It's About the Process

Will Price over at Hummer Winblad writes a great post (Will Price: Embracing Uncertainty) about "design thinking" and how it applies to a start-up and even investing.

The bottom line is, it's about the PROCESS and NOT the product (in the early stages at least). Rapid prototyping, A/B testing, constant iteration and improvement! That's the only product road map that truly makes sense.

It really sucks that if entrepreneurs want to raise money from an investor, they have to show these multi-year product road maps and financial projections.

There's no way any of that will come to fruition, and the messed up part is, EVERYBODY KNOWS IT! So why do it?

My only conclusion: Conventional Wisdom is convenient.

I'd love to see a business plan that had no financials and a product road map that read like:

1. Launch bare bones prototype - get feedback.
2. Improve, relaunch.
3. Get more feedback.
4. Do it all over again.

Anybody that thinks they can create a "silver bullet" product right out of the gate is kidding themselves.

My gut tells me that the consistently successful founders are the ones who focus on their process for developing the product - as opposed to coming up with a concrete vision for what the product will be and sticking to it no matter what.

I really liked Fred Wilson's series of posts on his venture capital investing history and how many of his successful portfolio companies actually stuck to their original business models. It turns out that the vast majority of them (17 out of 25, I believe) ended up with entirely different business models in the end.

So again, it's the intellectual framework for making these business model changing decisions that differentiates most successful companies for the unsuccessful ones. Please note that this hypothesis is predicated on the assumption that any entrepreneur worth his salt is smart enough to at least be playing in the right ball park - for instance, somebody who wants to create an everlasting gobstopper that can also be used as a hat is not only out of their mind, but won't succeed no matter how many times they prototype and iterate.

Obviously if you just happen to catch the right wave, at the right time and have the right board (read: product/application) under your feet, then you'll do very, very well!

But I'd put my money on getting the process right than luck any day of the week :)

A Personal Touch

I'm a big proponent of using Return on Invested Capital (ROIC) as a primary benchmark for business success. And not just at the end of the year when sizing up our P&L statements. ROIC has to be used for every business function in order to know if it was "worth" it or not...period.

That's why we use tools like email newsletters and blogs to communicate with our members at TickerHound. It's a "one to many" device - meaning, we write a message once and it reaches many people (at the same cost). It's what makes software and the web such a highly profitable medium.

But I think that in the search for increasing ROIC, we might lose that personal touch that helps build businesses. There's something to be said for appearing to be a "big company" - customers want to feel like they're part of something bigger than they are, they want a feeling of security, credibility and reliability that comes with being aligned with a large company.

But I can't help but feel like "being big" might not be an advantage sometimes - especially on the web. Striving for increasing ROIC in the short term might hurt a business over the long term. So I've been thinking a lot about the web and how it was supposed to "level the playing field" and put small companies on the same level as big companies...and it's certainly done that.

The other thing it's done is it has made this world a much smaller place to live in. I can chat with my friends in China, California and New York just as easily as the person next to me. I know what they're doing via their "Status" on Facebook. I know if and who they're dating, what bar they went to this weekend and I even get to see the tan they got on their latest vacation.

So with that being said, should web start-ups continue to adopt "big business" images or should we start to look at what makes "small businesses" work?

And I don't just mean "small" in terms of revenue or number of employees...I mean "small" in terms of the community the business serves. So the small businesses I'm thinking of are those that serve local communities - the pizzeria down the block from my house, or the dry cleaner at the corner - those small businesses.

Now, the most successful small business I know of was Tony's Deli - an Italian Deli owned by my friend's parents in my old neighborhood of Whitestone, Queens. Tony's was a typical Italian deli - fresh cold cuts, great hot food prepared by my friend's mother and every single time you'd walk in they'd shout your name from across the counter and ask how you were.

It didn't feel like you were walking into a store - you didn't feel like you were walking into a place of business. It felt like you were walking into a friend's place, grabbing some food and by coincidence leaving a little money on the counter. They knew your name, your family's names, the names of your pets. It was great.

But then one day this MONSTEROUS Italian Deli opened up just 3 doors down! They had more food, more selection, fresher produce, etc....AND, they were charging 50% less than Tony's.

So here you have a situation where a competitor enters the marketplace with a better product at a cheaper price - most "business strategists" would say that Tony's would be done for.

But that's not what happened - no sir.

