Should You Consider Uber (As a Gig)?

Of my group of childhood friends growing up in the Bay, all of us went into different careers. Some became bankers, some doctors, and others techies. However, there was one who dropped out of school and worked random retail jobs. That is, until he found Uber. He fell in love with it because it was easier work that paid more than his previous jobs. There’s also a degree of respectability and cachet that comes along with being an Uber driver that’s not there as a waiter or grocery store stocker.

So should you consider a job as an Uber driver? I would argue no. The most in-depth analysis of how much Uber drivers really take home was done here. I paste the kicker here:

Without including other real weekly expenses such as gas, car maintenance (or accounting for depreciation of the car), I found that the average net income per hour for the eight drivers was $21.90, roughly 10 dollars per hour less than the combined hourly wage from the raw Uber data.

(…)

However, if we assume an average weighted driver wage of $21.90 per hour, which factors in just a fraction of driver expenses, and assume drivers work 30 hours a week (again, not necessarily typical, but a middle range of the hours worked by the eight drivers we spoke to), we can assume a rough projected yearly driver salary of $34,164.

That $21.90 figure may even be undercounting the true cost of gas and maintenance. You see, sharing platforms like Uber are inherently exploitative. By counting all drivers as independent contractors and issuing them 1099s, Uber is not responsible for payroll tax, benefits, and other hard-won legal protection that apply to ordinary employees. By being self-employed, Uber drivers have to pay both the employer and employee sides of Social Security payroll tax. That’s a whopping 15.3% on the first $100k or so of income. Then factor in paying for health insurance out of pocket and you can see how the same $50k in gross income from Uber isn’t the same as $50k from a W-2 job, much less than $50k from qualified stock dividends.

Then there’s the unreliability of cash flow. As a business, the Uber driver can easily have days or months with low utilization and income that’s not enough to pay the bills.

We haven’t even gotten to the subject of tips, which Uber recently begrudgingly legitimized in a settlement with its drivers, in exchange for being able to keep them as independent contractors. Unfortunately, we don’t know how this change will turn out. Uber riders loved the hassle-free nature of payment, so adding the uncertainty of whether and how much to tip will definitely degrade that experience. As a driver, it’s an anxiety-inducing dilemma. Should you set a low rate and hope to rake in tips, at the cost of potentially bad reviews, or try to stand out by advertising yourself as a more expensive but hassle and tip-free experience? What’s worse is that Uber hasn’t taken an official stance on tips, preferring instead to slide it under the table by allowing it but still discouraging it as routine policy.

If driving for Uber really were an attractive gig, we should expect to find many workers flocking there, which would increase competition and drive down the wage for everyone. No wonder that Uber is aggressively promoting itself… as a place to work. This commentator from Naked Capitalism notes anecdotally:

There’s something very curious going on with Uber, apart from the obvious, well-publicized weirdness: they’re advertising like crazy on the radio, both national and locally here in San Francisco (I don’t know if they advertise in other local markets). That in itself is hardly remarkable. What is remarkable is what they’re advertising. They’re not advertising their service. They’re advertising for drivers. Think about it. When has a company ever paid to advertise in mass media for workers? I think the reason is obvious. If the gig was profitable to the drivers, and there was a reasonable retention rate, they would have no need to advertise in mass media. But as we know, the pay sucks, especially when vehicle costs are factored in, and the attrition rate is atrocious.

Rather than think about working for Uber as a contractor, we should strive to understand the fundamentals of its success and how we can apply the same lessons to our own business ventures. As I wrote in my book, a good modern business in the internet age is capital-light. Uber checks this box for sure. Part of its genius is that all it really is is a low-cost platform for the exchange of goods and services. It takes a small cut and provides nothing more than a matchmaking service and slick UI. It’s ingenious as a business plan – almost foolproof due to its simplicity and lack of capital expenditures.

Uber is also insanely scalable. That is, they don’t need to change their core business model or significantly increase expenses just because they’re growing larger. By leveraging contractors anywhere in the world, they just need to keep the central platform running and fresh-looking. Contractors will automatically do all the hard work and make business decisions appropriate for local markets, laws, and customs. It’s capitalism broken down to the microscopic level.

