Build Your Business, Not Your Product

I’ve had a copy of The E-Myth Revisited floating around my house for years, picked up at Half Priced Books a while back and forgotten as I read through The 4-Hour Workweek, Crush It, The Dream and, most recently, Rework.  A friend reminded me of the book again last week so I sat down in the sun yesterday and cracked it open.  I skimmed through the first few chapters, reminding myself of the writing style and key concepts that being a business owner is not the same as being a working in your business.  The technician in you wants to work on your product, the manager wants to work on the people and process, but the entrepreneur needs to work on the business.

Photo courtesy of ihtatho via Flickr

The subtext of the book is that it reveals the secret as to why two thirds of small businesses fail in America.  I haven’t finished it yet, but midway through the book, I was struck by the concept of franchising and how its a valuable model to follow for any business, even if you don’t intend to actually turn your business into a franchise.

The argument for following the franchise model is that it forces you to focus on your business.  Your product is a commodity, your business is where the value is. It is likely that anyone can create your widget if given the focus and tools, but to replicate your business structure, processes, character and consistency is where the magic happens, and the book stresses that consistency is the key to business success. 

Build a business that doesn’t rely on hiring exceptional employees.  Requiring exceptional employees leads to scalability problems as you expand and find that the caliber of employee you rely on isn’t an option in many parts of the country or world.  The key to being able to hire ordinary employees and still achieve extraordinary results lies in the process.  Build a process that is fool proof.  Anyone can execute a well defined list of instructions and achieve similar or exact results.  If you can mechanize or automate it with software, you’ve removed that variable entirely. 

The aspect I was troubled by, which the book later addressed head-on, was employee satisfaction.  If your tasks only require low-skilled workers, how do your great employees feel motivated to grow and improve? The answer that I pulled from the book was to shift their focus as well.  Instead of your employee feeling like their job is to create widgets, make them feel as though their job is to improve the process of making widgets.  If your employees focus on improving the process and protocol that they use to do their job each day, they can see that improvements to the process increase their own efficiency.  Increases in efficiency driven by employees will motivate the employee and lead to higher margins and better quality for the product and company.

Business owners: Are you encouraging your employees to focus on your product or focus on your process?  If they did focus on your process, do you feel that it’d improve long term profitability and efficiencies for your company?  I’d love to hear your thoughts.

The book is E-Myth Revisited and you can purchase from Amazon here.

Four Hour Work Week – Buy it, trust me

Its not very often that I read a book and it inspires me to take action immediately.  For the last couple weeks, I’ve been working my way through The Four Hour Work Week by Timothy Ferriss.  I probably spent more time telling others about it than the time it actually took to read, it was that good.

I mentioned in-passing to the CTO of my company that I was reading it and his first response was “Has it changed your life yet?”.  That sort of endorsement is powerful.

The way I interpreted The Four Hour Work Week is that its a book about control, its about taking control of your destiny.  Its easy to be a critic and see opportunities that others are missing out on, but its much harder to look at yourself and recognize your potential.

The Four Hour Work Week is, in short, about kicking ass and taking names.  Simply your life, take the bull by the horns, free your time, its your most valuable asset.  Figure out how much your time is worth (or how much you’re getting paid if you’re working for someone else) and analyze your critical tasks at work.  Cut out those that don’t matter.  Outsource or delegate those tasks that aren’t worth your time.  Spend your precious time building value.  Value for your company or, more importantly, value for yourself.

I love the book.  I’m not going to ramble on about it.  Buy it.  Its less than $11 at Amazon and it’ll be on your doorstep in a few days.  Seriously, it may be a catalyst to change your life.

Who Killed the Electric Car? Timid executives at General Motors

I recently watched Who Killed the Electric Car? and found it quite interesting from a business perspective. Narrated by Martin

GM’s main reasoning to kill the car was that there was insufficient demand for the automobile. Chelsea Sexton says this argument is unconvincing because she, as a lead marketing employee for GM during the time of the program, knew there was a waiting list upwards of a thousand people ready to purchase the vehicles if they were available. I cannot believe that a thousand people, or even five thousand people, is enough of a business case to put a vehicle into full scale production. says Toyota sold 9696 hybrid Priuses in June 2006 alone. A preliminary demand for a few thousand EV1s doesn’t seem like enough of a proven market to justify, on its own, taking the car to full scale production.

