A couple years back in 2006, I made the decision to put down a deposit pre-sale for one of the new condo projects in Seattle. In retrospect, it turned out to be a big mistake. Although I haven’t yet walked away from the deal yet since the closing date is still a few weeks away, it is almost certain that I will walk and lose my earnest money in the deal which totals $23,750. Although I’ve read about folks who are trying to get some of their earnest money back, in my mind, a deal is a deal, and I lost so I won’t be pursuing any of the earnest money. It’s a bummer, but I’m here to share my lessons learned. This post is not meant to criticize the developer of Olive 8, in fact I’ve got tremendous respect for him and all entrepreneurs that have a vision and put their money where their mouth is, I think it is a great project and I wish him the best. My purpose for this post is to walk you through my rationale for walking away and hopefully give you some insight as you are thinking about any large transactions - buying or selling.
If you’ve read the book, Bringing Down the House, where a blackjack playing team from MIT was able to rake in millions playing blackjack, you are probably aware that it is possible to beat blackjack. However, the catch is most people are not able to beat the game because of the concept of Gambler’s Ruin. Simply stated, in an even or positive expectation game, the person with the largest bankroll will win all of the money (for those of you math fanatics, theoretically there exists a bankroll program that will avoid Gambler’s Ruin, but for most humans it is very difficult to be that disciplined). Let’s take for a quick example that I’m willing to play heads/tails with you. Heads - you win 10 times your bet and Tails - you lose 1 times your bet. You gather all the money you have because this is a great, fun game, right?! You bet $1,000 and you win $10,000, then you decide to keep pressing your luck and bet everything again and you win $100,000, etc. Because the game is so fun and profitable, you keep pressing your bet/luck. Guess what happens? Eventually, you will lose everything on one roll and I will win assuming I have a monster bankroll. In this super simple example even though you have a positive expectation, you will end up with zero because I have a significantly larger bankroll. If you’re not careful, gambler’s ruin can also cripple your business.
Business models that profit from providing customers with transparency in an opaque and often frustrating industry like Real Estate are inspiring. One company that I have tremendous respect and admiration for is Redfin, what they are doing is not easy - they are tackling the real estate industry specifically the residential buying process. For entrepreneurs, they provide a great model for how we think about our own businesses and how we are truly providing more value for our customers. Although it remains to be seen what the epilogue will be Redfin, it is energizing to see them go after the market. The web is the great equalizer, it allows entrepreneurs to break old business models that rely on opaqueness for profit and squeeze more value for customers while gaining market share. Here’s my personal story about real estate and my learnings from that process.
Ok, I’m a bit biased! But, videos like this from Britain’s Got Talent is very moving and if it doesn’t get you off your seat to pursue your dreams, I don’t know what will. Check it out, it’s truly fantastic and inspirational. Susan Boyle, unemployed at 47, auditioning in front of Simon Cowell et al. I’m a total sucker for this stuff (see Paul Potts for another example)…
Do you have the right people working with you? These days, it’s even more important to ensure the sustainability of your company by only keeping the right people on the bus. The right people will do what it takes to ride out the storm, they have the right mix of passion and efficiency, they are entrepreneurial seeking opportunities when everyone else only sees stumbling blocks. They go beyond what is expected. They are a breath of fresh air and they energize you each and every day you are at work. They will fight alongside you. Ultimately, they get the RIGHT stuff done with a great attitude. If you don’t have these people on your team, you need to move on now and get the right people - they are out there. So, how do you find these people? [click to continue…]
It’s spring time and baseball season is finally upon us! I’m a big believer in small ball strategy in baseball where you focus on higher percentage ways of getting runners on base (singles and walks) and advancing them into scoring position (bunts, steals, hit-and-runs, etc) and manufacturing runs (sacrifice flys, squeezes, etc) . It requires precision, methodical execution and ultimately discipline. The opposite strategy is to go for the “big-inning” where you focus on extra-base hits, homeruns, and try to put up crooked numbers, i.e. 5, 6, 7 runs. For good reason, it’s much harder to get these innings so the percentage that you’ll succeed is much lower. Both strategies are capable of winning, so I’m not going to downplay the “big-inning” strategy, but I’m going to argue that for startups, you should employ a small ball strategy. [click to continue…]
So, I’m finally out of my contract with Sprint! If you’re curious as to why I’m leaving Sprint after 11+ years, you can read about it here. The all important question posed to you now, my blog readers, is should I give in and finally get the iPhone?
I’ll probably get flamed for this post, but enough already about the investigation into the bonuses at AIG! Let them keep it and move on, stop this crazy idea of taxing those bonuses after the fact. It’s infuriating to see how the politicians are jumping on the bandwagon to get their soundbites in - and blaming AIG execs, the feds, etc for this bonus mess. It’s even more crazy to me that we’re spending time creating legislation to handle the bonuses which total $165MM compared to the more than $182B pumped into the company. Are we now going to tackle stupid decisions at Merrill, GM, Ford, and the hundreds of other banks that have taken taxpayer money? Did we expect the government to be an expert at nationalizing private companies or providing good oversight? C’mon folks, get real, the government will not solve our problems! It’s pretty darn stupid to spend $165M in bonuses, but then again, it’s pretty dumb to have the government invest in assets that no sane investor or person would touch. Can someone tell me why we are spending our collective energies on trying to collect $165M when we should be focused on the bigger issues? We are wasting our time and resources going after these incompetent managers because it’s easy to, it makes the politicians feel good and look like they are on our side. It’s totally ludicrous. If these companies can’t make good decisions, then why is the government investing in these companies and chasing good money after bad? Think about it - we are deleveraging the world over with prices coming down, banks divesting their bad assets, and loans hard to come by. Guess who is leveraging upward big time? The government, and if we’re not careful, we’re recreating the problem, only this time we’ve created the biggest AIG of them all, the government.
About a year ago, I didn’t care or desire to be on facebook and until recently not many of my peers were on facebook. Now, it seems everyone is on it. If you are looking for a friend on facebook, just friend me. It is pretty impressive to see a company grow from 0 to 175M registered users in a matter of 5 years and these users are spending an incredible amount of time on the site every month. This leads to a tremendous opportunity for advertisers and entrepreneurs. I admit I haven’t figured facebook advertising out yet, but given the sheer numbers on facebook, it’s only a matter of time before facebook starts becoming extremely profitable. So, for us entrepreneurs, it’s time to start playing the game early before the all the other advertisers arrive.
I was invited to a great event last night by my friend James Wong, CEO of Avidian Technologies, to hear Bill Gates speak. I’ve posted about the Gates Foundation in the past, but I was blown away again hearing about his latest philanthropic giving. His foundation pledged $255M to eradicate polio around the world. That’s not even the half of it. Because of that grant, Rotary is matching $100M and the governments of the UK and Germany punched in an addition $280M for a total of $635M to put polio into the history books for good. This is really exciting to see one person leveraged into governments to pursue a common purpose in saving lives! You can read more about this in this CNN article. As much as we might appreciate Bill’s efforts in fighting disease and poverty, it sure does not abdicate our responsibility to be aware of and do something about the growing need around the world.
Andy is a serial entrepreneur and angel investor. He is also a stubborn, die-hard Seattle sports fan. He currently runs BuddyTV and sits on several boards. Inspired startup is a collection of ideas and thoughts around entrepreneurship, finance, success, online marketing, investing, giving, and random interesting stories. [read more...]
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