The Hardest Part is Taking A Step Back

 

Whether you like Tim Ferriss or not is not important. Tim wrote a really insightful blog post recently about why he is stepping away from investing in startups. What intrigued me was why he did it. As a trader and investor I can empathize with what he is going through. Whether you’re an investor in startups or a trader in the public markets, stress is your enemy, but almost impossible to completely eradicate. Tim has a number of great points in this blog post. I will attempt to provide some of the most relevant to this conversation.

FOMO results in “B” Player Status

As an investor/trader many know that the “Fear of Missing Out” is strong. You hear of all the good trades and none of the bad. You fear that you are missing out on trades or investments that other people are making gobs of money on. The same goes for startup investing. If you are an angel or venture capitalist “FOMO” is just as strong. FOMO creates stress, terrible stress. This stress takes you out of the game and results a “B” investor status. Tim realizes that because of FOMO he is investing in more startups than he should. He’s becoming a “yes” man, which becomes an overwhelming experience. As a trader or investor I compare this issue with not being able to choose the investment or trading strategy that best fits your character. As an trader/investor your goal is to make money. When you see others make money or hear of these terrific trades, you start to wonder if you’re missing out. Should your trading/investing strategy change? It goes back to the phrase, keep it simple stupid. If you try to take advantage of every “opportunity” available you get stuck in the mud. You get buried alive. You get stressed out. You can’t focus. Your mind is too busy. Public markets give the trader/investor opportunities daily. Stay focused on what you’re good at, don’t worry about what others are saying, and maintain your edge. Don’t become a “B” player.

Does a large guaranteed decrease in present quality of life justify a large speculative return?

This is a terrific question for any trader/investor. I guess another way to ask this question is whether you would take the trade if the stress of the trade created insomnia, lethargy, loss of appetite, and/or moodiness, but the potential outcome could change your lifestyle. I would argue that this investor is on the path to destruction if that trade gets placed. I’ve been there. I have taken positions where the stakes were much higher than my comfort level. That level of uncomfort will almost always result in a negative outcome. There are always going to be individuals that are comfortable in that type of scenario and can think logically in unbelievably stressful times, but those are few and far between. Tim makes a terrific point in saying that you should always know your ROI which comes in the form of cash, time, energy, or otherwise. “An investment that produces a massive financial ROI but makes me a complete nervous mess, or causes insomnia and temper tantrums for a long period of time, is NOT a good investment.”

Leverage your strengths instead of fixing your weaknesses.

If this statement doesn’t make you think as a trader/investor you’re missing the point. Tim states, “Don’t push a boulder up a hill just because you can.” It’s absolutely true, but most “investment/trading guru’s” will push their methodology because it may have worked for them or a few others. Here’s the problem: the chance of that specific investment/trading methodology fitting your personality is pretty damn low. Before putting money on the line you should be seeking out your strengths and weaknesses. I have been a trader and investor for over 15 years and many “trading gurus” will tell you that eliminating your weaknesses will create success. This is a bunch of baloney. I know that my strengths are not geared toward short term trading. So, why should I trade short term? What benefit will that provide me, except years of attempting to change core behaviors to fit the mold. Why not understand and leverage my strengths? That is your edge, right? Understanding this concept will increase your quality of life and ROI as an investor.

Know Thyself.

This statement dovetails nicely and is somewhat related to the previous point. Many traders/investors are completely consumed by their profession. They’re usually an all or nothing type of person. It’s difficult to find the shut-off switch. Personally, I have realized that if and when I find it hard to shut down and focus on something other than investing, I need to step back. We all have a tendency to get completely absorbed by something and it’s difficult to pull yourself away. We don’t even realize our stress is through the roof. So, what do we do to combat this “disease”? Stop. Stop trading. Stop investing, until you can take a step back and see how it’s effecting you. I give Tim a lot of credit. He has been an extraordinarily successful Angel investor. He realized that he is an all or nothing guy. He knows, in theory, that he can’t follow through if he tells himself he will only invest in two deals a quarter, which he has tried to do. If he wants to slow down and create a better quality of life, he needs to stop for a breather. He needs to stop investing, so he can reboot. What’s the worst that can happen? Ask yourself that question, and write down the answers.

I was always told, “take your time, the market will always be there when you get back.” It’s calming advice. I believe the hardest part of being a trader/investor is the ability to step back and see the bigger picture. This profession can eat you alive faster than any other profession in the world. I don’t believe that there is another profession in the world where it’s absolutely imperative that you know yourself inside and out in order to be somewhat successful. Make sure investing is creating the lifestyle you always wanted, not the stress that buries you alive. Your quality of life is positively related to your success. So, if you need to take a step back, listen.