Without Tony's asking for help or even bad mouthing the competition, the community rallied around the local deli. The lines got longer, people bought more things more often and whenever you would walk in you'd be able to hear at least one customer mention that they'd "never shop at the place down the block, hope they go outta business!". It was amazing - Tony's actually did better when the new competitor hit the markerplace because they had captured the loyalty of the community they served.

The "Tony's Community" became champions of Tony's success - the "bigger" company was considered a common enemy that the community could rally against. And boy oh boy did it work out well for Tony's...within 6 months the competing Deli was out of business and in the last 15 years not a single new Deli has tried to open in that community.

Tony's became the king because the community decided it should be so.

And that's what prompted me to do the first truly "small" business tactic that I've done since we decided to launch TickerHound last year.

I began to personally e-mail "thank you" letters to every TickerHound member...and not the standard, "Welcome to TickerHound" e-mails everybody gets. I e-mailed them thanking them for joining and for their contributions to the site. These aren't copy & paste, mass production e-mails either. These are letters I personally typed and sent, from my personal e-mail address, to our members.

This is obviously going to lower our ROIC in the short term, but over the long haul I have this belief that it'll help TickerHound become the "Tony's Deli" of the financial education market. And even if it doesn't, I know that at the very least I'll have made some friends, built some loyalty and have gotten some invaluable feedback on our product - so no matter what, it's a win-win for me, for TickerHound and for the community.

So here's my message to other entrepreneurs out there - "think small".

Yahoo! Rejects Microsoft's Bid

As I’m sure you know these companies have been making a ton of headlines this week. After both found themselves unable to successfully compete against the leader in internet search and advertising, Google (Nasdaq:GOOG), Microsoft (Nasdaq:MSFT) made a $44 billion unsolicited bid for Yahoo! (Nasdaq:YHOO) last week.

Yahoo!’s board was set to meet on Friday to decide what, if anything, they would do about the offer, about Google and just about Yahoo!’s overall problems in general.

Well, as of Saturday morning the Wall Street Journal was reporting that “someone familiar with the matter” (I love how there’s always one of those) stated that Yahoo! would reject the offer and wouldn’t consider anything lower than $40 per share. That would put Yahoo! at a $53.6 billion valuation – a 20% premium to the current offer and 35% premium over Yahoo!’s current stock price.

So that wasn’t an out-and-out, “No, we think this is a bad idea”. It was more of a, “This is a good idea, but only at the right price.”

But the question is, would that price be “right” for Microsoft?

Yahoo!’s stock hasn’t come anywhere near $40 per share in over 2 years which basically means that even though the company has been going on a software development spree – releasing new versions of its ad system, it still hasn’t been unable to come close to competing with Google.

And if I were Microsoft, I’d certainly take that into account. In fact, let’s pretend I am Steve Ballmer for a second (and thank the lord that I’m not), here’s my logic for evaluating the Yahoo! deal:

1. How much more money could we make in online ads by having Yahoo! on board?
2. How much could we save?
3. And most importantly, what would Yahoo! do if we didn’t buy them?

You may be wondering why number 3 is the most important – wouldn’t it be more logical to think of it all in dollars and cents? Well, yeah, I’m sure it would be more “convenient” but here’s my logic in putting so much emphasis on number 3.

Yahoo! as a standalone company cannot compete with Google, or Microsoft for that matter, in terms of capturing greater market share of the search advertising business – the crown jewel of online advertising. Which means the company is destined to become a laggard in this space (assuming lightning doesn’t strike) which will leave it ripe for picking at a later date.

Yahoo! could also decide to partner with Google for its search engine ad technology – which in the short run would definitely bolster the company’s financial situation, but longer term would leave it strategically vulnerable. I mean, what value would this company have as a technology company (one that thrives on innovation) if its most popular division was powered by somebody else? It would be like Budweiser putting Coors into its classic brown bottles and hoping no one would notice – certainly a tough hole to crawl out of.

Neither of these alternatives would give me a warm n’ fuzzy feeling if I were a Yahoo! shareholder.

So back to Microsoft – here’s a company that’s willing to give Yahoo! shareholders something for their patience. It would give both companies the ability to actually compete with Google for the first time and the scale they would gain in terms of traffic, reach to publishers, etc. would put the combined company in a prime position to increase ad rates and revenue across the board.

Granted Yahoo! employees might not be ecstatic about it, but Microsoft said they’d retain the Yahoo! brand and probably much of the culture. I don’t think regulators will have any problems due to the fact that the combined “Mahoo” (as it’s being called) still wouldn’t completely eclipse Google in terms of traffic or scale.

