Friday, April 15, 2016

Tools Mentioned at MicroConf 2016

MicroConfers love tools: tools to make money, to automate business processes, to make life better, to build businesses around. I'm sure that many businesses are only successful because of the boost in efficiency they get from the right tools. These are the tools that I heard mentioned at MicroConf:
  • Zencastr - web-based podcast recording
  • Zoom - video conferencing, screen sharing, etc.
  • Speaky - an app for reading web articles to you
  • Personal Capital - a more investment-oriented Mint competitor
  • Zapier - an web automation tool and competitor to ifttt
  • Hire Otto - another web automation tool, this one aimed at businesses
  • Pluralsight - a place to get royalties from technical tutorials
  • Ulysses - a tool for writing
  • Scrivener - a tool for writing
  • Remarq - creates well-designed documents from markdown
  • Trello - a tool for project and process management
  • - Steli Efti's Sales tool / CRM
  • Pipedrive - a Sales CRM
  • - automated email
  • - Mike Taber's new automated email tool
  • MastermindJam - a Mastermind matching service (if you have a business you need a mastermind group)
Self-promo: the app I'm working on, Passages. :)

Thursday, April 14, 2016

How to Build Wealth Dinner at MicroConf 2016

Update: "Abe" contacted me to clarify my notes and with some new information about how his financial advisor is paid. I also got some feedback that my commentary on the financial advisor's fee was confusing. I improved the wording (I hope). Update 2: I edited my commentary on the fees to appear under "Bob" for clarity now that we know "Abe" pays a flat fee. Thanks "Abe"!

Do you have a financial plan? Does it go beyond owning your own business? Entrepreneurship and wealth building are two different activities, even if two seem linked. You could build a successful company without ever becoming wealthy.

These notes are from an attendee-organized dinner at MicroConf. Although most of us would call ourselves entrepreneurs, most of these attendees recognize that there is more to wealth than making money with software.

We began our meal by going around the table and introducing ourselves and what each of us hoped to get from the dinner. We had quite the spectrum of wealthiness. Three of us were financially independent and no longer needed to work for income. Some of us were doing fairly well. Some of us have not built much wealth, or had lots of debt. Some of us had made great financial wealth and then lost it all investing it into their failing business.

The three wealthy folks among us had systems for building and maintaining that wealth. A few of the rest of us had systems as well. There were a few followers of Mr. Money Mustache in the group. Quite a few of the group seemed interested in starting a system, but it wasn't clear what they were currently doing.

After our introductions, the organizer asked the three financially independent folks to share their financial insights with us. Not surprisingly, we pelted them with questions. This took the remainder of the time allotted to dinner.

Lets call the first speaker "Abe." Abe had built wealth through his business and used a financial advisor who managed the bulk of his assets. The speaker didn't share specific number, but characterized himself as a member of the "two comma club" in terms of liquid assets. That means more than 1 million USD, but less than 1 billion USD.

Abe considered himself financially conservative and cautious about who managed his money. He picked his advisor based on a personal recommendation. He trusts the advisor also because his advisor and he have a very similar shared philosophy around investment.

Abe meets with his advisor once a quarter, although it sounded like he was in regular contact. He even said that he has given trade instructions over the phone, which is surprising to me. It seems contradictory to have a financial planner manage your investments only to override their decisions.* I wish I had the time to get a clarification. Update: "Abe" clarifies that he has only done this twice in the past five years to take advantage of specific events.

His advisor was affiliated with Ameriprise and he had all most of his assets deposited with them. He was charged for his initial consultation with his advisor (about $1,000) and is charged an annual fee based on a percentage of the assets under management. Update: Abe looked into it. He mis-remembered. His advisor charges a flat fee.

Abe did not know the fee, but was quite happy with the value he got for the fees he pays. He claimed that his account was up by 4% during the down market that started in the middle of 2015.

One interesting thing Abe noted: he uses Google Finance to track his portfolio performance. Why? It sounds like Ameriprise doesn't do a good job of it.

My Thoughts: Update: Abe's fee is flat after all (see above). I've moved my thoughts about percentage-based advisor fee's to Bob's commentary below.