The dark side of Uber, which may very well be its downfall, is that it outsources safety standards and consumer protection/insurance requirements to its contracted drivers, most of whom do *not* comply with minimum regulations that apply to taxi drivers. Of course, actual enforcement of local state and county laws is impossible given how many small fry drivers there are. How can taxis compete trying to play by the rules?

Think about it this way. If Uber were subject to the same standards that apply to taxis, in terms of insurance and safety standards, they would probably be just as expensive. Otherwise, Uber is really not all that innovative. A large taxi company could just as easily put together an easy to use app for mobile devices and mimic the same function.

Sooner or later, the law will catch up and start regulating Uber. All it takes is a major accident leading to death or disability and a major lawsuit. Perhaps Uber’s true business model should be to rake in money and plan on cashing out and shutting the service down while the going is still good.

Facebooktwittergoogle_plusmail

How to Deal with Recruiters

Over the years, I’ve had my share of interactions with recruiters. Just like with jobs and people, some have been pleasant and helpful, while others obstinate and persistent. In today’s tough job market, some people inevitably turn to using them. But will using a recruiter help you find a job or cut you out of the running completely? With this post, I’ll show you the inside baseball on job hunting with respect to headhunters/recruiters. Should you use them? Should you believe what they say? Can you realistically cut them out and deal directly with the company doing the hiring?

How recruiters make their money

It depends. Most are employed by or own their own small companies. Many are niche are specialize in recruiting for hard-to-fill jobs, such as medicine where there is a shortage, or the C-suite, where the ramifications for a poor hire can be huge. Some firms charge a fixed price for the search, and then a percent of the contract signed if there is a successful hire. Others present a batch of candidates from their database for an open position and if one presented by the recruiter is hired, the recruiter takes a percentage cut from the contract signed. Sometimes, instead of a percentage cut the recruiter takes a fixed dollar sum per successful placement.

All humans operate based on incentives and penalties. Understanding what the compensation structure is for recruiters is important to determine whether they have our best interests in mind.

 

What value does a recruiter add to the business?

Businesses obviously specialize in their core function. Most aren’t good at HR or recruiting. Sometimes, the business is too small to have a large or dedicated HR department. They obviously don’t have the manpower to promote their company at trade fairs and university career forums. While it’s possible to put up an ad on Craigslist, Monster, or Linkedin, you may attract the dregs from the street. A poor hire can set the company back for years. Having a depot for resumes on the company’s website only works if the company is well-known and consumer-facing. For example, most lay people probably haven’t heard of Illinois Tool Works or Emerson Electric, large Fortune 500 companies that predominantly sell to corporate customers.

This is where employers can outsource the search for talent. Think of the search for good employees in terms of a subject most of us are more familiar with – dating. It’s possible to spend no money and cold-call at a bar, online, or through apps. On the other end of the spectrum are traditional matchmaker services, which keep a repository of the most wealthy, educated, beautiful, and eligible.

The analog for companies is headhunters/recruiters, who often have a database of their own. When they don’t or if they need to find a specific candidate that meets the company’s unique needs, they can do a talent search all across the world. This is how Stanford landed Jim Harbaugh as a football coach, for example, or how Sony settled on Howard Stringer as CEO.

 

Do you (as a candidate) really need a recruiter?

It all depends on how exclusive of a position you’re looking for. One situation that they can help is if you have a generic skill that’s universally applicable but not specific to any particular industry. An example of this is Russian language skill. Many companies may need one or two Russian speakers to deal with clients from that area, but very few companies will need that many of them. A recruiter who specializes in filling that need for companies generally has a reservoir of jobs already available and can send a resume to all of those places. It’s hard to find all of those openings on your own.

On the other end of the spectrum, a petroleum engineer has a very specialized skill and can generally apply to the big name companies in his or her field without needing a recruiter.

In other situations, like medicine, recruiters will come calling *you* because the supply/demand is so out of whack that companies pay generous bonuses if a recruiter is able to fill a position. This can get annoying at times, especially if you already have a job. C-suite headhunters are generally a bit more discreet with how they contact their potential hires.

