Investment Playground.NET

How’d you like to have $34 million?

Yes - you say? Where do I sign, you say?

It’s quite easy. Let’s say your name is Rafael David - many years ago you sat down and started a little itty bitty website called creditcardguide.com. Your site offered reviews for credit cards, similar to creditcardbest.com which we spoke about in an earlier post. You were paid by advertisers as well as direct by credit cards. Millions of people flocked to your site. Eventually you started doing it full-time. It was a lot of work trying to keep updated with all the new credit card options. But you kept your nose to the grindstone and worked very hard in keeping consumers informed of what the best credit card decision is for them. You thought about what could make the consumer happy - and you provided it.

And then one day, along comes knocking a little company called bankrate.com. And they say “Hey Rafael. We like your website. Can we buy it from you? You just have to stay with us for a little while so that we can learn how you run it.” And then the next day, there’s $34 million in your bank account. You smile, give some to charity, and then buy a nice condominium on Miami Beach.

Reality check, my fellow readers. This really does happen. Work hard and offer a service that people will need or use. One - you’ll benefit by the regular cash flow you’re generating for yourself, and then one day you may actually get purchased by a much larger company. Although many entrepreneurs would never want to sell their baby, it doesn’t hurt to have the choice. Not every idea hits big - this guy Rafael David probably has twelve websites going. But all it takes is one to be successful. The news article is below. JUST DO IT.

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NEW YORK (Associated Press) - Online banking company Bankrate Inc. said Thursday it has bought LinkSpectrum Co.’s assets, which consist mainly of its CreditCardGuide.com Web site, for $32 million in cash plus about $2 million for the company’s working capital.

Bankrate said it will also pay up to an another $10 million in cash in potential earn-outs based on financial achievements.

CreditCardGuide.com lets customers compare and apply for credit cards online.

“Adding more direct, high-quality traffic to our credit card business will grow our revenue and improve the margins in this important category,” said Thomas R. Evans, president and chief executive of Bankrate, in a statement.

Rafael David, the founder of CreditCardGuide.com., is the only full-time employee of the company and will be working with Bankrate through a transition period.

Bankrate’s shares rose $1.16, or 3.2 percent, to close at $37.45.

I’m building a website.

I can’t give too many details without forcing all my readers to sign an NDA. But I will tell you this - it is in suit with the social-driven phenomena, and it involves e-commerce. Furthermore, its a very niche market.

I’ve been working with some business consultants and web designers from Q-Infotech.com and WebBizIdeas.com. They’ve been able to help me frame my mental business plan (not the actual paper business plan - part II of the three-part series is coming on Friday). They ask a lot of good questions. I didn’t realize this - but website designers really can double as business consultants quite seamlessly.

The site is going to be subscription based. I can’t expect more than 500 paying subscribers in a best-case scenario, nor can I expect more than 30,000 total users of the site (some personal finance blogs see 50,000 unique visitors a month!) But the way I see it - if I’m able to attain 10% of the ultimate prime scenario described above, I’m likely to earn a few extra hundred dollars per month. The site is automated, thereby making this passive income.

If I spend $5000 building and marketing this site, and earn merely $100 per month - you may say “What a waste, all that work for $100 per month.” If you did say that, I’d tell you to shutup and then spit in your ice cream. Afterwards I’d invite you to this great website called InvestmentPlayground.net - and explain to you the concept of Return On Investment. In any given year, a great stock picker probably won’t make much more than 20%. And if you average out that stock picker’s record, he won’t make more than 11% annually over several years. The best real estate tycoon won’t make more than 25% annually over several years. Meanwhile, your savings account earns about 3.5% annually. This rate is the ROI Rate: the return on your investment. If you put $1000 into a savings account and earn $50 per year - that’s a 5% return. If you drop $5000 into building a website and earn $1200 per year, that’s right math majors… a 24% return on my investment.

The goal is not to get rich quick. The goal is to maximize my return on investment decisions throughout my life. A $10 loan might earn 20%, a $500,000 rental property might earn 30%. Keep up your investment returns and you’ll be quite pleased with the outcome.

As far as building a website goes - trying to do it yourself sucks. The last two weeks I’ve been trying to build this fancy website, and I’m awful at it. I’m a business man, not a web designer. Stick to what you know. I’ll keep you guys posted on my progress.