Abe's use of a flat-fee financial advisor makes a lot of sense to me. He could do all the work of managing a portfolio himself, like I do. That would save him a couple thousand dollars a year. But if you have retired with a big nest egg, does that use of your time align with your priorities?

Also, Abe may not enjoy managing a portfolio. I enjoy herding ETFs in my brokerage account. But I don't enjoy taxes; I pay an accountant to handle them for me. When the economics make sense, why not let someone else handle the things that cause you stress or distract from your goals?

I worry that Abe isn't calculating his portfolio performance correctly if he is using Google Finance to do it. Maybe he is. But maybe he is forgetting his fees and any tax implications if his advisor is actively trading. Since Abe is using his account for income, this is less of a concern: the value of his account and the income checks will make it obvious when something goes wrong. If you're aiming for growth, tracking performance and fees becomes more important: over a long enough time period tiny losses really add up.

As for his 4% gain in the down market, I wish I could have gotten more details. It is easy to cherry-pick dates, or make other errors that imply a more amazing portfolio than the reality. I did well coming out of that market simply by increasing the amount I invested each month as the market dropped. If I had looked at the same situation at the bottom of that market, I would have shown large losses.

We'll call the second speaker Bob. Like Abe, he also pays a financial advisor to manage his nest egg. Unlike Abe, his advisor is compensated with annual percentage fee against his assets under management. He lives off the income. Except in how he pays has financial advisor, his methods align with Abe.

To that he adds that we should all invest in ourselves, saying "You are your best asset." I take that to mean that we should invest in our education, our mental and physical health, and our aspirations.

My Thoughts: Abe and Bob both use advisors. It makes me think: these two are delegating. In business they probably used accountants, book keepers, and attorneys to make their business run smoother and free up their time for higher priorities. In Bob's case the compensation of his advisor isn't like the professionals he might have used in his business; those professionals aren't paid based on the book value of a client company.

My biggest concern about Bob's setup is the percentage-based fee. Bob didn't mention what the percentage was, but 1% seems typical. Years ago, when I was first learning about investment, 1% didn't seem like much. In fact, it seemed good: yay, the advisors fee is aligned with my success!

I was naive. If you're trying to grow your net worth, the percentage-based fee can add up: that fee will compound along with your net worth. Remember: compounding is the magic of investing. That's great for the advisor: their fee grows. Meanwhile, you're missing a chunk of your magic. 

Bob's advisor is charging a percentage of assets under management. Even if there are losses or no gains, the advisor gets a percentage for that year. How is that aligned? Using my imagination: an aligned incentive might be paying 1% of your investment gains. No gains would mean no fees in that case. Or just charge me for the advisor's time -- it works for Abe's advisor, it works for my accountant!

What additional do you get for the growing fee? Nothing. The math for balancing a portfolio is the same if you have $1,000,000 or if you have $1,000 to invest. At a million dollars, you might qualify for some new kinds of assets (e.g. expensive hedge funds), but so what?

Well, what about trading fees? Those fees go down relative to the size of the portfolio: you can trade for less than $10 no matter how many shares you trade.

Worse, if you're still working, you're still contributing to your net worth. If you deposit it with your advisor, they get to take 1% of it that year. Your advisor gets to take 1% of all the salary you earn and save each year!

Presumably some of the assets your advisor buys will also have annual percentage-based fees: all mutual funds and ETFs do (the best are measured in hundredths of a percent). Hedge funds are known for huge fees. In that case, the advisor needs to be able to provide significant benefits over a self-managed set of investments. And it can't just be convenience: Wealthfront is more convenient and has a 0.25% annual fee (for funds beyond $10,000).

All of this is to say: paying a percentage of your net worth to an advisor makes no sense to me. Worse, I consider asking folks to pay an annual percentage of their managed assets bad financial advice. 

One thing: If you're using your nest egg to generate income, a percentage if assets under management fee might not be as big of a deal. In that situation your net worth might be consistent, and you'd pay around the same fee each year. 

But if you're trying to grow your net worth, a 1% or greater annual fee works against that goal.

Both Bob and Abe are using their managed assets for income, not growth. How did they grow wealth? They built a valuable company. Entrepreneurs need to keep the distinction in mind and pick a wealth-building strategy that fits their stage in that process, their timeline, and their wealth goals.