One caveat that you should know is that if a company is faced with choosing between two otherwise identical resumes, one sent by a recruiter and the other from a cold-call applicant on their webpage, they’ll choose the one that doesn’t come with a separate fee to a recruiter.

 

Annoying things recruiters can do

Unfortunately, many people have experienced radio silence from recruiters after sending in a resume. This can be due to a multitude of reasons – sometimes the recruiter is simply swamped with too many applications. Other times, there aren’t enough jobs to go around. Suffice to say, if a generic low-level recruiter doesn’t get back to you, it’s because they had more attractive resumes to submit (higher chance of filling the job and earning a commission) or because they submitted but never heard back from HR. Remember, recruiters are middlemen themselves. Most of us have experienced the black hole that is HR – taking in hundreds of resumes and sending out notifications of rejection six months later to those who weren’t selected.

Generally, the higher up in the pecking order you go, the more personalized “service” you will receive from recruitment agencies. Recruiters lean obsequious and can work with nitpicky requirements from the candidate. Again, supply and demand. However, there is a downside to being sought after. Even after finding a job, you can get unsolicited emails and calls from other recruiters. Take for example my own field of medicine. As soon as I got my first state medical license, I was inundated with calls from recruiters from all across the country, asking if I was interested in “generic podunk job” in the boonies. Apparently, recruiters are so desperate to snare candidates that they troll the rolls of state medical boards and the NIH’s database of residents in training. As soon as someone shows up on the board list, recruiters can pounce on that information. Some information is posted in the public domain, and based on that they can contact the program administration for information on individual residents, or even show up at the hospital themselves.

 

Facebooktwittergoogle_plusmail

Lifehacking Tips – Easy Way to Split PDFs

I’m a techie at heart, and people like us are generally lazy, always on the lookout for shortcuts to make work and life more efficient. This post is part of a series on various neat tricks that I’ve picked up along the way. Most of them have something to do with either technology or gadgets.

I had a quandary at work today. Over the years I’ve accumulated many sheets of paper. Some of them are napkin scribblings by senior doctors eager to teach a pertinent point regarding a patient on rounds. Others are snippets of magazines and journals. I have a smattering of tax forms mailed to me from years past. Yet others are rare printouts of algorithms and flowsheets so obscure that they are forever lost in the ether of the internet.

As I wrote in my book on wealth, part of my life goal is to minimize the number of possessions to the bare essential minimum. As a result, every so often I do a massive cleaning of my paper documents, digitizing and then trashing them. I could not have done this without technology and the cloud, which hosts digitized versions of my paper documents, keeping them secure and accessible from just about anywhere.

Previously, I would sometimes take a snapshot of the file with my phone camera and then work with the jpeg image. This is easy to do, but left much to be desired in terms of quality. Lighting, shadowing from the camera, and background objects frequently intruded. The resolution wasn’t that great, even with the latest camera models, and lugging around a DSLR just for this purpose is impractical.

Since I was at work, I chose to use the work scanner, which made high-resolution, high-fidelity copies of my files but saved them as separate pages of one large PDF format. Argh! I obviously didn’t want to save one massive mishmash of a file which contained tax information, journal articles, napkin scribble, and SI models. I was at work, so I couldn’t use free plugins from Foxit or other third party software to break apart the file. What to do?

Thankfully, Google Chrome came to the rescue. Long a favourite tool of hackers everywhere, Chrome has invaded office workplaces simply because it can be installed offline/standalone without needing administrator mode. It’s faster than IE and supports Netflix, PDFs, and Flash video straight out of the box. So pervasive was its reach that sysadmins at my hospital gave up and made it part of the default applications for every computer.

Ok, you’re eagerly waiting for the content of this post – how to use Chrome to split apart large PFDs. First, open the pdf with Chrome. You can right click on the pdf file and “open with” Chrome, or you can open (CTRL+O) directly from Chrome, or drag the pdf file onto the tab menu on top of Chrome.

