The Trend Towards Minimalism

Feels good to be vindicated, yet again, or perhaps my own behaviour is not so uncommon but merely representative of the prevailing attitude of my generation. After all, it’s “widely known” that Millennials value experiences over things.

As for retail, owners have to adapt or die. Innovative retail stores are experimenting with ways to blend a more experiential type of shopping with brands and goods. As the article recognizes:

“Shoppers are reaching a tipping point around American consumption,” it read. “Feelings of angst about acquiring too much ‘stuff’ is driving a shift toward purchasing experiences rather than things.”

Those of us who are involved in entrepreneurship recognize this. As the older generation dies out, Millennial preferences will increasingly drive profitable product lines. We see this in the traditional media, which initially resisted the move to digital (Napster was merely early) before eventually acquiescing (see: Hulu) to the tidal shift. Those that continue to resist (ESPN, Comcast) face declining revenues from cord cutters.

In general, being “light”, mobile, portable, flexible, and catering to the customer’s preferences for when, where, and how to consume something is the new name of the game. Amazon recognizes this. Old retail still tries to force someone to come into a brick and mortar store and be assailed by rude and unhelpful sales representatives. That’s not a winning approach.

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Follow Your Passions, After Your Career

The story of the Hong Kong banker who quit his job to work in humanitarian aid is truly inspiring and definitely relatable.

One question that Asian children (probably others as well, but I’m speaking from experience here) agonize over when growing up is whether to pursue something profitable (often at the behest of their parents), or something that they’re truly passionate about. It’s rare that these intersect, unless your passion is money. Many times, these kids get so immersed into their studies in school that they don’t even find their passion until much later in life. Then they are filled with regret and resentment.

My approach is to have the best of both worlds. Grind through school in your 20s and get out into a great career. Work overtime and make tons of money early. Guaranteed high income fields like banking and medicine are very suitable for this. The reason is that it’s easier to learn new things quickly when we’re still young. Also, money earned when young is more valuable because it has time to compound.

Do this when you’re young enough and you can emerge in your mid 30s with enough money to retire and live purely off your investments. Then it’s time to find and focus on your passion. I suggest at this point some combination of travel, volunteering, philanthropy, teaching/mentoring, and entrepreneurship. More details on this to come in my upcoming book on happiness.

Doing the opposite by finding your passion when young generally means you have a brief happy time in your adolescence, but at the cost of potential financial destitution in mid life. You also lose out on important things like compounded savings and moving up the career ladder. This can make you profoundly unhappy. One caveat remains. This option may be a good choice that maximizes happiness if you know you’ll die young.

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NYT Discovers What the Rest of Us Already Know

NYT publishes an article on the superstar effect, only this time applied to firms and not individuals. Let’s take a look.

For much of the last century it seemed that the slice of the total economic pie going to workers was — like the speed of light — constant. No matter what the economy’s makeup, labor could collectively depend on taking home roughly two-thirds of the country’s total output as compensation for its efforts. Workers’ unchanging share, the economist John Maynard Keynes declared in 1939, was “one of the most surprising, yet best-established, facts in the whole range of economic statistics.”

But in recent decades, that steady share — which includes everything from the chief executive’s bonuses and stock options to the parking-lot attendant’s minimum wage and tips — started to flutter. In the 2000s, it slipped significantly. Although the numbers have inched up in the last couple of years, labor’s portion has not risen above 59 percent since before the recession.

The decline has coincided with a slowdown in overall growth as well as a stark leap in inequality. “Labor is getting a shrinking slice of a pie that’s not growing very much,” David Autor, an economist at M.I.T., said. It is a development that is upending political establishments and economic policies in the United States and abroad.

Some economists argue that technological advancements are to blame as employers have replaced workers with machines. Others point to trade powered by cheap foreign labor, a view championed by President Trump that particularly resonated among voters. 

Alternate culprits include tax policies that treat investment income more favorably than wages; flagging skills and education that have rendered workers less productive or unsuited to an information- and service-based economy; or a weakening of labor unions that has chipped away at workers’ bargaining power and protections.

(…)

The article goes into superstar firms briefly.

The idea of superstars vacuuming up a majority of goodies is perhaps more obvious on the individual level. Because of technology like cable and satellite television and the internet, music luminaries like Beyoncé and Taylor Swift or sports phenoms like LeBron James or Cristiano Ronaldo can reach a much larger audience and gain a greater proportion of the revenue generated.