The final speaker was John Sonmez, and unlike the others, he gave explicit permission to share his identity. John spoke passionately about his wealth building system and shared tons of details. I was pounding notes into Evernote at maximum speed. Apologies if some of the details aren't clear or if I get some details wrong. You can find some of this same information on John's blog.

John's story starts when he was 19. He got his first tech job and was making around $170,000. Unlike how I imagine most 19-year-olds, he felt grateful. He knew he was making really good money, and he wanted to make the most of it.

John did some simple math based on his tax rate and minimal expenses. He figured he could save, and with typical investing returns have a million dollars in ten years. Ten years sounded like way too long to buy his freedom.

John started researching different investment strategies. To him, everything he read, all his simulations pointed towards buying residential rental properties. Real estate. He started buying properties at the rate of one per year.

Why real estate? Leverage: you can buy a property with a loan for 80% of the cost of the property. It only ties up 1/5 of the cost of the asset -- and if things work out properly, the rental income pays off the loan. When trading stocks, the most margin you can have is 50% - you have to put down 1/2 the cost of the asset. And with stocks, you can run into problems if the value of that stock drops too much.

Real estate can also have tax advantages: you can depreciate the property over a long period of time. Stock doesn't work that way. You can also deduct interest and all fees.

Finally, John says that Real Estate benefits from inflation.

John offers this real estate advice:
  • Don't speculate. Don't buy in "hot" markets, or markets that are cyclical.
  • Invest in the central areas of a city
  • Put 30% down on your first property to reduce the leverage
  • Put at least 20% down when you buy to avoid PPI, etc.
  • Pad your rental income estimates: assume 10% for property management, 10% maintenance, 10% for the unit being unoccupied
  • Look for a rent to price ratio of 1 or greater: (monthly rent) / (price / 1000) [note: this sounds like a simplified Capitalization Rate]
  • Put each property into it's own LLC
  • Before buying a property, ask property managers if they would service it (it's a bad sign if they don't service a particular neighborhood)
  • Use the crankiest real estate inspector you can find. How do you find a cranky inspector? Look for someone with lots of negative reviews from realtors. 
  • Have umbrella insurance
  • Don't speculate on the value of the property increasing, don't sell; the goal is income
  • Use multi-family units to reduce the number of transactions and simplify finding renters. He likes four-plexes.
  • The only Real Estate investing book he likes is the The Millionaire Real Estate Investor by Gary Keller
How has this worked for John? He owns $3 million in real estate. $2.2 million is paid off. He currently makes $10,000 - $12,000 in passive real estate income monthly. He had no issues in the 2008 real estate crisis.

One of the attendees asked John: what about the Tesla/Google/Apple/Uber autonomous cars? Won't that hurt your strategy? Won't real estate values in city centers go down when commuting isn't such a big deal? John's reply: he thinks that's a long way off.

I'd also point out that there are many parts of the world where there already is "autonomous" transportation. The San Francisco Bay Area already has BART and Caltrain and Uber. Depending on your employer, there are also Google, Yahoo, etc buses. Do people still want to live in city centers there? Housing prices says yes.

Another attendee asked: what about all the fees and expenses? John pointed out that the goal is to keep the properties for rental income, not sell the properties. He buys the properties so that the rental income, with a conservative margin, will pay for the fees in addition to bringing him income.

My Thoughts: John's speech pumped me up. At the same time: real estate really frightens me. My parents struggled to sell their house during the real estate crisis. I lived a thousand miles away and it still left a scar.

As a home owner, I also know that homes have a lot of hidden costs: property taxes, maintenance, insurance, inspections, realtor commissions, etc. These costs can add up, even if you can deduct them from your taxes. Some, like paying a realtor, only happen once per property if you never sell. 

I feel conflicted. On one hand: wow, John has really accomplished something. On the other: wow, it would take me a lot of time, research, and perhaps soul-searching for me to feel comfortable to buy a rental property. Would it be worth that time? Or would it be more valuable for me to build my own software company and invest my wealth into index funds?