Next select the print (CTRL+P) option. On the left hand side you’ll see a destinations section. Below there is a “Change” button. Click that and select Save as PDF.

step1

step2

Now you can enter which pages you want to create as your new pdf file. You can write “1-11”, “1,2,3”, or even skip certain pages like so: “1-3, 6-7, 11”.

step3

Choose save/print and you’ll be prompted with where to save your new split pdf file. Repeat for the rest of the sections.

 

 

 

 

Facebooktwittergoogle_plusmail

Voting With Your Feet

In time for tax season, many of us are probably grumbling about how much tax we have to pay. Sure, the headline rates for the US may not seem all that impressive, but when you add up state, local, payroll, and federal tax all together, the marginal rate can be in excess of 50%! That’s higher than the top rate in the UK. On top of that, we don’t even get free health care, efficient public transportation, or cheap schooling. Think of having to pay out of pocket for those mandatory things as an extra tax on the little guy.

Could it be then that the US is the most heavily taxed country in the world? Something to think about for sure.

One example from recent times is the St. Louis Rams moving from St. Louis to Los Angeles. While some employees will enjoy the weather, others may bemoan the pay cut that they’ve just received from the change in state tax systems. That’s not to mention the higher cost of living in California. Strangely enough, so many people try to live and work in California (high supply), compared to the cold and dreary Midwest, that salaries for comparable professions are higher in the Midwest even before cost of living adjustments.

It’s no surprise then that I’m planning to leave California as soon as I am able.

In any case, while we could stay and try to fight the man through lobbying or voting, it’s hard for a single person to make a difference. That’s where we can vote with our feet. Just like Tiger Woods did and what Phil Mickelson pondered about doing, we can leave high tax locales and move to low (or no) tax ones. The name of this game is geographic arbitrage, which I go into detail in my book on wealth.

 

Facebooktwittergoogle_plusmail

Save on College in the EU

 

Have you looked at the cost of school these days? Tuition for American universities keeps on rising. According to Collegedata, in 2015-2016, total costs are projected to hit $24,061 per year for in-state schools and $47,831 for year in a private school. For the price of four years of schooling, we could get a Ferrari or be a nomad traveling around the world for a decade!

What are some ways to get around being saddled with student loans into our adult lives or even retirement? One option is to win merit scholarships by being selective and judicious about which schools we apply to. Of course, not everyone can win these scholarships. This is where we need to think outside of the box.

In my book, I describe how much more affordable college is in other countries. Take Germany for example, which has waived all tuition fees at its universities.

More than 4,600 US students are fully enrolled at Germany universities, an increase of 20% over three years. At the same time, the total student debt in the US has reached $1.3 trillion (£850 billion).

Each semester, Hunter pays a fee of €111 ($120) to the Technical University of Munich (TUM), one of the most highly regarded universities in Europe, to get his degree in physics.

Included in that fee is a public transportation ticket that enables Hunter to travel freely around Munich.

Health insurance for students in Germany is €80 ($87) a month, much less than what Amy would have had to pay in the US to add him to her plan.

“The healthcare gives her peace of mind,” says Hunter. “Saving money of course is fantastic for her because she can actually afford this without any loans.”

To cover rent, mandatory health insurance and other expenses, Hunter’s mother sends him between $6,000-7,000 each year.

At his nearest school back home, the University of South Carolina, that amount would not have covered the tuition fees. Even with scholarships, that would have totalled about $10,000 a year. Housing, books and living expenses would make that number much higher.

Even outside of tuition-free Germany, EU schools are quite cheap in comparison to American ones. Don’t worry about competitiveness. So few American students actually apply, and the schools enjoy increased diversity so much that they reserve spots for foreign students.

Other options exist in Asia, such as the Monbukagakusho in Japan and a variety of options in China. In fact, I just recently read about the Schwarzman scholarship, which is new (just admitted their inaugural class) but gives awardees a full ride to arguably the most prestigious university in China – Tsinghua.

All in all, the American higher education system currently doesn’t serve its students well. Yes, the education is world-class, but the costs are such that they impose severe burdens on graduates for years after. For comparison, Switzerland has an elegant system of vocational training even for white collar professions like banking. Having graduates with work experience, contacts in industry, and the skills that businesses need has led to an astounding 3% youth unemployment rate.