Interview with Students of “Leadership In New Ventures”

Last week I was interviewed by a University of Colorado student. His assignment was to interview an entrepreneur that was of interest to his group for a class titled, “Leadership in New Ventures.” This is the first time I have been interviewed and recorded for a graduate class. The questions were expansive and interesting. It was a lot of fun. Below you’ll find the entire recording of the interview. We talk about everything from mission statement to leadership to ultimate goals. Hopefully it gives a little insight into an entrepreneurs mindset. Cheers!

Recording – October 2015

Highly Involved, Great Investors are Worth a Premium.

For startups or any other business, highly involved investors can be a difference maker. Sam Altman, President of Y Combinator, once said “Good investors are worth a reasonable premium. Go for a few highly involved investors over a lot of lightly engaged ones.” This is extremely important for those companies looking for some direction. A highly involved, well-seasoned investor will have enough experience to see the bumps in the road and how to steer around those bumps.

Investors should bring more to the table than money. Money isn’t scarce, knowledge is. It’s important that the founder does background checks on potential investors. Have they invested in your space? Ask other founders about their experience with the investor. How did they react when money was getting tight or things went wrong? Did they help steer the ship in the right direction or did they look the other way and move on to the next best thing? Did they provide other founders with advice? Were they gracious with their time when you needed it most? Do they have a network of people you can leverage and did they introduce you to those people?

Leveraging the resources of an investor is one of the most valuable traits an investor can provide a founder. It’s a huge value add for a founder if they don’t have to search for an answer to their problem. This can reduce time spent on problems and provide more time on building a brilliant business model. One example would be when a founder is looking to hire. Hiring is one of the most important objectives for a startup. You’re not only building a business, but your building a team that adds value to the overall product or service. Where do you start? What questions do you ask? What are you looking for in an employee? These are questions/problems that all founders face when they grow. The benefit of having an investor or an investor’s network can help streamline this process, which is invaluable. Many times a startup needs to hire fast and scale the company. Founders can spend a serious amount of time trying to recruit. Sam Altman says, “hiring is the most important thing you can do; spend at least a third of your time on it.” If you can speed up this process just a little, with the resources you have (i.e. investors) a founder can wrestle back that time to work towards building an amazing product or service. This in turn could push your product or service to market faster than your competition.

Pushing your product or service to market faster than your competition needs to be executed well. If you’re execution is bad, your lead time won’t make a difference and your competition will end up crushing you in the end. According to Sam Altman, “Great execution is at least 10 times more important and 100 times harder than a good idea.” An investor who can provide a founder with some insight on how to navigate the path to a well executed launch is worth his/her weight in gold. Being able to stay on task and hit goals is much harder than it seems. Having an investor that can help your team stay on task is huge! Great execution is the difference between success and failure.

As you look for investors for your product or service, remember, investors will be one of the most valuable assets in building your business. Take your time choosing your investors. It’s just as important for you to say “yes” to an investor as an investor says “yes” to your product or service.

 

 

Respect the “Little Guys”

The Venture Capital space is such a unique area to be in. As a founder of a wealth management company, I can say that the financial services space is also a very unique space to play in. I’ve learned a lot over the past couple of years, but one stand out lesson that I have learned is to respect the “little guys.”

There’s a close parallel between venture capital firms and wealth management firms – respecting the little guys. Just as venture capital firms search for opportunities, so do wealth management firms. Most firms, venture or wealth, will search out the largest opportunities and neglect the smaller. The best venture capital firms and wealth management firms build genuine relationships with founders and investors, no matter the size of the startup or investment, even if they pass on the deal. For example, Ludlow Ventures truly believes that “there is no company too small, osbsure, weird, outlandish or big for us to chat with. Regardless of whether we invest, we have and will always do our best to help from afar.” This is great advice for those of us in the wealth management space. There are far too many snooty wealth management firms that won’t even return a phone call if you don’t have $1 million in investable assets. The same can be said for venture capital firms.

There’s a problem with this thought process. As many of the best venture capital and wealth management firms know, if you build candid, real relationships with all founders/investors you talk to, regardless of the investment decision, the return on investment may be more valuable than you ever thought possible. Let me explain.

Venture capital firm’s thrive on deal-flow and introductions just as wealth management firms do. Without a network, there’s no growth. Some of my best clients have came from introductions from “little guy” individual investors that I took the time to speak with. I was generous with my time listening to their questions and giving them insight into what might be the best avenue for them to pursue in their path to financial success. Very similarly, venture capital firm’s that take the time to provide “little guy” founders with some advice and wisdom, even if they don’t strike a deal, may result in unexpected deal flow directly from that “little guy” founder.

