Spicer Matthews

I love Amazon.com. I buy almost everything I can from them. Retail, hosting, media, and more. I even own stock in Amazon. I am a very happy consumer and investor. However, what I find so interesting about Amazon is not my consumer joy or my nice gains as a shareholder; it is their business model. In so many ways they have re-engineered traditional business models. The single most fascinating aspect of Amazon to me is their way of monetizing business bi-products.

As an Internet retailer Amazon has to make major investments in data centers. Trust me: Amazon runs on more than just a Linux computer under Jeff Bezos’ bed. They have built data centers all over the world. Normally, this would be a cost of doing business. In order to sell products online they have to build data centers. Using the bi-product of having to build data centers Amazon built a billion dollar hosting business, Amazon Web Services. Amazon leverages their infrastructure and rents the use of this space to web sites all over the world. This is like Best Buy starting a construction company because they are building big box retail locations. Amazon turned what traditionally would be a fixed expense into a most likely very profitable business unit.

Something that bugs me is entrepreneurs who are starting a company or making an investment but do not think in terms of return on investment, or ROI. Simply put, ROI is an estimate: if you invest a dollar how much will that dollar grow to? Typically you calculate your ROI as a percentage. Lets say I invest a dollar today and 5 years from now that dollar is worth $1.20. That means you got a 20% return over 5 years (or 3.71% per year).



Also, for the record this rant is not in relationship to the Mark Zuckerbergs, Bill Gates, or Steve Jobs of the world. These guys all started companies when they had no financial worries. The only risk was failing and going back to college. I am speaking the commoners, those who already have jobs. Those who already have a family. Those who already have a mortgage and a car payment. I am speaking to the people who buy rental properties, start web companies at night, or quit their job to go all in on a ice cream shop -not kids in dorm rooms (many of us missed that boat)

I don’t blog much about investing in the the stock market. Which is odd because if you meet me in person I will talk your ear off about where I think the market is going or where I think the best investments are. The digital world might not know what an equities nut I am. I don’t blog much because unlike so many other topics I talk about I don’t see investing as a black or white type of thing. I am never 100% sure I know what I am doing. There are just so many data points. I never know if the data points that are important to me are the correct data points to look at. That is what makes a market, right? If we all were looking at the same data points and we all had the same point of view there would not be someone willing to be on the other side of my trades.

With that said I do not want to be another “talking head” telling the world why I am right and why they are wrong about an investment. More importantly I don’t want to get caught up in the rat hole of defending my thesis. There are already tons of “talking heads”; the world does not need me.

One of the things I hate about people who blog about particular investments is very often you do not know when they make the investment (if at all) and at what price. I love reading about what people are investing in as an idea generator, or as a rough sentiment measurement. Without a time frame, such postings are not really great guidance to what I should buy or sell.

Sure, strong title. Yeah, maybe I am over dramatic, but let me paint a picture for you. I walk into a mid-grade restaurant. You know the type. The type of restaurant you go for a quick snack, or maybe a few beers with your buddies. Not a night club were there is a high chance of people getting drunk and making poor decisions. You might sit around the bar or outside on a patio. Then after being all friendly with the server and placing your order for your first round of drinks the server says “could I get a card to hold”? The server wants to hold on to your credit card to make sure you do not run out without paying the bill. I am never mad at the server I am sure it is a restaurant policy. By doing that, the restaurant management is telling me: “We don’t trust you to pay your bill, we need insurance”.  I translate that to the restaurant telling me to “F-off”.

Imagine you walk into some sort of shopping store and someone greeted you and said “Let me see your wallet, I want to make sure you can really buy something here”. I would call that pretty insulting. Restaurants are doing the same thing. They are insulting you.

I know the restaurant takes the risk of serving you food before you pay. I am asking the restaurant to take all the risk here. Yes, I am sure people dine and dash every year at almost every restaurant. However, I am rather certain that the percentage of people that pay vs. those who try to steal is very inbalanced. I would think I would go as far as estimating that less then 1% of the customers try to steal from the restaurant. A restaurant is telling us ‘we would rather say “we don’t trust you”’ to 99% of their customers instead of just taking the loss on less than 1%. Sounds like greed and not caring about the customer.

I have spent my entire professional life at the decision making level with early stage companies. Some companies I founded and some companies I was invited to join. I have been part of a failing team nearly as many times as I have a winning team. These are not all just web start-ups, many traditional businesses as well. This past year I have been reflecting and seeking conclusions to what sets a company up for success and what sends a company to failure. I realize there are no right or wrong answers, but from time to time I am going to start logging my thoughts on my blog. I am hoping to start a conversation with others around these thoughts to help strengthen these ideas.

The Different Aspects Of Business

Particularly in the web start-ups, a company starts with a thesis; “The product we are going to build will change the world because we are going to solve XYZ problem”. Founders get so focused on building this product they do not define the other categories relevant to their business and they give these categories no attention. What do I mean by “categories”? I mean all the other relevant aspects of your business unrelated to building your product: sales, marketing, pr, business development, market research, hiring, branding, fund raising, paper work, and so on. So many founding teams just think they will deal with these things once “the product” is done.

Grow Your Categories Of Business

The successful companies I have been part of have defined the relevant categories and measured month-over-month growth of these categories. Thus, my suggestion to new businesses is: define these categories of business from day one. Determine who is in charge of each category, and measure progress every month. When a founding team is building their product they are often measuring month-over-month progress of the product development.