Facebooktwittergoogle_plusmail

Is Buying a Home Overrated?

Famed economist Alex Tabarrok certainly seems to think so. He cites a few reasons for why housing may not pay off as an investment:

  1. Significant concentration of wealth in a single asset
  2. Locking one in place geographically
  3. Sentimental attachment (preventing more rational choices regarding when and how much to sell)
  4. Historically appreciating less than the stock market

These are generally true, and I cite in my book all of these factors as caveats for any buyer to be aware of when considering a house. Indeed, a house is more than a place to live – it’s a complex investment at the same time, even after the mortgage has been paid. Choosing to buy poorly can lead to being underwater, unable to sell, and unable to move.

What Tabarrok neglects to mention is that the quirk of leverage allows us to dramatically increase our profit in the first few years. The government also subsidizes housing by making mortgage interest payments deductible from one’s taxes.

In terms of comparing housing to stocks purely in terms of financial payoff, let’s crunch the numbers with a bunch of assumptions. In general, a house rises slower but with less volatility and less significant drops in price as compared to stocks. So we can assume that our property value increases by 10% each year, while our rental yield is 6% of the total property price. Reserve 2% of the house value for expenses that arise (interest payment, property tax, advertising, maintenance). Here’s what it would look like, assuming a base $200,000 starting price and 20% down payment:

Year House Value Yearly Rent Yearly Expenses Total Equity % Equity Yield on Equity
1 $200,000 $12,000 $4,000 $40,000 20.0% 30.0%
2 $220,000 $13,200 $4,400 $56,000 25.5% 23.6%
3 $242,000 $14,520 $4,840 $73,600 30.4% 19.7%
4 $266,200 $15,972 $5,324 $92,960 34.9% 17.2%
5 $292,820 $17,569 $5,856 $114,256 39.0% 15.4%
6 $322,102 $19,326 $6,442 $137,682 42.7% 14.0%
7 $354,312 $21,259 $7,086 $163,450 46.1% 13.0%
8 $389,743 $23,385 $7,795 $191,795 49.2% 12.2%
9 $428,718 $25,723 $8,574 $222,974 52.0% 11.5%
10 $471,590 $28,295 $9,432 $257,272 54.6% 11.0%
11 $518,748 $31,125 $10,375 $294,999 56.9% 10.6%
12 $570,623 $34,237 $11,412 $336,499 59.0% 10.2%
13 $627,686 $37,661 $12,554 $382,149 60.9% 9.9%
14 $690,454 $41,427 $13,809 $432,363 62.6% 9.6%
15 $759,500 $45,570 $15,190 $487,600 64.2% 9.3%
16 $835,450 $50,127 $16,709 $548,360 65.6% 9.1%
17 $918,995 $55,140 $18,380 $615,196 66.9% 9.0%
18 $1,010,894 $60,654 $20,218 $688,715 68.1% 8.8%
19 $1,111,983 $66,719 $22,240 $769,587 69.2% 8.7%
20 $1,223,182 $73,391 $24,464 $858,545 70.2% 8.5%
21 $1,345,500 $80,730 $26,910 $956,400 71.1% 8.4%
22 $1,480,050 $88,803 $29,601 $1,064,040 71.9% 8.3%
23 $1,628,055 $97,683 $32,561 $1,182,444 72.6% 8.3%
24 $1,790,860 $107,452 $35,817 $1,312,688 73.3% 8.2%
25 $1,969,947 $118,197 $39,399 $1,455,957 73.9% 8.1%
26 $2,166,941 $130,016 $43,339 $1,613,553 74.5% 8.1%
27 $2,383,635 $143,018 $47,673 $1,786,908 75.0% 8.0%
28 $2,621,999 $157,320 $52,440 $1,977,599 75.4% 8.0%
29 $2,884,199 $173,052 $57,684 $2,187,359 75.8% 7.9%
30 $3,172,619 $190,357 $63,452 $2,418,095 76.2% 7.9%

 

Most of the data, if plotted, would look linear, as we’d expect given our fixed assumptions. However, I’d like to draw your attention to the last column – yield on equity – which is the annual rental income divided by our total equity. This is where leverage comes in and amplifies our gains. Normally a business generating $12,000 per year in gross yearly income (or $8,000 net) would cost more than $40,000 to buy, but we were able to finance it with a mortgage. As we plow our profits back into paying off the mortgage, we build our equity. This happens very rapidly in the first few years, and tapers off over time approaching the 6% yield, as our equity approaches 100%.