My point is, don’t be stingy with your time. There are amazing opportunities out there for those that are willing to be generous with their time no matter the payoff. Yes, there will be times when an investor or founder may try to suck you dry for information and move on without a simple thank you, but I believe those instances are few and far between. There’s so much take, take, take, and not enough give, give, give. If you’re looking for deal flow look no further than yourself and what you can do to help those around you. Helping those around you could be the most effective referral source and best marketing tactic you can imagine. Everyone deserves a fair shake, but very few are willing to give the little guy that opportunity.

 

How Should Start-ups Use Attorneys?

Bob-Odenkirk-as-Saul-in-Breaking-Bad

If your in the start-up world you understand that attorneys are a necessary evil. Hiring an attorney allows start-ups to be proactive instead of reactive. The task of hiring a law firm is as important as hiring employees. As an attorney myself, and having experience dealing with start-ups, there are “rules of engagement” you should understand.

All attorneys have a fee schedule. For our purposes, most attorneys that work with start-ups will provide the client with an hourly or fixed fee schedule. The fee schedule will always depend on the type of work they’re doing. For instance, an attorney may feel it’s most beneficial if your start-up is set up as a C-corporation. Depending on the complexity of the business, there are times where the attorney will charge a fixed fee to complete this project due to their past experience. On the other hand, more times than not, attorneys working with start-ups will typically charge an hourly fee. These hourly fees should be spelled out in advance per attorney, as different attorneys within the same firm have different hourly rates based on their experience.

In addition, interviewing law firms is of extraordinary importance. In fact, you should start the interview process as soon possible, even if you don’t need the law firm immediately. You never want to scramble at the last minute. The best place to start is to: 1) ask for referrals from individuals or businesses you trust or; 2) find start-ups of similar size and industry and inquire as to who they hired. Then go interview the firms. It’s imperative that your personalities mix well. Do you feel comfortable speaking with these attorneys about intimate financial details? Do you feel their knowledge base will give you an edge in seeing obstructions before they are encountered? When they go on vacation do they have a plan in place in case you need immediate assistance? Is your business a priority or are you just another company? Just remember, lawyers may not be the happiest crew. They are there to provide outstanding counsel, advice, and diligently protect your interests. Keep in mind, that as your business grows the law firm should grow with it. Many times start-ups leave a solo practitioner for a larger law firm as their needs change and they require additional services.

REMEMBER, everything costs money and attorneys aren’t cheap. Get that through your head before hiring an attorney. Don’t get mad at your attorney if you “thought” the 15 minute phone conversation should not have been billed. If you request that an attorney complete a project it’s perfectly reasonable to ask him how much it will cost. Typically, the attorney will provide you with a estimated range. Just as a safety net, add 10% to that range, so you’re not disappointed when the bill comes back higher than that range. You never want to feel ripped off. An estimate is exactly that, an estimate. There are always unforeseen issues that pop up.

Planning is of the utmost importance. Your bill will depend on it. Plan your questions! It’s always a benefit to have a working knowledge of legal issues that you will encounter as a start-up. There’s plenty of information on the web to get you up to speed. This working knowledge will help you construct specific questions for your attorney. Specific questions help attorneys narrow down the issue and focus on the answer. Generalized questions, at times, may effectively result in the “it depends” answer. That phone conversation could last a while as the attorney wants to be sure he is answering your vague question correctly.

When a project is completed and you receive the bill from the law firm, it’s perfectly reasonable if you have questions. The bill should be specific as to where their time was spent on the project and what attorney was completing that portion of the project, as each attorney has different billing rates. Attorneys make mistakes too, so don’t think your questions are unreasonable if you feel there is a discrepancy.

Last, attorneys go on vacation or have other projects they may be working on in tandem with yours. If the lead attorney is unavailable there should be a plan in place to take care of any needs that you may require. You never want to be left in the dark. Things come up and if you need your attorney on a moments notice, and the attorney or their team is not available, that’s not good. Make sure you have a point of contact at all times and that point of contact is able to get back to you that business day for emergency situations.

Attorneys can be a huge asset as you grow as a company. Even though attorneys are expensive, many times, they save you money in the long run. Correcting mistakes as your business grows will be more expensive than having corrected those issues at the outset. An attorney should be part of your team, so make sure you choose wisely. They could become one of your largest assets.

