Reading all of these articles about an investment bubble in the Internet industry has me wondering: How many scheming entrepreneurs are out there, thinking, “I’m gonna get me some of that bubble action with my Web 2.0-styled, Facebook-integrated, viral, real-time and location-based Pets.com reboot and iPad app”?
The Annual Filing Division & Business Filings Division Scam
A few weeks ago, I received two sketchy letters in the mail, one from the “Annual Filing Division” and one from the “Business Filings Division“. Both look pretty official on a cursory glance, complete with a supposed California state seal at the top left corner.
Looking at these two letters, my bullshit meter beeped. I had never heard of these divisions before, nor their fees. I monitor our business expenses closely and am aware of all the business-related fees we need to pay. Nothing I had read mentioned the fees these forms demanded.
The Annual Filing Division asked for a $195.00 payment. The Business Filings Division asked for a $239.00 payment. Both asked for redundant information about our LLC as well, including the company address and member information – information that the state should have already.
Each had a Sacramento phone number listed on their forms. The Annual Filing Division had 916-993-3195, the Business Filings Division had 916-903-5355. I called both to get more information. Both gave me recorded messages. When I hit 0 for an operator, the calls dropped. This happened each time I tried. Give it a try too and see what you get.
My next stop was a web search. And lo and behold, my suspicions were confirmed. Lots of others have written about these scams already.
The California Secretary of State’s office has even issued an official consumer alert about these fraudulent letters.
If you receive either of these two letters, shred them immediately. They are scams.
Whew. Good thing I’m cost-conscious and examine our business fees closely. I wonder how many business owners wrote checks to these guys. Hopefully they can get their money back. I hope the authorities shut down these scam artists too.
Buy Low, Sell High
You know what I love about this recession? The low prices. I’m seeing sales and discounts everywhere. It’s much easier to haggle and get a good bargain nowadays. Even a lot of stocks are arguably undervalued right now.
One stock I’ve been tracking is Berkshire Hathaway’s Class B shares (BRK-B). As of this post, it’s floating around $2,830.50/share. I like Buffett’s school of thought. His Class A shares are above the amount I’m willing to invest right now, but Class B is totally doable. With his track record, BRK-B is sure to swing back up again. Same for many other great stocks. (Buy low, sell high!)
Of course, this presupposes that you have the means to be buying right now. A lot of people don’t. If are one of the lucky few who can, take a look at the prices you’re seeing on Craigslist and eBay (EBAY). Some people are unloading lots of high-value products at low prices. An enterprising individual with a discerning eye and a bit of capital could easily scoop up some of these items and sell them at a higher price when the market rebounds. Know what I’m sayin? (Buy low, sell high!)
This recession also means low prices from vendors. Small business owners should definitely advantage of this. Negotiate with your vendors on lower prices, favorable payment plans, and/or lower interest rates. Many businesses are open to negotiation right now. All you have to do is ask. (Buy low, sell high!)
Isn’t this a great time to be an entrepreneur? Ah yes, it sure is.
Photo by: timparkinson
4 Great Businesses Coming from Recessions
Some of the world’s greatest companies were born during economic recessions. Bet you didn’t know that.
An article from Entrepreneur Magazine highlights some of the most innovative ideas to arise from economic slumps. From that list, I noticed four great companies:
The Great Depression (1930 – 1939)
1939 – Hewlett-Packard (HP)
Eisenhower Recession (1954 – 1961)
1955 – McDonald’s (MCD)
Vietnam, Stagflation, Oil Crisis (1973 – 1975)
1975 – Microsoft (MSFT)
1980’s Recession (1981 – 1983)
1981 – MTV (VIA)
The article also cites some pretty important ideas, such as scotch tape (1930), fluorescent light bulbs (1938), disposable diapers (1961), Post-It Notes (1974), Prozac (1987), the World Wide Web (1991), and the iPod (2001), all of which were born during recessions.
So you see, this isn’t a time for gloom and doom. It is a time to create and elate! After all, recession is the mother of invention.
Financial Security, Comfort and Wealth
Which do you want? Financial security, financial comfort, or financial wealth?
Everyone says, “I want to make lots of money.” But what does that really mean?
The distinction between different levels of financial status is important because it helps to conceptualize what you really need. Money is a means to an end. You don’t want a lot of money, per se. You want what it can afford you. So what does that mean? Let me explain.