Visually, we can plot the exponential rise in equity in the first few years:

equity over time

This is why some house flippers sell the house after a few years, when the bulk of the equity accumulation has happened. They then take the profits and split that into buying 2-3 houses, starting the leverage process all over again from the beginning and benefiting from a 20-30% yearly increase in wealth into perpetuity. This rate just about doubles stocks’ average yearly gains.

Banking on leveraged gains like this can pay off handsomely, but it can backfire if prices drop rapidly. This is why this strategy can only be used on a (mostly) stable income generating asset like housing, where prices and rents rise slowly but surely.

Facebooktwittergoogle_plusmail

Inspiring Business Ideas – Etiquette Classes

This post is part of a series of business ideas that come to me in the course of everyday life. Some of them are in areas I have experience and expertise in, while others will be more off-the-wall. I will comment briefly on the skeleton structure, how to get started, overall viability, and projected payoff. If you like it, feel free to take it and run with it.

It’s been said that a good entrepreneur meets needs, but a great one anticipates them. Indeed, being the first to exploit (or perhaps start) a trend is a great way to get a jump on becoming the big fish in a new market. Such was the approach of a certain Sara Jane Ho.

She certainly has an impeccable resume, having graduated from Harvard Business School and working a few years as an investment banker (one of the featured “good jobs” in my book). But suppose that she realized along the way that working for someone else would never make her rich, and that the long hours would ruin her health and sanity before long. Thus, she looked inwards trying to think of what she could do with her skills.

Mainland Chinese, thanks the the conditioning after the Cultural Revolution, have two distinct traits. Having lost their distinct culture, they came to worship money, especially after the country opened up to foreign investment and started adopting capitalist ways. They also have an inferiority complex, having been under the thumb of foreign oppressors for the past 400 years in recent history (until after WWII). It’s no wonder that they are aspirational, trying to adopt the ways and mannerisms of their previous overlords.

Taking advantage of this yearning, Sara Jane Ho started a business teaching culture and class to the nouveau riche of China. This includes social graces, table manners, and being a consummate host.

Let’s count the number of reasons why this is a great business idea, using principles from my book.

  1. The business combines her unique skills. She’s fluent in Chinese, understands Chinese needs, but has also grown up and gone to school in America. She’s therefore the perfect credible intermediary to bring western mores to Chinese.
  2. Startup costs are low. It doesn’t cost much to run a series of seminars and workshops. Most of her costs are probably related to advertising, and even those will recede as her business becomes more popular through word of mouth.
  3. She can charge premium dollars to a captive audience. This is one of the big advantages of creating a business that caters to the rich.

 

Facebooktwittergoogle_plusmail

Jobs That Pay – Dog Walking

Hey, not all traditional jobs are poorly-paid and overworked. As I mentioned in my book on wealth, there are under-exploited niches where one can be successful as an entrepreneur. Marketwatch today ran an interesting article on a dog walker(!!!) who is raking in 6 figures working the equivalent of part-time.

Stewart says he could have grown his business into “a dog walking empire.” But he says “there’s a tipping point — where you manage people more and dogs less — and that’s not what I signed up for.”

He now has three employees who walk dogs for him, and he doesn’t plan to hire any more. He pays them a salary instead of an hourly wage and often works with them.

He charges customers $15 per walk — the going rate in Long Island City — and walks between 40 and 50 dogs every Monday through Friday, mostly between 11:30 a.m. and 3:30 p.m.

He knows a solo dog walker in his neighborhood who makes $2,000 a week by working 35 to 40 hours a week. And he knows a dog walker with employees who makes $150,000 after paying his employees.

