My Ramblings Articles
There are many questions you have to answer when you’re looking to start a business. One of the first questions that come up is – should you start big or small? Before you answer, let me clarify. Big is starting a business that requires a large upfront cost. You may need to take out a loan, use a majority of your savings, borrow money from family or friends, cash out your 401K plan, max out your credit cards, or take a loan against your house, to name a few things. Starting small simply means not incurring a large upfront cost. You are able to fund your business yourself, using a small part of your savings. There is no really no right or wrong way to start your business because it depends on the type of business, your tolerance for risk, your net worth, your age, and other factors.
Donald Trump likes to brag about how he thinks big. But the problem with thinking big is that it comes with big risk. Of course, there are advantages and disadvantages either way you go. Starting a business is risky. No matter how carefully you plan, you can never predict whether it will be profitable or not, or if it will be profitable “enough”. If you forecasted the company earning $10,000 per month but it only ends up earning $1,000 per month, you may deem the business a failure.
Your net worth also dictates your risk when starting a business. Someone with 20 million in the bank can easily pour 5 million dollars into a company. If he loses that money, it may hurt but not as much as it would for someone with 10 thousand dollars in the bank trying to start a company that requires 100,000 dollars. If she loses the 100,000 she will more than likely end up filing bankruptcy. Your age also plays a role. If you are a single 25 year old starting a business, you can tolerate more risk than a 50 year old with a family, mortgage, and car notes. The 50 year old has much more to lose which may include his house and/or savings. If the 25 year old fails, he has 40 years to recover vs. the 50 year old who has 15 years to recover (assuming retirement at 65 years old).
If you are considering starting a business, if possible, it’s a good idea to start small to ensure success, and then scale the business. I recently read about a gentleman who owned a very successful restaurant. He first started selling food on the street via a food cart. It did well, so he eventually rented a very small store front. He continued to do well and then moved into a much larger restaurant. He minimized his risk by first testing the market on a small scale. When he decided to scale his business he already had customers he could rely on. His risk was extremely low when he first started, yet he made it big.
Here we go again. I have posted previous articles about I have to write letters to companies that try to screw me (see Related Articles links below). Below is another example of an issue I had which caused me to write a letter to get the problem resolved.
I had an issue with a company (that will remain nameless) that promised to refund me $1,462.94 for poor service. I was happy to get the refund because on several occasions I contacted them to inform them of the problem. They initially stated their was no problem. I then sent data showing the problem and requested a refund. A couple days later they responded saying they found the problem as a result of my feedback and would refund me $1,462.94. I was happy with that and agreed to the offer.
However, a few days later when I contacted them and asked when will the refund be sent, the rep. told me it was changed to $727.80 by management. I was furious! I then sat down and wrote the letter below. After emailing the letter, the rep. responded within ½ hour that the $1,462.94 will be paid. Management had changed their mind again. I wonder why!
XXXX XXXXX XXX
XXXXXXXX, XX XXXX
February 23, 2010
Dear XXXXXX XXXXXXXX,
Please forward this letter to the person responsible for not refunding me the $1,462.94 that was agreed upon between XXXXXXX and me per your email sent to me on February 19, 2010 which stated: “Hi Patrick, I was able to get back a number from management. After looking at your documents, they are willing to refund a total of $1,462.94. Please reply to this email to confirm that amount. Thanks”. I agreed to the amount via a reply email.
I think it’s very poor customer service to inform me that a problem was found as a result of feedback from me and then to inform me days later that I will only be refunded ½ my money. This is totally unacceptable!
I have wasted a lot of time, energy and money trying to identify and fix the problem. I made several phone calls, sent several emails with data showing why I thought many of the XXXXXX I purchased were XXXXXX. At first I was told there was no problem and was given suggestions on how to XXXXXXX XXXX XXXXX which didn’t work and resulted in me spending more money for XXXXXX XXXXXX.
I was finally delighted that the problem was found as a result of my feedback, the problem would be fixed and I would be refunded $1,462.94 for XXXXXXX XXXXXX I paid for.
I am requesting the full refund of the $1,462.94 that was agreed upon. I do plan to use XXXXXXX (if things are fixed) and I’m certain I’ll spend thousands of dollars with XXXXXXXXX over the next several weeks/months/years.
If the promised refund isn’t given I will write your C.E.O. (XX. XXXX XXXXXX) and C.O.O. (Mr. XXXXXX X. XXXXXX) a letter of my dissatisfaction!
Last night 60 Minutes had a very interesting news segment about potentially powering your home with The Bloom Box (from Bloom Energy), eliminating the need to purchase electricity from your local power company.
The Bloom Box creates electricity by feeding oxygen into one side of a fuel cell while fuel is fed into the other side to provide a chemical reaction. The fuel source can be solar, natural gas, bio gas from landfill waste, etc.
The Bloom Box is currently being used by companies like Google, FedEx, Wal-Mart and eBay saving them money. The corporate sized units cost $700K to $800K, however, according to K.R. Sridhar, founder of Bloom Energy, 5 to 10 years from now home units could cost about $3,000.
Bloom Energy is to release more details this Wednesday. See the 60 Minutes Below. Very interesting stuff!
Update on February 24, 2010: See Bloom Energy Press Releases:
My previous update of my Lending Club Account Performance was back in September 30, 2009. How time flies by so quickly. I promised then to do periodic updates of my account performance.
Since then I’ve deposited an additional $20,000 in my account because Lending Club was paying a 1% bonus to deposit and invest the money by the end of December 2009. That’s another cool $200 in bonus I couldn’t resist.
Since I’ve invested in Lending Club, loan payments to date total $3,041.23 with zero late payments or loan defaults. That is very good news. I hope the trend continues.