So if $31 is too low and $40 is too high – what do you say we split the difference, call up Ballmer and Yang and tell them to settle on $35.50? Then everybody’s happy and Google can finally get a run for its money!

Who’s with me?!

Califoolya!

The long overdue photos of my long overdue trip out to the West Coast.

Got to drink a ton of great wine, eat 2 tons of great food, hang out with my girl's family (amazing people, always a good time) and got to meet one of my social media heroes, Shel Israel.

So here are a few pics that hold a special place in my heart from my latest journey out west:

The Pier in Santa Barbara:


Baked Brie @ The Los Olivos Cafe (as seen in Sideways)


Roasted Veggies @ Los Olivos - it was only vegetables, but you have no idea how good this was!


Sea Bass with baby spinach @ Los Olivos


Drive home from Solvang - I wish it were summer, this New Yorker would've been laying in the middle of those vineyards downing a bottle of vino.


Jumbo Prawns @ McCormick & Schmick's


Blackened Fish Tacos @ McCormick's - 10 out of 10!


My love and I at McCormick's - amazing place, I highly recommend it. Looking out over the bay during a nice lunch...nothing beats it.


Yeah, now we're about to get New York Beast-Status on this Ghirardelli Hot fudge Brownie Sunday...you know how we do.


That was gone in about 37.5 seconds...


And now I'm paying for it dearly - it's a terrible feeling when you have to drop a notch on your belt because it's too tight. But oh well, the pictures have certainly made me feel much better.

California - see you soon!

Psychics, Fortune Tellers and Investment Advisors

You may be looking at the title of this article and scratching your head wondering: what do Psychics, Fortune Tellers and Investment Advisors all have in common?

Well, for one thing they all try to predict the future in one form or another. Psychics and Fortune Tellers supposedly use some type of extra-sensory perception to see into the future. They use tools like tarot cards, crystal balls and chanting in order to tell you what your future holds.

Will you be rich? Will you live a long life? Plenty of people out there turn to psychics and fortune tellers for answers to these questions.

Now you’re probably thinking, “Ok Wayne, what does that have to do with investment advisors?”

Answer: PLENTY!

Instead of using crystal balls and cards with funny symbols on them, investment advisors use charts and financial statements. Now, I’ll be the first to admit that investment advisors, stock brokers and money managers are a far cry from the 1-900-PSYCHIC people you see on TV. But that’s not what’s important…what’s important is WHY people feel the need to rely on these “predictors of the future” in the first place.

Why do we, as human beings, feel the unending need to know about the future?

In fact, I’ll share a little tidbit of information with you – human beings are the ONLY animals that conciously plan for the future. And not knowing what our future holds gives us a TREMENDOUS amount of anxiety. So much so that we do everything in our power (and mostly through the “power” of others) to plan for, predict and try to control our futures.

And that’s why fortune tellers, psychics and investment advisors are so successful – they truly understand human nature and they PREY UPON IT! They prey upon your desire to know your future, they prey upon your desire to profit or protect yourself from your future…and most of all, they prey upon your anxieties and insecurities about the fact that you CANNOT control your future.

They tell you that since you can’t protect yourself from, predict or control your future that you should rely on them, “the experts”, to do that for you. And there’s something very comfortable in doing that. It allows people to relieve themselves of the responsibility of their future circumstances.

Didn’t become rich? Well the fortune teller was wrong, not you.

Lost money in the market? Your broker was wrong, not you.

And that is precisely the psychology that MUST change in order for individual investors to break free from the shackles of the “Wall Street Regime”. Investors must realize that they have the power, the intelligence and the ability to do better than the rest of the market.

Your brokers, your money managers and even the “professional mutual fund managers” all try to mimic the market. If they performed as well as the S&P, they brag about it and are given monstrously large financial incentives to do so. In what other profession does somebody get so handsomely rewarded for simply doing AVERAGE?

My friend, we are taught to do AVERAGE in grade school!

If you want to do ABOVE average…if you want to be an extraordinary investor…if you want to unlock those shackles and break out into the world of TRUE FINANCIAL INDEPENDENCE then you have to stop relying on these “stock market fortune tellers” and start empowering yourself!

And maybe you’ve already made that leap – maybe you’ve already taken the responsibility, shed your fears and made the decision to take control of your financial future. If you have, then congratulations! You’re one of the rare few and you deserve all of the rewards coming to you.

But if you haven’t made that leap yet, if you haven’t decided to put yourself in a position to prosper then I ask you – in fact, I CHALLENGE you to make that leap today.