My other concern with a 100% real estate approach (and John didn't say if he was 100% real estate) is the liquidity issue. If you need a huge chunk of money for, say, cancer treatments for a loved one, how would you get it? Real estate can take years to sell in the wrong environment -- or maybe you can't sell it at all if you live somewhere like Detroit. On top of that, the commissions are large. Index Funds you can sell in seconds on any trading day for less than $10 per fund.

However, real estate might be more liquid than a small business, which most of us are also investing in. In good markets, selling a house within 30 days is reasonable. For a small business, it could take six months even if you find a buyer quickly. 

One unifying thought for all of this: how you invest and what you invest in is a personal decision. For some people, giving control to an advisor would be impossible. Others want to enjoy life and don't care about the costs or the details as long as they get enough income to maintain their lifestyle worry-free. Real estate might be a lot of fun for some folks. For others, it might feel too risky or unconventional.

Start with Bob's advice: invest in yourself. Research what is best for you. Definitely don't blindly rely on Abe, Bob, or John's advice for riches. Also remember that there are financial advisors who charge flat fees or by the hour. You can also have a discussion with your accountant. I often ask mine about new investment ideas I hear. He has seen enough clients try things that he knows what works, what fails, and why. 

Want more? Read the Unlucky Engineer's Guide to Wealth.

*I'm guilty of similar inconsistencies. My system is built around index funds -- not individual stocks. I still break the rules and occasionally buy small amounts of individual companies I like. It's fun.

†Moving Average Inc. is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Buying items through this link helps sustain my outrageous reading habit and is much appreciated!

Monday, April 11, 2016

Recommended Books and Educational Resources from MicroConf 2016

MicroConfers read a lot. This is one of the reasons I've created Passages: to help people maximize their return on their reading investment. Here are some of the books I heard mentioned, or that I mentioned to other attendees.

Ask: The Counterintuitive Online Formula to Discover Exactly What Your Customers Want to Buy...Create a Mass of Raving Fans...and Take Any Business to the Next Level

Will It Fly? How to Test Your Next Business Idea So You Don't Waste Your Time and Money

Secrets of Power Negotiating, 15th Anniversary Edition: Inside Secrets from a Master Negotiator I suggested this book to a few attendees who run agencies. I found this book to be a really fun read. I have not read it yet, but I've heard Getting to Yes: Negotiating Agreement Without Giving In is quite good as well.

The Charisma Myth: How Anyone Can Master the Art and Science of Personal Magnetism Another fascinating book that I suggested to my new MicroConf friends.

Gail Goodman, Constant Contact. How to negotiate the Long, Slow, SaaS Ramp of Death A Business of Software talk that every SaaS business owner needs to hear.

Zen and the Art of Motorcycle Maintenance: An Inquiry Into Values

Become a Technical Marketer: A Guide to Working Faster, Accelerating Growth, Automating Marketing Tasks, and More

The Personal MBA: Master the Art of Business

The Mom Test: How to talk to customers & learn if your business is a good idea when everyone is lying to you

Kopywriting Kourse

The Brain Audit: Why Customers Buy (and Why They Don't)

The Call to Action

Finally, Jason Swett shared this list of the top books of 2015 with me.

*Moving Average Inc. is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Buying items through this link helps sustain my outrageous reading habit and is much appreciated!

Sunday, April 10, 2016

Trends at MicroConf 2016

You can learn a lot by chatting with folks at MicroConf. Here are a few patterns I noticed in the talks and talking with attendees. Perhaps you'll find something to help your business take off!

Shopify. I talked to a few folks doing consulting work or building plugins (or Apps, as Shopify calls them) for Shopify. At least one person said that the market for Shopify products and services was still small. It's probably true, but the amount of interest makes you wonder how fast the Shopify ecosystem will grow in the next year or two.

Email marketing tools. Drip. Bluetick. ConvertKit. Many folks are building and using these tools. You probably should be too.

Pre-paid consulting. Some agencies and consultants are not accepting net-90 payment terms. Depending on the client or their own inclinations, they are charging in advanced, or requiring payment at pre-defined milestones for the project to continue. Not offering your clients credit seems like a great way to remove some risk from a consultancy.