Wikipedia puts the retail cost of the EV1 at between $33,995 and $43,995. At that price point, the market for a two seater commuter car with a range of ~120 miles (or even a normal gas engine range of ~300 miles if you assume battery technology improvements) would be limited to those in the middle and upper class. It wouldn’t be cheap enough to allow widespread adoption by the average commuter. I suspect that if the EV1 went into full-scale production, the cost of the components probably would have dropped considerably, but even if you assume a retail price of around $30,000 for a fairly-equipped model, it would still be in the higher end of the two seater sports car market. From a financial perspective, I believe GM was being truthful when it said the vehicle simply didn’t make sense from a short-term financial perspective. My argument is that the EV1 was not a platform developed for short term financial profits. It isn’t as if they slightly tweaked a new model, rebadged it as something else, added a few bells and whistles, and pushed it out to market. The EV1 was a completely new idea, built around new technology that offered the possibility of revolutionizing the entire auto industry. It wasn’t going to make a killing overnight, and GM should have known that from the start.

From my perspective as a consumer, GM and most of the american auto industry looks timid and weak. Unwilling to take risks for fear it may jeopardize short-term profits, they are not able to lead technological innovations and are unable to remain competitive with their overseas counterparts. The story of the EV1 shows that, technologically, GM may have been in the #1 position to execute on the production of a mass-market electric vehicle, but they wouldn’t do it from a business perspective and that is shameful and scary for the future of the american auto industry. Regardless of pressures from outside factors such as the oil and auto-repair industries, GM needed to be strong from a business perspective and see the potential for long-term profits. They squandered their opportunity and now, 10 years later, are suffering for it. Being bed-fellows with the oil industry may feel comfortable for them, but looking out for their own long term interests is what will lead them to long term success. The death of the EV1 program at GM was surely fueled by outside forces such as CARB and the oil industry, but the ultimate responsibility for the death of the program should lie with GM and their incompetency at being a leader in the worldwide automotive industry. They were on the cusp of being a technological leader in the industry with the EV1, but they blew it with their timidity of taking a risk. They chose to focus on short term profits instead of focusing on the opportunity of explosive growth long term with an electric car platform that could lead the way in innovation.

Review of Jim Cramer’s book: Mad Money

I just finished reading a copy of Jim Cramer’s new Mad Money book that I got for Christmas. I haven’t watched Jim Cramer’s show on CNBC in quite a while, but I know he is high energy, knowledgable, and eclectic. I had high hopes for the book, but I have to say I found it slightly disappointing. I mainly got the feel that his book was there to promote his show on CNBC and, more specifically, to promote and reaffirm the show’s value to its existing viewers.

To his credit, he did disclose his interest in, Mad Money, CNBC, his hedge fund, his other books, etc so it didn’t come off as though he was trying to trick anyone, but it seemed like his book catered to folks that already know about him and his show, and served less of a purpose as a general investment advice/trading philosophy sort of book.
There were some highlights for sure, he has an interesting way of viewing the market which, I can only assume, comes from his many years as a trader, hedge fund manager, and main figure of several different shows on CNBC. A couple unique points that interested me were:

  1. It is just as important to pick good stocks as it is to pick stocks that the large money managers will like. Cramer’s idea and observation is that even if you have a stock that is great, if the large buyers don’t like it, it isn’t going anywhere in the near future. He did make a point to say that there is a place for speculative plays on undiscovered stocks, but he stressed the fact that the money managers rule the market and its better to invest with them then to try to fight the trend. For what its worth, I agree. Most times that I try to buy something because I consider it undiscovered or undervalued, the stock languishes for quite a spell before it goes up. Its not to say that buying undervalued stocks is bad, it just may not be the fastest way to make a good return.
  2. There are supply and demand forces in play on types of stocks. Cramer’s idea is that because there are only a few big players that really control the market (large banks/investment houses/mutual funds), there is limited demand for certain types of stocks. The example Cramer uses is IPOs. If there are a lot of IPOs coming out, Cramer says to be weary as the large players only want to expose themselves to a limited amount of IPOs. If they have already filled out the IPO positions in their portfolios, they may be less likely to buy future IPOs. He says the same thing about the dotcom Internet stocks several years ago; there were so many on the market that it saturated demand for internet stocks and nobody wanted any more internet plays in their portfolio. Its an interesting idea, I’ll definetely keep it in mind going forward.
  3. Sell your winners, sell your losers. Instead of preaching to the “Cut your losses and let your winners run” philosophy, Cramer advocates selling part or all of your position when it has had a serious run up. He says to do otherwise is greedy. If you’ve had a significant run up in your stock, sell part of your position. If you’ve had a really significant run up, sell more of it, or all of it, if it has reached your targets. He says the same thing about loser stocks. Basically he is saying to protect your capital. Don’t be emotional and hang on to stocks past their prime. If the situation has changed causing you to probably not want to buy the stock at the current levels, liquidate your position.

Overall, I’d say to read this book if you want to get a few good ideas to strengthen your trading/investment philosophy, want a fresh perspective on things, and look forward to a little comic relief in your reading. Jim Cramer is entertaining to read and even more entertaining to watch. If you have a chance, try to catch his show on CNBC.


The Smartest Guys in the Room (DVD)

I recently watched “The Smartest Guys in the Room” on DVD. It documents the rise and fall of Enron. It is based on a book, and the authors of the book have a large part in commentary of the movie. It is shot in a PBS documentary sort of way, but is actually very entertaining.

I’ve only known about Enron from the headlines. I’ve heard about Jeff Skilling and Ken Lay, but really knew very little about either of them. The movie does a great job of detailing the questionable political relationships between George Bush Sr., George Bush Jr. and Ken Lay. At one point in the movie, they even discussed the large amount of speculation within Enron that Ken Lay was going to be appointed to be the head of the Department of Energy under George Bush Jr.

The movie left me with the feeling that Jeff Skilling was the mastermind behind the corporation. A smart ivy-league grad, he masterminded which accounting approach the company would use to achieve their stellar growth numbers (“mark to market” accounting –, the whole concept of commoditizing the energy market, and eventually went on to ideas of commoditizing the broadband and weather markets.

It was a great movie and I recommend it as a good watch on the basis of learning more about what to look for when analyzing corporate financial statements. The movie outlined some of the red flags in regards to Enron’s books, the act of the large banking institutions turning a blind eye to Enron’s questionable conflicts of interest, and the incredible power that large corporations have in impacting local, statewide, and national politics.

Book Review – Money Masters of Our Time by John Train

I recently finished reading Money Masters of Our Time by John Train. I read The New Money Masters a few years ago and loved it, so I decided to give this one a try as well. In Money Masters of Our Time, Train looks at the investment strategies of 17 of the world’s most successful investors. He interviews each of them and documents their strategies, great achievements, great failures, and a little bit about their personal lives as well.

I can’t say enough about Train’s writing style when it comes to this series, he manages to keep the reading light and fun while providing a lot of very detailed content on how the Masters manage money.

Money Master of Our Time outlines the investment approach of the following investors:

  • T. Rowe Price
  • Warren Buffett
  • John Templeton
  • Richard Rainwater
  • Paul Cabot
  • Philip Fisher
  • Benjamin Graham
  • Mark Lightbown
  • John Neff
  • Julian Robertson
  • Jim Rogers
  • George Soros
  • Philip Carret
  • Michael Steinhardt
  • Ralph Wanger
  • Robert Wilson
  • Peter Lynch

As you can see, its a great mix of different personalities. Where Benjamin Graham focused nearly completely on fundamental analysis of a stock and held for the long term, Michael Steinhardt was much more of a speculator looking to make profits off short term moves in a stock, bond, or currency.

Reading books like these excite me about the financial markets. Seventeen different investors were profiled, seventeen different investment strategies were described, and all seventeen of them have been very successful over the long run in the financial markets.

The paperback version is available on Amazon for less than $12.

Link to the book on Amazon