I have only invested in A, B and C borrowers which are the lowest risk borrowers; however, the return is lower than the more risky borrowers (D, E, F, and G).
I currently have 353 outstanding notes (loans to 353 individuals) ranging from $25 to $250. As the money is paid back I’ve reinvested it to other borrowers.
Since I started funding notes in August 2009, I’ve earned $669.78 in interest, but with bonuses I’ve earned a total of $1,492.20. The net annualized return estimated is currently almost 11%. See screenshot below of account summary.
Update: Lending Club is offer $25 for free when you sign-up as an investor at no risk. You can use the $25 to try out P2P lending with no future obligation. There is nothing for you to deposit and you can lend the $25 immediately.
I’ve been watching a lot of “American Greed” on CNBC lately, and it reminds me of someone that I know personally. For privacy purposes, I’ll call him Bob.
When I first met him, I was very impressed with him. Bob lived in a sprawling mansion in a gated community with expensive cars parked outside his home.
This week I found out he’s currently in federal custody, looking at up to 30 years in prison with a $1 million fine, as a result of his white collar crimes. He has plead guilty to bank fraud and conspiracy to commit bank, mail, and wire fraud in connection with a scheme to fraudulently obtain millions of dollars of mortgage loans from lenders.
Bob is 4 years younger than me and when I first met him I thought to myself, “Wow, this guy is doing very well. I wonder what he does for a living.” I quickly learned from Bob that he was a real-estate developer who built million dollar custom homes and he also owned a real-estate investment company.
I was interested in learning more about Bob’s business and one day he explained the process to me. Basically, his real-estate investment company helped people find homes below market values, where he would help renovate (if needed) and help to put section 8 tenants in the home, all this for a very steep fee of up to $30,000. People flew from all over the country to have Bob hold their hands to invest with him. He would wine and dine them and when they visited his mansion, they were hooked!
Bob said if I was interested in investing with him to let him know. At the time I was laid-off, so I told Bob there was no way I would be able to get a loan because I was unemployed. He told me he could help me get a loan by stating I was a consultant employed by his company. That would have been totally illegal, but at the time I didn’t think about it. However, there was no way I would invest with Bob because I would never pay his hefty fees of up to $30,000. I would do the work myself.
What Bob failed to explain to me back then, which ultimately landed him in trouble, was that he helped his client falsify mortgage applications to get loans that they probably didn’t qualify for. He also paid kickbacks to appraisers so they appraised his client’s homes for much more than they were worth so his clients could pull equity out their investment properties. He was also in bed with a local corrupt bank which went belly-up to conduct much of these transactions. The CEO/Co-Founder of the bank recently pleaded guilty to fraud and is also looking at 30 years in prison and a $1 million fine.
Another problem that caused Bob to get a lot of attention was that he didn’t take care of his customers. Once he got their money he pretty much dropped catering to them. He didn’t return phone calls, and things fell apart when transactions were not handled the way they should have been. When the real-estate market started going south, even more investors started complaining.
In following Bob’s case there are a few things I’ve realized:
- Follow the law. This is the obvious. There are no shortcuts and eventually things will catch up with you.
- Offer excellent customer service (crook or no-crook) because with the Internet people can easily ruin your reputation and get the authorities to notice you. Before the Internet had blogs and forums, it would have been difficult for all the investors to find each other to discuss their common problems.
- There is limited privacy with the Internet. I suspect Bob may have to change his name if he ever decides to look for a job in the future when he gets out of prison. Google his name and all sorts of articles with his picture appear. The Internet can be deadly!
- Nothing goes up in a straight line. Just like the Internet Bubble, the real-estate market and the economy, things eventually go down. If the real-estate market and economy was still hot, Bob would have still been in business. His clients may have complained about his poor customer service, but they may have been happy with the value of their property increasing.
- When it Rome DON’T do what the Romans do. Back when everyone was making money in real-estate, everyone looked the other way. The banks, Wall Street, mortgage brokers, real-estate lawyers, borrowers and appraisers all looked the other way. They knew most of these loans were bad but they were still processed only to get paid. We all know what happened after!
Last week I had the opportunity to attend the Consumer Electronics Show (CES) 2010 in Las Vegas. The biggest technology touted at the convention was 3D HDTV. 3D has been around for years, however, with HD and new digital technology 3D videos are now easier to make to bring into the home.
Many companies demonstrated their 3D products and services. I must say the picture quality of 3D HDTV is absolutely remarkable; however, glasses are still required, which maybe a turnoff to consumers. I can’t imagine every time I want to watch TV I have to find the remote and 3D glasses. However, glasses may not be needed in the future. One company demonstrated a 3D TV that didn’t require glasses which blew me away. The picture quality of the non glasses 3D TV wasn’t as good as the ones that require glasses but it was interesting to see.
As with HD TV, in the near future I suspect there will be 3D HD channels as demonstrated by Direct TV at the conference. Only time shall tell if consumers will be interested in 3D TV. Check out the pictures below.
Kiplinger recently reported that if you make $35,000 per year you are in the top half of U.S. taxpayers (according to 2007 data).
If you make over $66,532, you earn more than 75% of all taxpayers. If you make over $113,018 you are in the top 10%. Interestingly, the top 1% which is an income over $410,096 pays 40% of total income taxes paid to the government.
Kiplinger also found that nearly 50 million Americans struggled to get enough to eat in 2008. Additionally, more than 40 million American are officially living in poverty.
In 2008, a single person under age 65 with an income of $11,201 or less or $1,000 per month is considered by the government to be in poverty. A family of four and six, the income is $21,834 and $28,769, respectively.
See chart below to see how you compare.