Everyone talks about business plans but I rarely see a lot of follow through. I’m not sure what the disconnect is. Perhaps budding entrepreneurs are intimidated by the big words and sixty page word doc they’re asked to complete. Truth is - business plans are a LOT easier than you realize. For every inkling of an idea you have - start writing and putting together your thoughts. Even if the idea doesn’t surface - your business plan library will prove to make you steady income in the future. This is a three-part series.

Firstly - WHY do we need a business plan? Essentially two fundamental reasons: gain funding and follow a process map. Your Your business plan is your proposal. It contains your million dollar idea, why it’s a million dollar idea, your plan as to how to get there, the constraints along the way, the sustainability of your plan, etc. Why is your idea going to net profit and/or change the world?? Have you ever heard a friend or colleague speak about this great new idea he/she has - but you weren’t very keen on their idea or you felt as if it “wouldn’t work”? That’s where the business plan comes in. A bulletproof document highlighting exactly how this WILL WORK - and how you can get involved! Any investor will get into bed with you as long as they have confidence in your idea. Now money starts trickling in from angel investors, venture capitalists, friends, and family. Beyond being just a general good idea, if you’re looking for loans, banks absolutely require a business plan.

This all is fine and dandy - but the biggest beneficiary of a business plan is YOU. I’ve written a few plans for some great ideas I’ve had, and by the end of the plan I’ve realized all the flaws that I have, and consequently scrapped the idea. You’re writing a strategic process map and figuring out the most detailed action steps to take. You’re building contingency plans into the mix. What happens if Google enters this market, what happens if the neighbor expands his store, what happens if my product spoils, etc. If you can clearly write out every possible step that you’ll need to take - you’re building confidence in your venture and essentially - nothing will stop you.

Strategic process planning is not meant for only global companies - developing your strategy is applicable even in the case of lil Judy’s lemonade stand. She priced her lemonade at fifty cents a pop until Mike from across the street started selling his at thirty cents, and priced her right out of the market. Now Mike started Mike’s Hard Lemonade and Judy is living in a van down by the river. Had Judy built a strategic process plan, she could have limited her costs and built in a higher margin. She would have cornered her distribution strategy and been able to secure a recurring revenue stream from regular customers on ten different corners. She also could have franchised and made Mike’s friends into his own competition. When all else fails, she would have known far in advance how long she can sustain predatory pricing when compared to her competitor. Silly silly Judy.

I’ve digressed. We’ll discuss how to get started in part II. You need to learn everything possible about the market and industry you’re in. Become an expert and roll your sleeves up, digging through information. My personal obsession is espresso - and my business plan practically starts out with stating how big of a revenue-generating industry this is (and I didn’t just find these figures on google.com). Start doing this right away. If you need immediate help and can’t wait for Part II, the link below provides an inexpensive route to assistance in your business plan. I’ve purchased a few of these manuals and have generally been quite pleased. Enjoy.

Entrepreneurs, by definition, have creative and active minds. A blessing and a curse.

Right now - I’m working on seven different projects, some of them with mid term horizons, others very long term. How on Earth am I supposed to get seven things done in my spare time? I spend all my daytime hours working on ultimately dead-end corporate position thinking of what to do, and don’t spend nearly enough time doing them! What’s an entrepreneur to do?

There’s no easy way out of this dilemma. I officially declare this moment as GO moment. This is my own GO advice for those people who share my plight:

1. Focus. Forgive me for overstating the obvious - but trying to focus your attention on seven different avenues results in zero efficiency and even less results. I know - it’s hard to pick and choose - and further its easier to distract yourself than not to. If one of your several enterprises is a time-sensitive matter, prioritize that first. Don’t prioritize based on income potential - a definite no-no in the world of business. Pick one or maximum two projects and see them through to the end, or until you turn over ownership to someone else. And then start over with a new one. People like us will never tire of building/creating/designing/selling etc. So don’t worry - more ideas will come soon.
2. Be consistent. We’re all busy people. The key is not to wait for that Saturday morning where you can sit down for seven hours and bang out a business plan. Don’t try - that Saturday will never come. The key is to be diligent and active in merely sixty minutes per day, or less. Even a half hour of prime productivity daily is over three hours a week, and it barely forces you to sacrifice other meaningful things of your life (such as spending time with family).
3. Make those around you understand your sacrifices. If you’re like me - even five minutes away from your family makes you squirm. So the best thing to do to set up your one hour daily or whatever it is you decide is to develop a support team around you. Have a sit down with the family, tell them your ideas and more importantly your process plan. Have them understand the potential results with only x minutes per day. Once you get them on your side - they’ll be pushing you to work harder.
4. Save money. This goes without saying. For every person - saving money regularly is a necessity. But that goes double for those trying to invest. Saving money for future overhead should be done at the same time of developing your process plan. Don’t wait until your plan looks bulletproof and then sheepishly say “Great. Now all we need is money.” No - that’s how wannabe entrepreneurs end up working for the man for their whole life. Consider the money saved as income the business is already making (but not for accounting purposes).
5. Make your plan your business. Meaning - the one idea you’ve decided to stick with - you’ve got to live, eat, and sleep this idea. When you wake up in the morning, you should be running over to your notepad to jot down the great night full of plans you came up with. When you’ve got a dinner party to attend - make it your business to talk to others about it. Not the actual idea - don’t give away secrets. But the general framework/industry/customer perception or whatever you need to get the creative juices flowing. When you watch TV - think about how your entrepreneurial venture can help out each one of those people on the screen there - the celebrity, the guy in the commercial, the high school kid, the milkman, - whomever. Develop your market. Bottom line - constant focus and making your plan all about your presence is in itself time spend building.

Be resilient and dedicated beyond anyone you’ve ever met. And get used to it - entrepreneurs enjoy GO more than they enjoy the finish line. It’s the challenge we crave.

The biggest reason why most of the planet’s six billion people fail on their entrepreneurial ideas is because of a lack of follow through. The story’s been told at least six billion times - you’ve got this great idea and never put it into action. Why?  “Just because. I dunno.” Or something similar. “Just too busy working an intense dead-end job!”

I have three entreprenuerial ventures I’m looking at. A foolish method is to attack all three at once. Investments and new ventures take hard work. An unswaggering focus, you will find, is probably your most important tool when putting your ideas into work.

The first is what you’re reading - this blog. It occurred to me about a year ago that a blog serves several purposes - a place to document my investment ventures, a tool to help people learn about investing, and itself being an income generator. Now I’m not planning on making millions of dollars blogging. Perhaps hundreds. But if I can secure a regular $500 per month and a committed audience such as you all - I can satisfy all three goals.

The second is a spin off of the first. Providing an actual interactive investor education class. Details are quite grey as of now. You can find some of these online - however the key question that any entrepreneur must ask themselves: “What differentiates my company/idea/shop/website from all the others?”

The last is a new product idea. Everyone has great new product ideas - but rarely are they put into action. There actually are ways to successfully do this! Firstly - you can patent the product and build a prototype. Definitely this is the hardest and most cost prohibitive route. 90% of people stop there. The second option is to apply for a provisional patent (ever seen something say PATENT PENDING?) for a $100. You then go shopping direct to manufacturers and have one of them agree to manufacture your product. Once you have the trigger ready to start manufacturing - now you build up the demand. How are you planning on selling the product? Through a website? Placing an ad in a newspaper or magazine (preferably nationwide)? Running a TV ad? Regardless - once your orders come in - give your manufacturer the green light. Either your manufacturer provides “drop ship”, meaning for a fee they’ll directly ship to the customer, or you set yourself up with what’s called a “fulfillment shop”. Fulfillment shops store inventory, ship, and track packages for you (all for a fee). This method is cheapest from a manufacturing standpoint because no fees are incurred until orders actually come in. But going to market, advertising, and arranging for fulfillment all gets pricy. Now the last method offers the least amount of revenue but the far least amount of work as well. It’s called ‘licensing’. Basically - Mr Manufacturer likes your idea and agrees to manufacture and sell it. He takes ownership but pays you an ongoing royalty fee for all revenue they earn - usually maximum 5% depending on negotiations. The key in both methods two and three is going shopping - finding the manufacturer that’s willing to do it. If you’re able to sell 1000 units of your product at $100 sticker price each month - you net $5000 in royalty fees per month. Not bad. This is an oversimplification of course. At the end of the day - every dollar you earn is hard work.

Now that I have my three ideas documented - let’s get to work. I haven’t succeeded in any of these three. However I’ll let you know my progress going forward.