Three Start-ups That Could Revolutionize Their Industries

There are some ideas that people come up with that I find amazing. Whether its in the financial arena or others, the last year and a half has seen amazing technological advancements in almost every sector. The financial services industry has seen more advancement in the last 18 months than any other time in its history. It’s truly amazing to watch, and always gets me thinking, “why didn’t I think of that.” Either way, it gets me excited for what the future holds. I recently discovered a few start-ups outside of the financial sector that, I believe, will revolutionize their respective industries. They all leverage their own technology to catapult them into stardom.

MakeSpace

When all of us think of self-storage, you can’t help but think of an old stodgy building on the outskirts of your city that you have drag your personal belongings to. It’s not a pleasant experience and, many times, an amazingly outdated way of doing business. The problem is how the hell do you change that? Typically, these places are cash cows, with minimal security, dusty garages, and no onsite attendant. The major fixed cost of many of these places is the land and/or building. The big self-storage companies are run like a REIT (real estate investment trust). There’s no question that these companies make a ton of dough, BUT no one enjoys the experience. Recently, a company called Make Space dove head first in the self-storage market to change the way this business is run. In the United States alone the self-storage market is worth $24 Billion in annual revenue and is totally fragmented with the largest player having around 10% of the total market. MakeSpace is set to reinvent the whole sector. Here’s how according to Bothsidesofthetable.com:

“We ship boxes to your house, you pack ’em and we pick them up for free. We photograph your items from an aerial view and provide you with a beautiful app that securely shows you your goods itemized by bin. If you want any individual bin shipped to you at any time we need 24-hours notice. So your tuxedo can be back in time for a wedding, your skis can arrive before your annual trip or you can swap out winter clothes as the flowers begin to bloom.”

MakeSpace created a way to leverage technology so none of us have to ever schlep our shit to another disgusting self-storage facility. They created this beautiful app where your stuff can be picked up and delivered with a push of a button. Typically, MakeSpace will leverage the storage facilities of Macy’s, Bloomingdales, Marc Jacobs, etc. to store your goods. These facilities already have amazing security, so there’s no need to worry about theft. MakeSpace has created a monster that will take a chunk of the $24 billion industry in years to come.

make space app

 

Maple

When we think of restaurants, we think of physical locations that we sit down or grab take out. Maple decided to make a delivery only restaurant that prides itself on fast, chef created meals. It sounds similar to other services out there, but it isn’t. Maple is looking to revolutionize the restaurant business that typically has a large initial outlay of capital. Maple leverages technology in order to create a product and process that is seemless from start to finish. Maple has developed chef inspired recipes that can withstand a Manhattan bike commute, which is the delivery method of choice. All meals are delivered within 3o minutes. Here’s how it works according to Maple’s CTO, Dan Cowgill:

“Maple’s CTO, Dan Cowgill, originally built five apps to get food from Maple to the customer. When an order comes in, it is added to a cooks’ app displayed on tablets in the kitchen. Expediters take the food from the chefs, put lids on it, put it in a branded cardboard sleeve, and used a second app to check that the order was done. Packers refer to a third app that tells them, based on destination, which orders should be sent out in a bundle. They enter the bag’s ID and sets it down for a delivery person to pick up. When the delivery person grabs it, he enters the bag ID into a fourth app, and receives instructions for the optimal route to take when dropping off the orders. A fifth app, which the manager of the distribution kitchen uses, gives the overall view of all of this, to spot the gaps in the process and adjust. All of these apps talk to each other, and all of this action fits inside a space that feels like the size of a city bus.”

There’s also a client facing app that allows the customer to browse the menu, order, and receive a notification when the food has arrived. Maple has the ability to process and deliver over 800 meals in just over 2 hours. An amazing feat! Most meals cost anywhere from $12-$15. This may be the next culinary delight without a physical location.

maple app

 

Kobalt Music

Yes, the music industry has been going through a complete restructuring in how consumers listen to music, but not much has been done for the artists. Kobalt Music plans on changing that. Kobalt has been backed by some of the largest VC’s in the world, including Google Ventures. Kobalt plans on bringing more transparency to the payment chain. Typically, the music industry doesn’t provide the artist with who bought their product, how many times it sold, and at the end they get a check with no information on how that amount was calculated. Kobalt provides a music publishing platform for the artist which uses their proprietary technology to keep track of online copyright administration, royalty tracking, and digital collections. Kobalt also provides artists with Label Services for indie artists. According to Kobalt their technology is geared toward simplifying a very complex process, maximize earnings, and speeding up payments for the artist, which will minimize errors and create a substantial lift in revenue. Kobalt represents some huge names in the music industry. Kobalt may end up being the company that cripples the old stodgy way of the music industry and puts the power back in the hands of the artists.

Kobalt