a whole lot of formal study it seems on the subject of business models: Do Some Business Models Perform Better Than Others?

It seems that the subject of business models is like the subject of building business systems to automate one's business, i.e. a very important subject, but one in which there is not much formal information about. I think it would be interesting is maybe someone could write a book or two on this subject, as an academic reference, as it could be very handy for entrepreneurs trying to get started. As Michael Gerber points out in his book "The E-Myth" (now "The E-Myth Revisited"), most people who start businesses don't start them for entrepreneurial purposes, they start them for totally different reasons, which is why so many businesses fail and why those that succeed, the owner often finds that in their quest for freedom, to be their own boss, that they have in effect bought themselves a job, because they had no idea about systemizing the business so that it can operate independently of themselves.

All people who start a business with the mindset of an entrepreneur know that one must build business systems, but how to go about doing that, I don't think there is much in the way of formal knowledge.

More On China's Economy

Paul Krugman, in a rare post that I mostly agree with (I disagree with his assertion that we are doing worse than Japan did in terms of handling our crisis) thinks China is on the brink: Will China Break?

Another interesting article:

These point out two things I have been thinking about China: The End of the Chinese Dream

1) Corruption - The central government is extremely corrupt, and corruption leads to misallocation of capital and inefficiency. This kind of corruption means the central government cannot be nearly as "efficient" and "orderly" in their handling of affairs as they can appear to be from the outside (as some commentators have remarked about the Chinese dictatorship in comparison to America with our chaotic democracy where it appears that we can never get anything done, as opposed to the "efficient" Chinese---Thomas Friedman for example has remarked aobut the "benefits" of dictatorship).

2) Rising anger - One of the things pointed out over the last few years is how many Chinese don't care about what the central government is doing, that they don't mind it being a dictatorship. To myself, this is only because the economy was roaring (or appeared to be roaring anyhow) and when the economy seems to be doing great, most people don't care much about the government's actions. But when the economy tanks, then people do start caring. Right now, the rising inflation in China (likely due in part to their massive stimulus), along with the sheer corruption, is creating a swell of anger amongst those struggling badly. Combine this with when/if the bottom falls out of the economy, and massive unemployment occurs, in a country with no social safety nets of any kind, with the ethnic unrest that exists in China, and well it won't be pretty.

I in particular find it interesting how Krugman remarks about those who say that the bureaucrats controlling the economy in China are very brilliant and will do whatever is needed to stop the economy from tanking, but yet, this is exactly what he was told in the 1980s regarding the Japanese economy as well.

What Keeps a Train on the Tracks?

I didn't know this:

Vaclav Havel Dies At 75 Years-Old

In all the news coverage over Kim Jong-Il's death, the death of one of the truly great heroes of the modern world, that of Vaclav Havel, seemed over-shadowed. For those who do not know, Vaclav Havel was one of the key people in contributing to the ultimate break-up of the Soviet Union, a true hero for human freedom and liberty. He co-authored in 1977 Charter 77, a human rights manifesto calling on the Soviet Union to respect human rights and freedoms. He served time as a political prisoner for his views, but ultimately led a peaceful revolution of Czechoslovakia against the Soviet Union, eventually serving as the first president of the newly-formed Czech Republic.

I find it personally rather ironic that right after one of the great oppressors of human rights and freedoms dies, one of the great heroes for human rights and freedoms also dies. May he Rest In Peace.

High-Speed Rail Is Dead in America

This is about a week late, which is my fault, I meant to post it earlier but forgot:

LINK1
LINK2

To be honest, even though in a previous posting, I lambasted high-speed rail a good deal, I actually wouldn't mind it if it was viable, as I wouldn't mind taking a train from say New York to Los Angelos that goes slower than a jetliner but that is far roomier and more comfortable. I would not want high-speed rail to replace using the freeways though, or to require high gas taxes to subsidize it. But none of that matters now, as the whole concept is for the most part dead it seems.