Writing about the advent of superstars in the modern era, the economist Sherwin Rosen noted in 1981 that there was “a strong tendency for both market size and reward to be skewed toward the most talented people in the activity.”

What was once true of pop stars can now be seen in more mundane industries. “Over the past several decades, only the highest earners have seen steady wage gains,” a report from the president’s Council of Economic Advisers concluded late last year. “For most workers, wage growth has been sluggish and has failed to keep pace with gains in productivity.”

This is more interesting. He cites the Sherwin Rosen paper that I reference in my book. The examples cited also are entertainment (media and sports) sensations, with an indirect contribution from technology making it easier to share that with a wider audience, allowing superstars to take more and more of the overall spending pie on entertainmment. That’s exactly what I wrote in my book.

It feels good to be vindicated.

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Business Idea – Specialty Daycare

Post inspired by this article

Given that my previous post was about the advantages of catering to the whims of the rich (and their desire for “exceptional” good/services), it’s to be expected that I’ll have thought about a particular implementation of an idea that does this.

Rich people, and even some busy working professionals in the upper middle class, living in the big cities have a hard time finding affordable child care. Yes, there are those large magnet places (one colleague called Kiddie Academy the Burger King of daycares) you can just drop off your kids at, but why not aim for the best and most specialized?

What if you (I use this term loosely) start a daycare that offers something different? I suspect most rich people want to give their kids a leg up in life without creating a pressure cooker environment so early in life. So instead of a daycare that forces kids to do homework, why not one that allows them to learn and play but immersed in another language? Mandarin is the hot niche language of the age, and any educated parent knows that being a childhood learner is better than trying to learn it as an adult.

The ideal owner-operator will be a white female (whites are more comfortable with their own kind, and Asians think whites are more loving and nurturing, while women are see in general as better with people, not to mention less likely to molest/abuse a child) who speaks fluent Mandarin at the same time. Playtime, lessons, and general language of conduct will be entirely in Mandarin. Other usual child activities like puzzles, stories, and colouring books will of course be present. The service will be marketed to wealthy upscale urban couples.

The idea was inspired in part by another coworker, who specifically hired a Hispanic au-pair to babysit her child. She specifically wanted someone who could speak Spanish to the baby. Apparently, this phenomenon of getting a leg up on your peers is starting earlier and earlier in the competitive Bay Area.

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Startup Philosophy – Cater to the Whims of the Rich

Warren Buffett has always published insightful yearly shareholder letters. This year’s is no different. The key passage that stood out to me was his critique of the hedge fund industry. With the exorbitant fee model, and given the fact that even their own managers don’t invest in their own product (what’s the opposite of dogfood?), why do they still survive?

Uncle Warren explains the answer:

I believe, however, that none of the mega-rich individuals, institutions or pension funds has followed that same advice when I’ve given it to them. Instead, these investors politely thank me for my thoughts and depart to listen to the siren song of a high-fee manager or, in the case of many institutions, to seek out another breed of hyper-helper called a consultant.

That professional, however, faces a problem. Can you imagine an investment consultant telling clients, year after year, to keep adding to an index fund replicating the S&P 500? That would be career suicide. Large fees flow to these hyper-helpers, however, if they recommend small managerial shifts every year or so. That advice is often delivered in esoteric gibberish that explains why fashionable investment “styles” or current economic trends make the shift appropriate.

The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it. Their money, they feel, should buy them something superior compared to what the masses receive.

In many aspects of life, indeed, wealth does command top-grade products or services. For that reason, the financial “elites” – wealthy individuals, pension funds, college endowments and the like – have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars. This reluctance of the rich normally prevails even though the product at issue is –on an expectancy basis – clearly the best choice. My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than $100 billion over the past decade. Figure it out: Even a 1% fee on a few trillion dollars adds up. Of course, not every investor who put money in hedge funds ten years ago lagged S&P returns. But I believe my calculation of the aggregate shortfall is conservative.

Emphasis mine. That there is the key to understanding that there is money to be made in catering to the whims of the rich. I’ve always thought but never said out loud that the keys to a successful startup are one (or more) of the following:

  1. Get paid
  2. Get laid
  3. Feel special

This sets apart the *great* startup ideas from the merely good ones. Take for example Airbnb, Uber, and Coffee Meets Bagel. For the end user they offer convenience, but they also offer other incentives – matchmaking or earning money – to the participants. Contrast that to any sort of home food delivery service (which were hot startups not that long ago). Sure, they were nice incremental convenient improvements on the status quo, but they weren’t life changing. I could just as easily call up the restaurant myself for not that much difference in value.