Payroll tools. Some of the MicroConf attendees own products that help customers run payroll. At least one of them used Dwolla to transfer the funds. Paying employees and contractors is a pain even for one employee. Big payroll providers are expensive and difficult. Perhaps this is a growing market.

Customer personas. Many MicroConfers build customer personas to have a better idea of the different type of people they are marketing to, building products for, and are trying to retain. Done correctly, this helps the businesses make better decisions in all areas. Speaker Patrick Campbell claimed that 98% of successful companies had quantified buyer personas. Get on it! 

Customer on-boarding. Speakers Ben Orenstein, Des Traynor, and Lars Lofgren all praised a robust on-boarding process for new customers. Des wisely reminded us that the on-boarding process is the only part of your product that all users are guaranteed to do. Ben spent hours watching new users trying to use his product. Ben polished his on-boarding until each user slid into the app like a clumsy penguin into the Ross Sea. Lars discussed on-boarding in the context of customer churn, one of the key metrics in growing a SAAS business.

Sales demos were a popular topic as well. Speaker Anna Jacobsen revealed a big ah-ha moment as she shared what she learned from a year of product demos at Drip. The process she developed involves live, one-on-one demos with each potential customer. As she guides them through Drip, she customizes a new account tailored to the customer's workflow. At the end of the demo, she offers to let them use it as a trial account in exchange for a credit card number. Bam: her demo-to-trial hack turns a sales demo into on-boarding.

Pricing research, experimentation, and Value based pricing. I heard lots of folks talking about pricing, especially after the pricing insights from Claire Lew, Lars Lofgren, Patrick Campbell, Amir Khella, and Ben Orenstein. Claire's Know Your Company charges clients $100 per employee. Unusually for a web-based app, the charge happens just once. It works because it aligns Know Your Company's revenue to it's results. As clients grow, they add employees and pay to do so.

Lars reinforced the concept of picking the right pricing metrics: ones that would expand with customer success, but not invite cheating. Patrick went into great detail on how to price, and encouraged us all to never stop evaluating your pricing. Ben advocated for the ability to change pricing without pushing any new code. Amir explained his pricing formula based on how much money he estimated his product will save customers.

Talking to customers. Many MicroConfers believe that their customers know what problems they have, and what products they would pay for. The best of them use customer communications to improve their products, customer engagement, and to find new opportunities for making revenue. Which brings us to...

Expansion revenue. Sometimes it is better to make more money from existing customers rather than simply trying to acquire new customers. Increase that Lifetime Value. Lower your LTV/CAC ratio.

Customer funding. Some of the businesses at MicroConf paid for product development costs by charging customers before the product existed. In exchange for the early vote of confidence, these customers get first dibs on the product. Getting money before a product exists shows that you've discovered a problem that people will pay to solve.

Building free tools to acquire customers. Speakers Amir Khella and Christopher Gimmer both built free tools into real online businesses. Patrick McKenzie tweeted the benefits of this strategy

Shipping real MVPs. Des Traynor suggests that a good MVP includes only the features that all your customers would use all the time. Building an MVP means shipping painfully early, which was another theme.

Sales calls / demos. If you're wondering how folks are getting customers without spending jillions on AdWords, this is one way. I bet fear of person-to-person interaction generates lots of ad revenue! See also: talking to customers.

Cold emailing. B-to-B businesses do this all the time, and it's not spam (done properly, at least). Another way to acquire customers without huge costs. 

Podcasting. Speaker Kai Davis talked about podcast tours. That's not touring podcast studios (they probably look pretty boring). This means campaigning to become a guest on someone else's podcast. Rinse and repeat. His incredible fact: 17% of Americans listened to a podcast in the past month. It looks like podcasting is growing fast. Several of the attendees had podcasts.

Portland. There were many people from Portland, and even a few attendees who are moving there. Although it is smaller in both area and population than Austin, I can tell that ATX is jealous. Does Portlandia count as content marketing?

Tesla. Sure, Elon Musk is a great entrepreneur. Whatever. What MicroConfers seem to really care about is how dang cool the Model S. Some folks were considering speculating on the Model 3, which was just announced. Considering the demand for the Model 3, why not pre-order a loaded one and sell it for a big markup?

What do you think? What did I miss?