There are actually four levels of financial status:
- Financial Insecurity
- This is where most people operate. It means living paycheck-to-paycheck. If you were to lose your job tomorrow, you would be in serious trouble. Obviously, it is not a good place to be. Getting out of it requires a lot of discipline and a bit of luck.
- Financial Security
- Some people operate here. This means having enough of a financial cushion that if you lost your job tomorrow, you would be okay for up to six months. In other words, your savings account should be able to cover up to six months worth of living expenses (rent, food, insurance, etc). This should be enough time for the average person to find employment elsewhere.
- Financial Comfort
- Few people are at this level. This means having enough money that you don’t mind losing your job because you have enough saved up for years. You can afford the occasional item of luxury and comfort. While you still have a budget, you aren’t scrambling to make ends meet. You don’t have a lot of anxiety about money. In short, you are comfortable about your financial situation.
- Financial Wealth
- Very few people are at this level. This means having enough money to afford the luxuries all the time. You can afford to be a philanthropist who donates hundreds of thousands of dollars. You can afford to pursue your hobbies and interests at will. Your life is one of leisure. Ironically, many of those who become financially wealthy overnight don’t know how to hold on to their money and lose it just as quickly.
Me, I am aiming for financial comfort. I don’t need financial wealth – though, sure, if I achieved it, I sure ain’t gonna cry.
To reach financial comfort, I know I must live my life a certain way. For one, I can’t be an employee all my life. Owning a business is one great way to get there and that’s the path I’ve chosen. It also means practicing financial discipline, like keeping a budget, saving money, being smart about investments, taking calculated risks, learning how to be financially savvy, etc.
It is possible to achieve financial security and financial comfort. Very possible. Anyone can do it, even you.
So which financial level do you want?
The Automatic Millionaire Technique
– A. Einstein
Now’s a good time to get rich by doing nothing, wouldn’t you say? Well, perhaps “doing nothing” is too strong a phrase. “With minimal effort” is probably more accurate.
David Bach, author of The Automatic Millionaire, has a terribly easy way of doing this. When you’ll hear it, you’ll either slap your head and go, “Well, duh, why didn’t I think of that?” or think it’s so obvious that everyone must be doing it already. Sadly, not many people really do.
His suggestion encompasses the “pay yourself first” principle, the “out of sight, out of mind” phenomenon, the power of automation and the beauty of compound interest. In short, he says:
Set up an automatic monthly payment to yourself into an account you won’t touch until retirement.
Here’s an example. John is a blue collar guy with a good job and a meager savings account. He faithfully deposits his monthly paycheck into it, yet after bills and groceries, never seems to have saved up a whole lotta cash. After reading The Automatic Millionaire, he decides to give Bach’s technique a try.
- First, he sets up another savings account that he will use as his retirement account. He makes a pact to himself that he will not dip into this account until retirement, unless something catastrophic happens.
- Next, he talks to his bank and sets up an automatic monthly balance transfer. The amount doesn’t have to be too high. It should be an amount that he is comfortable with, yet perhaps stretches him a bit. John decides to make his automatic transfer $50 a month.
- Then he goes about the rest of his life, living off the money from his savings account like he always has. Bills and groceries come out of that account, though he finds that he has to stop splurging on junk food so much. After a while, he adjusts to the money he has and forgets about the $50/month.
- In ten years, he takes a peek at that retirement account. It’s been earning a 2% monthly interest rate. When he checks the balance, he’s thrilled to see that his $50/month automatic savings is now $24,901.17! And that’s from just $6,000 worth of automatic transfers, which he adjusted to and didn’t miss as he dealt with his bills and groceries. (Plus, he lost some weight by having to cut out that junk food.)
That’s the power of automation and compound interest. It’s not quite a million dollars, but it’s still a good chunk of savings. The more you can spare a month, the better, of course.
The trick to this technique is that your monthly transfer doesn’t strain you terribly. You still need to cover your core expenses. It should be low enough to make you comfortable, yet high enough to store away for your retirement. If you do it right, you’ll forget about this automatic transfer and adjust to living without that extra cash, which is totally the point.
It’s very doable. You may be doing something similar already. If not, give it some consideration, especially now, where cash is king again and other investment vehicles (such as the stock market) whittle away. Good luck!