And Stewart says he makes about $110,000 a year — after paying his expenses and employees — while working 25 hours a week. “It’s full-time time pay for part-time work. I think everyone would want that,” he says, adding, “I’m doing something that I love and I have time to go to school at night.”

I’ve bolded key points of emphasis. This guy has done a great job following the rules in my book for starting up successful businesses.

  1. He understood the market. NYC folks are busy and are willing to hire nannies, dog walkers, etc. to take care of their personal lives.
  2. This is a small enough market (not a lot of prestige for dog-walkers) that someone can easily become super specialized and command top dollar (big fish in a small pond).
  3. He figured out how to stand out as elite, by promoting his expertise and experience with dogs of all kinds.
  4. His work was still paid on an hourly basis, but he removed part of those constraints by hiring others for some jobs and moving to more of a higher level coordinating, marketing, and managing role.
  5. He had limited ambitions. He kept his business small-scale enough to be adequately profitable, rather than investing tons of money to become a commercial empire, with a higher chance of losing money and even failing.
  6. He worked on what he knew and loved.
  7. At least initially, he didn’t depend on his job for money (he worked as a bartender and waiter for a while).
  8. He knew himself and had an endgame plan. He had an income level in mind at which he would be satisfied and spend extra hours on other pursuits.

One natural wacky extension of this principle that comes to mind is being a niche nanny-tutor combo to the very wealthy. Someone can bill himself as an Aristotle-like individual able to give kids the extra boost needed to get into the most elite schools, become well-rounded, and achieve success in life. For a high retainer of course! If you’re gunning for this position from early on in life, you can build a sample CV with a PhD in early childhood development, a bachelors or masters in education, empathy and skill with children (being female helps in this regard, for perception if nothing else), aptitude in art and music, and a track record of success (by babysitting and caring for family friends’ kids).

You can read about of other successful entrepreneurs and more tips on how to identify your strengths and build your own business with my book on wealth.

Facebooktwittergoogle_plusmail

The Korean Hell

I read this morning an interesting article on the state of life for young people in South Korea. Man, was it depressing. In short, if you think your life is bad, you don’t even compare with what these kids have to go through. Here are some quotes:

Hwang often goes to work on a Monday morning with her suitcase, not leaving again until Thursday night. She eats at her office, takes a shower at her office, sleeps in bunk beds at her office. “If I finish work at 9 p.m., that’s a short day,” she said.

Paychecks come irregularly — or not at all, if the show gets axed — and because she doesn’t have a contract, Hwang wonders when she goes to sleep each night whether she’ll still have a job in the morning. She can make this life work only by living at home with her parents — when she goes home, that is.

“If you have enough money, South Korea is a great place to live. But if you don’t . . .” she trails off.

My old professor in business school once told me, “No one works harder than Americans. People always think it’s the Japanese, but no, it’s Americans. Koreans come close though.” In many respects, Korea is similar to America with cultural expectations about work and a paucity of days off. Just listen to how tough parents are with their kids:

Most frustrating of all, many young people say, is that their parents, who worked long hours to build the “Korean dream,” think the answer is just to put in more effort.

“My parents think I don’t try hard enough,” said Yeo Jung-hoon, 31, who used to work for an environmental nongovernmental organization but now runs a Facebook group called the “Union of Unskilled Workers.”

My book on happiness is still being written, but this focus on work at the expense of sanity and family is not sustainable. People are miserable! And the work doesn’t even pay that much either. What’s the solution to all of this? Read my book on wealth, start your own business, acquire a a large nest egg, and get the hell out of Korea.

Facebooktwittergoogle_plusmail

Inspiring Business Ideas – Nursing Homes

This post is part of a series of business ideas that come to me in the course of everyday life. Some of them are in areas I have experience and expertise in, while others will be more off-the-wall. I will comment briefly on the skeleton structure, how to get started, overall viability, and projected payoff. If you like it, feel free to take it and run with it.

 

America is aging. During the last recession, health care remained a sanctuary from the oasis of layoffs in part because it was one of the few sectors of the economy that was growing. Even today, the mixture of jobs continues to shift. A whopping one out of every nine workers now works in health care. Is that necessarily such a bad thing to be demonized by politicians? Shouldn’t we celebrate that we have a growing sector providing good employment to many of our citizens?