The special sauce comes with #3. Basically the user must think there’s something mystical or unique about the service’s secret sauce that’s an improvement over everything else. Airbnb and Uber are great ways to monetize (for a decent amount of money) assets that you already have. Nothing else out there is comparable. CMB gives you the right amount of control over matches and simplifies the overwhelming dating world.

The last category can be a stand alone business idea all by itself. Just think to all the hostess cafes in Tokyo where a cute young woman caters to your every whim (except sex). That’s a huge boost to a shy nerd’s self esteem. Great niche to be in, as these guys tend to be high earning engineers! A hedge fund can basically be thought of as a hostess cafe for the wealthy. Here come all these experts to fawn over you and make you feel special. I bet that at some level the rich know that they’re going to lose money compared to an index fund, but nothing beats the thrill of having access to Ivy League educated experts at the tip of their finger. That fulfillment, and not any actual investing expertise, is essentially the business model of a hedge fund.

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Does Hard Work Pay Off?

I’m doing a bit of reading these days, and several passages from selected works stand out to me as epiphanies into the easy road of life.

Consider two siblings. The older brother works hard, studies, keeps his head down, gets good grades, graduates with a degree in engineering or accounting, and goes on to a satisfying middle class life with a steady job and income stream.

The younger brother hangs out with his friends, gets mediocre grades, and goes to a typical state school. There, he makes friends and through them joins a startup and eventually strikes it rich and makes it on boards of major corporations.

What is the difference between the two? A healthy dose of luck and circumstance to be sure, but there’s a fundamental philosophic difference between their approaches. The older brother tries to do things through the “official” recognized paths. The younger brother tried to find short cuts in life. In today’s world, there’s a lot of room for backdoor negotiations in smoke filled rooms, nepotism, and corruption. Going through the hush hush unofficial pathway can lead to greater riches for a lower price.

Take for example this passage from the book Hillbilly Elegy that I’m reading now:

It was pretty clear that there was some mysterious force at work, and I had just tapped into it for the first time. I had always thought that when you need a job, you look online for job postings. And then you submit a dozen resumes. And then you hope that someone calls you back. if you’re lucky, maybe a friend puts your resume at the top of the pile. if you’re qualified for a very high-demand profession, like accounting, maybe the job search comes a bit easier. But the rules are basically the same.

The problem is, virtually everyone who plays by those rules fails. That week of interviews showed me that successful people are playing an entirely different game. They don’t flood the job market with resumes, hoping that some employer will grace them with an interview. They network. They email a friend of a friend to make sure their name gets the look it deserves. They have their uncles call old college buddies. They have their school’s career service office set up interviews months in advance on their behalf. They have parents tell them how to dress, what to say,and whom to schmooze.

In the modern world, it’s not about how much you know, but who you know. The best jobs are usually not posted, or if they are it’s just for theater. The company probably has already identified an internal candidate or a friend of a friend for the spot. It sucks for those of us who bury our heads in the books and stay on the straight and narrow, but at least we now know what to change to be successful.

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Follow Your [Profitable] Dreams, Redux

Short post here. In my last post, I mentioned that the best path that balances all factors contributing to happiness is to work hard in one’s 20s in a high paying job, then quit after becoming financially independent/self-sufficient to focus purely on one’s hobbies/passions without any financial constraints.

One of my favourite singers, Antje Duvekot, is doing this in her own life. She admittedly toured quite frequently when she was younger, only to tire of the road and long for a more settled existence. You can read her interview, which is quoted here:

You haven’t been touring as much lately.  Does that feel strange to you?  Or do you find that it’s helped bring some sense of normalcy to your life?

Well, I’m a lot poorer because of it. But a lot happier. I now live in Boston. I take Spanish classes, volunteer at an adult education center, lead the music program at the humanist hub, see friends, neighbors. My home is now not just another strange place I pass through on my way to another tour on my way to encounter more strangers (albeit with a better bed and no check-out time in the morning). It is now actually a place to me. There are no words for how important it is to human mental health to be able to build something in one place. Being perma-transient sucks balls. Plus the shows I play now feel wonderful. I am more present and playing for people feels more deliberate, like a true privilege, rather than a permanent state of refugee status. Not to be melodramatic or anything, lol. For melodrama see track 5 on the new record “Caffeinated Warriors,” about my growing hate-affair with the road. That being said, I am still touring a good amount, but I go out for a few days and come home, and I don’t do more than one away-tour a month with additional drivable shows sprinkled in. It’s been good for me and I think good for my art as well.

