A recent article in the New York Times (Nov. 19, 2007 NYTimes.com, “Goldman Sachs Rakes in Profits in Credit Crisis”) discussed Goldman Sachs’ uncanny ability to foresee doom and adjust investments accordingly to profit off of the panic.  The article noted the power of the risk controllers within the firm, which constantly reevaluate the firm’s investments.  This paranoic devotion to managing risk paid off handsomely in the early summer, when the firm decided to reduce its exposure to mortgage-related investments months before the bottom fell out of the subprime market in late summer.  As a result, Goldman protected its profits and increased them while others hemorrhaged red ink and heads rolled at firms like Citibank, Merrill Lynch, and Morgan Stanley.  This constant reassessment of risk/reward should be applied to any entrepreneur’s investments and business interests.  Capital is critical in starting and maintaining a successful venture.  Learning to cut your losses and walk away may be painful, but could ensure your business survival for the future.   A friend recently closed a retail store that he had invested in some years ago.  Sales were down precipitously and expenses were high and rising.  The 3 or 4 managers who had managed the store over the last several years were unable or unwilling to focus on the bottom line, i.e., increasing sales and gross margins, cutting costs, and turning inventory.  The general manager pleaded with the investor to keep the store open, contending that he could turn things around in 6-8 months.  However, the investor prudently decided to recoup his capital by liquidating assets and closing the business.  One, there was a high level of pricy inventory, high costs, and declining sales.  Also, because the investor lived six hours away, he was unable to gauge the daily operations of the store.  The store had positive attributes - it was one of two luxury retail stores in town and was a local institution for nearly 50 years.  However, the risk/reward balance was simply too high.  So, just like this investor and Goldman Sachs, constantly reevaluating business interests and capital allocation is not a bad way to go.   

Channel surfing, I switched to CNBC’s The Big Idea with Donny Deutsch the other night.  Donny was interviewing a femal guest and the word “sassybax” was emblazoned on the bottom of the screen.  Intrigued, I continued watching and learned that “sassybax” was the guest’s name for her lingerie product, a knitted bra-like item that serves as kind of a upperbody control top pantyhose for less than smooth backs. The guest said that she came up with the idea after donning a tight cashmere sweater and seeing the unsightly rolls on her back.  With a little persistence, including calling about four dozen hosiery factories and doing a lot of research on the internet, she ended up getting her sassybax into production and eventually landing Neiman-Marcus as a customer.  These are the kind of stories that I love.  Who can’t think of some lingerie or other female product to make our lives a little easier.  Hey, we probably already have come up with the idea, but haven’t gotten off our duff to do anything.  When I mentioned to a friend that someone had come up with an idea for a bra strap clip to secure bra straps under sleeveless shirts and was producing it commercially, the friend said that it was an old idea, and that her mother, a seamstress, had been putting something similar on her clothes for years.  But, she was missing the point.  Even though the idea was old, the difference was that this lady had commercialized the bra strap “tamer” and was taking orders from Target and other huge retailers for the product.  An idea is just an idea.  Bringing that idea to life is a far different matter, and it takes serious motivation, perservance, and vision, along with a little luck.   

If you walk through your local bookstore’s business section, you’ll see a dizzying cornucopia of books dishing financial advice.  Many of them extoll the virtures of saving for retirement, maxing out the 401k, walking past the Starbucks, instead of into it, downsizing the house, cutting up credit cards, lowering your tax bill, etc.  You see the same faces on TV, on the web, radio, and in print everywhere.  However, I already max out the 401k, live frugally, save prudently, and have no debt other than the mortgage.  As I get into more sophisticated financial transactions, listening to cookie cutter advice designed for the masses, I realize, is not necessarily in my best interests. 

 This moment of truth came to light when I was talking to a friend about real estate investing.  A relative had made a substantial profit in the sale of a commercial property and paid 15% long term capital gain tax on the profit.  My friend said that he should have waited to sell until he could find a comparable property for a 1031 exchange.  I said, why not just sell, and report the gain.  After all, the long term capital gain tax is only 15%.  It’s better to book the gain now at the low tax rate, rather than waiting to find another deal, that may not be as desirable, and put off a gain that may be taxed at a higher rate in the future.  Moreover, with the real estate marke on wobbly legs now, the same buyer may not be around in the future.

 My friend insisted that the 1031 exchange was the way to go because of the tax savings, quoting several recent financial books that he had read about this tax savings strategy.  But I couldn’t help thinking that he was missing the larger picture here.  In my view, taking the profit is better (less 15%) than finding a deal just to do the exchange.  I have worked at length with this relative on other real estate deals, and usually it is sifting through many rocks to find that diamond.  My friend is so focused on the “tax savings” that he is missing the dynamics of profit, loss, and making money.  No one likes to pay taxes, but if it is necessary to unlock a nice large gain that can be spread out among other properties as down payments, especially at a tax rate of 15%, I’ll take that any day.  Sure enough, the relative deployed the capital into several other deals, magnifying his leverage and profits! 

One of the greatest challenges that budding entrepreneurs face is finding the time to work on their business ideas.  If you have a full time job and a difficult commute, getting through the day can seem like a marathon.  When you get home from work, you’ve crossed one finish line, but, AFTER you’ve made dinner, gone through the mail, and washed the dishes, you settle down to start another race, a 5k, – whether it is writing a book, formulating a business plan, filling orders, building a website, etc.  I was struggling with the time crunch.  My commute roundtrip totals two hours.  Tack on a nine hour workday, and my brain is fried.  The last thing I want to do at night when I get home is start working again.  But, working on my ideas is when I can be totally creative, without supervisors, status reports, email updates, yah!  So look at this time as your rejuvenation, your rebirth…even for just 30 minutes.  It will give you the fuel to get through the work day marathon and start that 5k again tomorrow night.   

We were having dinner with friends last night at a Japanese place. The conversation soon turned towards the topic of real estate investing. We have done some investing in commercial properties and are always on the lookout for new opportunities. Our friends also were interested in getting into real estate investing, but complained about how tough it was. They recounted a recent visit to the local courthouse to observe a real estate auction. However, they were intimidated by the cash upfront requirement and the dozens of people at the auction that were aggressively bidding on the properties.

We then talked about residential verses commercial real estate investing. Our friends told us that they were getting some leads from relatives on residential real estate. They felt that they wanted to focus on commercial real estate because of the hassle of residential units. However, they also lamented the fact that most commercial properties were over $1 million, out of their price range. They also commented about the lack of time they had to look for potential properties.

The message that I took from this conversation was ROADBLOCKS. How many obstacles are there to investing and starting your own business or purchasing your own assets? If we let ourselves get stopped by roadblocks all the time, no one would ever move in any direction. As I grow older (and. hopefully, a little wiser), I realize that things are not as easy as going to school, passing tests, and moving from grade to grade. Particularly for your own projects, away from your jobs and other guided processes, there is no roadmap. There certainly will be obstacles, and the thing that will separate you from your non-entrepreneurial peers is that you will define the roadmap and LEARN to get around those obstacles. That is what this website is about. It is designed to give that little kick in the behind and that little bit of inspiration when you are feeling frustrated or discouraged. It is also a bit of community in an endeavor where everyone needs some support.