Why to Start a Startup in a Recession
This is one of those must-read essays for entrepreneurs. Paul Graham recently wrote a piece called “Why to Start a Startup in a Bad Economy” that I found pretty damn inspiring. His opening lines:
The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies.
When Microsoft and Apple were founded.
If you’re feeling any doubt about these economic times, that opening ought to shine a ray of hope on you. A lot of companies have started in tough economic times.
His entry has sparked a lot of discussion too:
- From Don Dodge: great talent is more available, raising money is still possible (though a bit harder), and supplies are cheap.
- From Fabrice Grinda: there will be fewer competitors right now, decrease your burn rate, and be patient.
- From Robert Scoble: have a business model that helps customers save money, diversify your customer base, look for new distribution channels, etc.
All are good ideas and worth considering.
I’ve also got more tips on how your small business can save money during a recession. It’s totally possible, it just requires more operational & financial discipline. And take heart – you could be the next Microsoft (MSFT) or Apple (AAPL)!
How Small Businesses Can Save Money in a Recession
Speaking of saving & making money in a recession, entrepreneurs can do it too. It requires some financial discipline, but it’s certainly possible. Countless businesses and smart entrepreneurs have done it. You can too.
Prices fall in recessions. That means it’s a great time to go shopping for cheap supplies, raw materials, and services. Outsourcing sites like Elance and oDesk can help you find lots of affordable contractors. A year ago, I saw software developers on Elance going for $40/hr. Now, the cheapest ones are $12/hr. The downside is that quality can vary significantly. So caveat emptor.
Renegotiate Your Vendor Contracts
This is a good time to renegotiate all of your vendor contracts for lower prices. Chances are, many of them will be willing and able to lower their prices to keep you as a customer. Try to lock in these prices with long-term contracts too (assuming you’ve got enough in the bank), so you can benefit from these lowered prices when the economy improves.
Hire the Best
It’s layoff season. That means there will be a lot of good talent on the streets. Look for them and woo them. Do everything you can to keep those smart individuals around, so that they’ll continue being there after the recession. It’s a great time to find great talent.
Learn Financial Discipline
Tough times call for strict discipline. This is what separates the script kiddies from true programmers, the boys from the men, the girls from the women. Learn how to bootstrap, trim the fat, and make smart choices. Ask yourself how each decision will benefit your business. Don’t just focus on the short-term either, tempting as that will be. The financial discipline you’ll learn now will benefit you when the economy rebounds.
Impatient for Profits, Patient for Growth
Though this is very counter-intuitive to many Web 2.0 companies, the book The Innovator’s Solution advises entrepreneurs to be impatient for profits and patient for growth. This, in my humble opinion, is great advice. If you don’t have a real business model, you don’t have a real business. At best, you have an “Acquire Me!” business, which is a horrible model, especially in a recession.
Negotiate Your Credit Card Rates
This tip works for both personal and business credit cards. Lots of credit card companies will give you a lower interest rate if you just ask. So ask! Every little bit of savings can help.
Look Into Recession-Proof Businesses
Some industries aren’t as affected by recessions as others, such as health care, funeral parlor, debt collection, and repair services. Repair services are good because people want to maintain what they have instead of buying something new. If your existing business can be extended into any of these areas, give it some consideration.
Be creative about your marketing, your products, and your services. Think outside the box for new customer solutions. As you increase your financial discpline, you should also increase your creative solutions. Perhaps it’s engaging in a catchy PR campaign or creating a viral marketing piece. Or a streamlined development process or distribution channel.
Treat Your Customers Very Well
If you aren’t getting any new customers, treat your existing customers really well. (Honestly, you should be doing this already.) Any practices you start here could be the start of new customer service practices later. Customer loyalty will come in very handy at a time like this.
Prioritize, Prioritize, Prioritize
Finally, be strict about your true priorities. What is absolutely critical to you? Every decision you make has trade-offs. If you really want those product features or direct mailers, think long and hard about the trade-offs you’ll be making – more design & development time in creating the feature or more design & supply cost in creating the direct mailers. Make a strict priority list and stick to it.
Another benefit of a recession is seeing weaker competitors drop out of the race. Businesses who don’t learn financial discipline won’t survive. So if you have a spend-happy competitor who’s been creeping into your market, don’t worry – they’ll soon be gone.
Do you have any other money-saving tips for entrepreneurs?