Later on in your career, making the tradeoff of sacrificing income for increased free time, hobbies, travel, and friends becomes worthwhile. It’s a lot easier if we’ve saved sufficiently ahead of time when young, to allow compounding to work its magic. This is precisely why I’m operating on a career taper, starting out at 1.3x full time and reducing my workload by one tenth every year until 0.5 (half time), and then working ad hoc at that point.

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Musings on Lucrative Traditional (and Untraditional) Jobs

Shifting gears now, I will now raise some recent examples of lucrative traditional jobs and how eye-popping their pay can be. Yes, I’ll be using some real world numbers here.

  1. Uber drivers: This article show the reality of how workers from all over rush to SF to earn the Bay Area premium (as a freelance taxi driver) which comes out to about $7 per 12 minutes, before expenses, which is much more than what someone unskilled can make in the Central Valley or Sacramento. What is striking is that they can make as much as $1500 per day, as the article states, though it’s work working hard and being opportunistic in monitoring for surge pricing. At the same time, they need to keep their expenses low by
  2. Temp workers: Don’t think of these guys as just lowly paid undocumented immigrants. Some of the most lucrative positions out there can be found by filling in as short-term workers, especially if you have specialized skills. But there are some out there that don’t neen need skills, just willingess to work in “undesirable” areas. Examples of this include a friend of a friend who went to Alaska to work in the canneries as a regular laborer. Hours were long and the environment was unforgiving (if pristine). He worked hard (16 hour days and a dangerous line of work) but took home $50,000 in 3 months. My book has other examples of geographic arbitrage opportunities like this. I’ll keep an eye out for more “gold rush boom” opportunities that arise and let you know on this blog.
  3. Nurses: You can get one of these degrees after just 2 years at a community college, so it’s an insanely accessible career path. You need to learn some protocols and get some practice, but at the end of the day it doesn’t involve deep cognitive processing. Things also get easier with practice and longevity, making life and work easier with time. There’s also great career stability and a nationwide shortage. Oh, and the schedule (3 shifts per week) can’t be beat. Just today I learned that the pay starts at about $60-70 per hour and you can get 2.5x base pay for working “unseasonable hours” like weekends, holidays, nights, and as emergency call up.
  4. Corrections officers: Thanks to unions, the prison system in California is generously funded. Despite a declining prison population, you can get a very generous pay and pension package in corrections. The promotional website boasts six figure salaries starting out (after accounting for overtime and vacation/night pay), with a monthly stipend during your cadet training years. There’s even a controversial article on WSJ about whether being a prison guard is better than getting a degree from Harvard. Sure, if you go to work right away and keep your job without getting laid off. My perspective is that a Harvard degree gives you more flexibility and opens doors to more types of jobs, including more interesting and cognitive based ones that are more resistant to automation and outsourcing.
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Business Principle – Make Lives Easier, Simpler

Sometimes on here I’ll post interesting business ideas I have, right down to the specifics. At other times I’ll speak more on general principles guiding a successful business.

Let’s start by identifying a need. One thing I’ve always needed since I was young is a way to save interesting articles online for posterity and re-reading later on. I was a big reader and when news and blogs emerged online, I wanted to save things before they got deleted or moved behind a paywall. In other words, I was practicing something similar to scrapbooking, which was a great childhood hobby for many people in the previous generation.

Now for someone who is technical, it’s easy for me to save documents as html files or print via chrome as a pdf, create a series of folders, and organize things the way I like. It’s so quick and easy for me that it’s hard to fathom that the same is not intuitive for people who are not so technical. This represents a larger global need but not a personal need, and it’s hard to be a successful visionary creating something that you personally don’t need.

In this example, someone can start a company letting people easily pin photos or essays or articles onto their own free personable shareable scrapbook. It’s called pinterest.

The principle here is to meet a need (especially old hobbies in a changing world) and to make life easier and more convenient for all involved, but especially the non-experts.

What would be something analogous yet uninvented? In my own field of health care, there’s a need for the medically illiterate to help them manage their medicines. What about a personal pill tracker that synchronizes with your medical chart at the doctor’s office and give you timely reminders to take your medicines on your phone, as well as information about why you’re taking a certain medication and side effects or precautions to watch out for? Google is already attempting something with its own Google Health initiative, which syncs nicely with its Android devices.

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