The rule of thumb that I have seen succeed more often than not is ensuring each category grows in some fashion every month. It does not matter how much. Each category has to make more progress in the coming months than in the past months. If on month one you have an introduction meeting with a possible business partner, on month two you should have one more meeting and maybe sign a letter of intent with the meeting from the previous month.

Something that has been on my mind for a while now is; What does the new age business person looks like? As more and more consumer dollars are being spend online and less and less spent in person on the streets, how does this affect the first time entrepreneur? Really great companies have been built by people with simple resumes. I see in many ways it is becoming harder and harder for a first time entrepreneur to break ground on their dream because they have to do business on the web.

It use to just take someone that was willing to work long hard hours and maybe some start up capital to build a truly profitable business. Whatever business the entrepreneur was going to go into they did not have to have 20 years of experience working in the industry, however in many cases that helped. I have a close friend who went to college and graduated with a business degree. Other than odd college jobs this friend did not have much of a resume. He knew one thing; he did not want to work for "the man", and he was willing to work his butt of to make it happen. After much research he raised a small amount of capital and went into the fast food business. Today he has grown the business rather successfully. All this friend had was a passion and a good head on his shoulders.

The New Skill Set Needed

The above example is getting harder and harder with the move to the web. To launch even a basic business you often have to surround yourself with domain experts in all sorts of different niches. If you want to compete on the web. You need to hire a designer, web programmer, mobile programmer, sysadmin, web marketer, experts on understanding your market, and more. You can not just sit on a busy street count the people going by to understand your market. You can not just lease a space and open your doors. You have to surround yourself with domain experts that often are not cheap. So a good head on your shoulders and some start up capital turns into a bunch of people with good heads on their shoulders and tons of capital.

How Do We Solve The Problem?

The problem I want to solve; Is how do we move the world to the web but keep the "all you need is a dollar and a dream" way of business alive? I know there is not a simple answer and as the Facebook generation morphs into business people they will already be hitting the streets with a leg up on my generation and older generations, but I would like to find better ways to bridge the gap.

Overview

The point I am going to make in this post is you can use the different markets outside of Real Estate to help with timing your Real Estate transactions. Great timing can do wonders for your bottom line. I have to setup my point so read all the way through. I will put it all together at the end.

To continue my argument, (see past posts), that I believe that at the very least if you are a Real Estate investor you should have an eye on different markets outside of the Real Estate world I am going to highlight Mortgage Back Securities and what it means for the common Real Estate investor.

First lets define what a Mortgage Back Security is, or MBS. More or less a MBS is a bond sold on wall street from the big government backed firms Fannie Mae and Freddie Mac. These loans are originated by banks we all know and love. Then the banks sell these loans off to Fannie Mae, and Freddie Mac in big pools (collections of mortgages). For example (and to keep things simple), lets say Bank of America lent out 100 thousand dollars to 10 people (total of 1 million dollars). Bank of America collected a bunch of fees for putting the loan together (from the borrower), also mostly likely will get to continue to service the loan (charge more fees for the service of collecting loan payments).

Now, BofA will sell this pool of loans to Fannie Mae or Freddie Mac. So the amount of loans BofA is willing to make each week/month/year is almost a factor of how willing Freddie and Fannie are willing to buy the loans.

Once the pool of loans are sold and out of the bank's hands, Fannie and Freddie then bundle the loans up into bigger pools and sells them off on Wall Street as bonds. So when you make your home mortgage payment you send the money to your bank, then the bank send your payment to Fannie and Freddie, and then Fannie an Freddie sends your payment to the owner of the bond. You can learn way more about this process at Wikipedia.

Why should you understand all this?

It is one big chain of influencers; The seller, the buyer (borrower), the bank, Fannie/Freddie, and the bond holder. Each phase of this chain relays on entity below it. So lets look at each phase.

I can not express how excited I am about Elevation Fitness. A product designed for personal trainers to keep track of their clients. I have been working on this project with an amazing team of people for over 2 years, and I am happy to say we went into private beta this week.

Elevation attempts to do away with paper and pencil for personal trainers and move their client management to the Cloud, where all software should be. If you are interested please signup for the private beta and let me know what you think.

Paul Wagner, (CEO of Forkfly), sent me this YouTube video today of Steve Jobs talking about how they build products. He outright says he looks around at what others are doing and shamelessly steals them. Apple then takes the stolen ideas and puts their own twist on the product often makes it much much better.





Through my past client work, and now through my work with startups I am constantly running into people that want to reinvent the wheel. They want to start from the ground up as if there are no great ideas out there to steal. In the web world I am very very confident that if you are trying to build something there is an idea you can steal and make better. I think every project should start with finding an example to build from. I don't believe in just trying to build something without a stolen idea as the foundation.

From my first post (Real Estate Vs. Da Stock Market - Part #1) many people contacted me and told me that they disagreed with me. The stock market and the Real Estate market were not the same. Many people expressed that they liked Real Estate, (and made it their "thing"), because they had far more control over the investment. You can pick your tenants, you can pick your lender, you can remodel, and so on. While in the stock market you have no control unless you have the capital to be a major share holder. All you have is the ability to cast your vote in a share holder meeting. While this is true, in fact you do not have much control over the direction of the company you own stock in, you have control over if you own the asset or not. In terms of personal wealth, this is way more powerful than than the direct control you have with Real Estate. Having the ability to liquidate your ownership in an asset within seconds is very powerful. When managing your assets their is two parts; growing your assets, and protecting your assets.

Wise investors can spot a downturn coming, such as the one in late 2007. No one really knows how bad a downturn is really going to be, but a wise investor should know when to shift from capital appreciation mode to capital protection mode. Below are the things you can do to protect your stock and real estate assets in a downturn.