The Truth About Wealth

LINK

Light Bulb Regulations Put On Hold for Nine Months

     As part of the government's recent spending bill, the Republicans in Congress inserted a piece of legislation that cuts the funding from the Energy Department to be able to enforce the new light bulb stnadards that are about start going into effect, for nine months anyway. This is a temporary reprieve, but probably won't change much, as the major light bulb manufacturers will continue along as they have been. Personally, I hope that these regulations are eventually repealed, but that is a long-shot. This is not progress, as the alternative bulbs do not offer the same quality of light as a conventional incandescent. They can get close, but they still differ, and the ones that are close cost a lot. Contrary to the claims of the advocates, incandescents are being outright banned in the U.S., just not immediately; in the short-term, the efficiency standards are just being increased (high-efficiency incandescents), but by 2020, incandescents will be banned (although I think this will be modifed if the price of the LEDs doesn't come down significantly by then): LINK
     From what I understand, it was actually the major lightbulb companies that lobbied for these higher-efficiency standards in the first place, because they wanted to force people to buy the alternative bulbs, as the regular incandescents are so cheap that the profit margin on them is very slim. If this is true (it is a fact that they lobbied for the higher-efficiency standards, but the companies official statement is probably that they did it out of care for the environment), then it is not surprising they are against any attempt at overturning or stalling the new legislation.
     The problem with the alternatives is that as it stands, aside from the high-efficiency incandescents, there is no known alternative that provides an equivalent quality of light to a regular incandescent bulb (and as said, the ones that get close are very costly). CFLs have the problems of not being dimmable or working well in the cold and of taking a bit of time to light up fully (unless again you're willing to pay a lot for the best CFLs), while LEDs have the problem of being directional light, which makes them fine for things like flashlights and headlamps, but for a general-purpose lightbulb meant to scatter light in all directions, it creates a problem. LEDs at the moment are also extremely costly (anywhere from $25 to $50 to $100 for bulbs that come close to matching a regular incandescent). The lightbulb industry thinks LEDs are the future of light and that their cost will come down rather quickly, I am skeptical of this though. Time will tell.
     What I really find ridiculous is how those criticizing the stall in the enforcement are saying that it is denying Americans more energy-efficient light bulbs that will save people money. It doesn't. People could buy those lightbulbs anytime they wish to. Allowing the original to stay wouldn't outlaw the alternative. If these alternaitve bulbs are really so superior, people would buy them and they would already be making the original incandescent obsolete. But people do not buy them because they cost too much and their light quality is inferior.
     Now in Europe, where the incandescents have been banned altogether, some are selling them as heaters (as technically, that's what conventional incandescent light bulbs are---heaters that produce some light; 95% of their energy is heat...only 5% is light). So if you sell conventional incandescents as heaters, you can say they are 95% efficient at their job! What I am wondering is, could someone start a company manufacturing conventional incandescents in the U.S. after they have been outlawed, but market them as heaters that happen to produce light...? I have a feeling the law would come down on the person...would it then go to the Courts? I could imagine the person having to prove that their "heaters" are really used as heaters and not just as an illegal way to manufacture conventional incandescents. Might be interesting to try though if one had the money to just start such a company.

Here are links to the websites selling incandecents as "heaters:"

Heatball (I love the little art graphic of the light bulb holding the sign on this site, looks hilarious)
Heatbulb

EDIT: Well as it turns out, the Heatballs were outlawed in the EU (rats!): LINK

On Regulation

This is an article on the subject of how to simplify the (likely) excessive levels of regulations in the United States: LINK

Figuring out how many regulations there are is a difficult subject, but two ways to attempt it are to look at the number of pages in the Federal Register, which publishes every regulation produced by the federal government, or to measure the amount of funding going to the federal regulatory agencies and the sizes of the staffs at said agencies. The Weidenbaum Center on the Economy, Government, and Public Policy publishes a yearly "Regulatory Report" which does just this. They can be found here: Regulatory Reports

"Hating America" by Bruce Bawer

This is from 2004, but I think the author makes some very good good points (the essay is not any anti-American diatribe, quite the opposite, but goes in-depth discussing the issue of anti-Americanism, particular in Europe): LINK