The only way to shed those chains and become an independent and successful investor – one who outperforms the “herd” – is to equip yourself with as much information as possible. You have to take the time and make the effort to educate and empower yourself as an investor.

In fact, at the end of this article I’m going to give you a list of sites and services that I personally think can put you on a path to financial independence. And these aren’t sites you have dole out tens of thousands of dollars to be a part of. These sites are all free and are all there to help put the power back in the hands of the people – namely, you!

But it won’t be easy…no, no, no. The journey to financial freedom is certainly not the path that’s paved with gold. It’s a rough road ahead of you, but I promise that the destination is more fulfilling and rewarding than you could ever imagine.

So begin that journey today, and drop me a line from your yacht once you get there!

Websites Dedicated to Educating and Empowering Individual Investors:

1. TickerHound.com
2. Wikinvest.com
3. Covestor.com
4. Caps.Fool.com
5. SeekingAlpha.com
6. Marketocracy.com
7. TheStreet.com
8. Investopedia.com
9. BullPoo.com
10. TheTycoonReport.com

Good luck to you and God bless – you’ve undertaken an enormous responsibility and while it might be tough at first, you’ll ultimately be a better investor and a happier person for it. Congratulations!

Feedback Forum

So I went to my first feedback forum last night - hosted by Jonah Keegan. The presenters were the co-founders of a new online dating site, CupidsLab.com.

CupidsLab is hoping to take dating to a new level by empowering not only those who are looking to meet that special someone, but by also empowering the lesser known and drastically underappreciated "match maker" population. You all know you have a friend or two out there who has a certain knack for hooking two people up. (NOTE: my previous match maker extraordinaire did such a wonderful job that she ended up matching herself up with me! Good job baby!)

So CupidsLab is going to provide a tool set for empowering the match makers to help them do their "jobs" more effectively.

Last night we all met in a conference room with about 8 other technology entrepreneurs, marketers, journalists and even a VC to listen to some of the challenges CupidsLab is facing. Then everybody started to give feedback...and brainstorm...and give even more feedback.

It was, quite frankly, an AMAZING 3 hours.

You have to understand, I come from a background in traditional finance (brokerage, analysis, etc.) and it is such a rare thing to find people who genuinely want to help each other on Wall Street. Most of the time it's because they either want something immediately in return or because they're working some sort of shady angle.

In any case, last night was the complete opposite of that. We had a room packed with a group of fairly intelligent guys (I'd like to consider myself one of them) who wanted to do nothing more then sip a couple of beers, eat a slice of pizza and brainstorm about business. Not only did CupidsLab come out of it with great ideas and feedback, but it forced me to think through some of the issues I was having with TickerHound in some new ways.

I'll definitely be attending these in the future and I highly recommend it to anyone who has a genuine desire to help other entrepreneurs and learn more about this industry that we're in.

I'm going, going, back, back, to China, China!

Ok, maybe a Biggy Smalls verse wasn't in order here but that's all I could think of and I'm so damn excited I feel like I could rap about it. So I booked my tickets today for a trip back to the motherland...ok fine, it aint my motherland but I can't help it if I'm an ethnically confused caucasian (just kidding).

But in any case, I loved my first trip to China...best summer of my life...so I'm hoping this one, although shorter, will be just as fun.

I can't wait to get my hands on some naihuangbao:



Or some Beijing-style Huoguo (Hotpot - lit. "Fire pot"):



You have no idea how good this stuff is until you've actually eaten it in China!

So here's my tentative itinerary:

June 19th - Depart for PEK out of Newark
June 20th - Arrive (jet lagged) in Beijing
June 21st - Winston's Wedding!!!
June 22nd - 26th - Chilling, eating, drinking and partying in Beijing (maybe a little work too).
June 26th (evening) - Depart for Shanghai (train of course!)
June 27th - July 1st - Chilling, eating drinking and partying in Shanghai (maybe a little work too).
July 1st (evening) - Head back to Beijing
July 2nd - July 3rd - Eat and buy as many bootlegged DVD's as I possibly can!
July 3rd - Homeward bound!

And since Beijing is 12 hours ahead of New York, I'll leave at Noon on the 3rd (China time) and arrive at 1:30 PM on the 3rd (Eastern time)! Just in the time for the 4th of July the following day - who's better than me?

I hope my Chinese is still up to par - haven't had much opportunity to practice here in the States. It's a damn shame too, I studied it hardcore for 2 years and spent 3 months in China studying it every single day. So if anybody reading this wants to help me get my game back, please drop me a line in the comments.