In this realm there are opportunities for the bold. We focused on some solid career choices in health care in my book, but this post is about opportunity for entrepreneurs to make a difference – to innovate, make a difference in everyday people’s lives, and to make a profit at the same time.

As people naturally age, they acquire more chronic diseases that require more contact with the health care system. People can become weakened after a major surgery, fall, fracture, or even serious infection that they need significant time to rehab and acquire enough strength to perform basic life functions. At other times, especially in end-stage cases of chronic organ failure (such as heart/lung/kidney/liver disease), they can become so disabled that they require around the clock cares, administration of complex medications, or even become dependent on all sorts of machines (dialysis, ventilator) for life support. Their medical needs are so complex and debilitating that they are beyond the ability of most families to manage at home. This is where the nursing home steps in. In the short-term, nursing home provide places for residents to rehab from a major hospitalization or medical event, while they require increased support and supervision not available at home (skilled option). For others who can afford it, nursing homes can also be places where they live permanently (residential option).

We’ve already established that there is significant demand for nursing homes. In fact, there are not enough of them out there to provide for even the short-term needs of people needing to rehab. Consequently, many hospitals struggle to place their patients, even encouraging some of the borderline cases to rehab at home to avoid a prolonged wait in the hospital. Some of the nursing homes I’ve toured and worked in are quite dilapidated – shared rooms, moldy furniture, the smell of urine all over the floors. Such is the durability and intensity of the demand that these businesses are able to stay profitable despite how little effort they put in to entice and please their customers.

The revenue stream is extremely stable. Medicare (almost all nursing home customers are Medicare-eligible) and certainly most private insurance have benefits that cover the cost of short-term rehab stays after a major medical event. It’s easy to meet criteria. An elderly individual who isn’t very active and who doesn’t have enough support at home (e.g. an elderly spouse with his or her own medical needs and absent children who can’t or don’t want to serve as caregivers) can become deconditioned enough from a routine hospitalization to warrant a brief rehab stay for physical therapy. I emphasize again – most of the time, these benefits are 80-100% covered in a tapering fashion up to 180 days per year, with variation on the duration and degree of support depending on the exact medical plan.

There is a degree of wiggle room on payments as well. Normally, each nursing home can count on approximately $5,000-$12,000 per patient per month for care, depending on the payer. For a difficult patient (no family, drug abuse, history of confusion or violence), nursing homes can refuse to accept a transfer, holding out and negotiating with a hospital for a supplemental bonus payment, which I’ve seen as high as $20,000 extra per month. Depending on the size of the facility and the number of patients at any given time, that’s substantial and stable monthly revenue.

Expenses are higher than for my preferred small scale digital entrepreneurism given facility, equipment, and labour costs, but they’re still quite manageable. To be qualified as a nursing home, there needs to be a supervising physician, NPs or PAs to do the initial intake evaluation and overnight coverage, a team of nurses and LVNs, therapists to assist in rehab, and a pharmacy to dispense medications. Labour expenses will therefore form the bulk of one’s costs.

How can you make your own niche and stand out? Having a good payer mix is critical. It’s far better to have a Medicare patient at a SNF than a Medicaid one, given an almost doubling of payment per patient per day. This means basing the nursing home in a posh area where the demographics are favourable. If one is willing, there may be room in the market for ultra upscale residential (custodial, not skilled) nursing home facilities catering only to very wealthy completely private payers. Like in most industries, it pays to be on the higher end. Another important factor is keeping expenses low. California for example has higher wages for nurses, therapists, and pharmacists compared to other states, without a corresponding boost in pay.

Be careful about cutting expenses to the bone, as the federal government is attuned to how profitable nursing homes are and is targeting long-term care facilities with its scrutinizing gaze, appraising for quality, safety, and fraud.

In short, demographics are favourable. Profits are high and expenses are manageable. Upfront start up costs are high given the initial investment needed in the facility and personnel, but once up and running, a nursing home can be consistently profitable.

Facebooktwittergoogle_plusmail