Go Launch & Learn

I went to the National Kitchen & Bathroom Conference in New Orleans to support my good friend and CEO, Matthew McLean. Matt was recognized as one of the most influential rising stars in the Kitchen & Bathroom remodeling industry. The conference was a blast. It kicked off with 3X Entrepreneur exemplar Gary Vaynerchuk as the keynote speaker. For those of you who don't know him, Gary Vee grew his family's wine store into $60 million per year business by leveraging social media. He then went on to start a social media consulting company called Vaynermedia, which helps Fortune 500 Companies lift sales through social engagement. Gary Vaynerchuk is also the 2 time New York Times best-selling author of CRUSH IT and THE THANK YOU ECONOMY, which both talk about the importance of social media in business. As Gary  Vee explained in his speech, the Kitchen and Bathroom industry is old, mature, and relatively stable just like the wine industry is. Old industries like remodeling, wine, accountancy, health care, and journalism are slowly (and somewhat painfully) adapting to a new world economy which is heavily influenced by social media. The companies that have been successful in old industries have done so without social media networks like Facebook and Twitter. Furthermore, the successful companies that do use social media tend to use it incorrectly. For example, they treat their Twitter accounts like billboards. They just post ads. They don't engage. They don't communicate. THEY USE SOCIAL MEDIA, BUT THEY FORGET TO BE SOCIAL. I believe that the successful companies of the future, particularly those in mature industries, will need to use social media correctly in order to survive. It's an Adapt or Die situation. In order for a business to adapt, and not die, they'll have to know how use social media theoretically. There is a science to it which begins with an understanding of what I'd like to call the Seven Social Steps to A Sale.

#1 THOUGHT LEADERSHIP

Content is currency. People love to be informed and entertained. The first step to social media success is to create quality content that your target audience/customer cares about. Your content should be consistent and it should establish you as an expert in the subject matter that you are talking about.

#2 DIALOGUE IS WINNING

Whichever business creates the most conversation around a subject that is relevant to their brand wins. Your business should answer every meaningful question and address every meaning concern that pertains to the brand, that is posed by the target audience/customer.

#3 LISTEN FIRST, LISTEN  AGAIN, and then LISTEN ONCE MORE

Social media is a great learning tool if you are listening to what your target audience is talking about. They'll tell you what they like or don't like about certain products and services, and you can use that information to your competitive advantage.

#4 CUSTOMER RELATIONSHIP MANAGEMENT

Twitter is the best customer relationship management tool in the world. If someone says something either positive or negative about your business, you can know about it. If it's positive, a sincere thank you could lead to even deeper brand affiliation and referrals. If it's negative, you can address the issue and take the appropriate measures to salvage the customer relationship.

#5 HUMANIZE ALMOST EVERYTHING

Behind every company is a person with a story to tell. People love to read about entrepreneurs. They're interested in your startup story, your values, and your personal life. You should share where and when you feel its appropriate because it humanizes your businesses, and it gives a face to your brand.

#6 MAKE SOMETHING BETTER

Find a social cause that is relevant to your brand and your community, and then get involved. Your business has to give something to the society that sustains it.

#7 DON'T SELL TO STRANGERS

Cold calling is an ineffective way to sell because it precedes a relationship. Randomly asking someone who doesn't know or care about you to buy something is a waste of time. Relationship should always precede the sales pitch.

Any company that follows these 7 rules will be successful in social media, and the sales will eventually come. Just like anything else, social media takes creativity, hard work, and dedication. If you are smart enough to launch a business, you're smart enough to successfully execute a social media strategy that is built on theses Seven Steps.

 

The bible study group that I attend on Thursdays is reading a book by John Piper called, "Hunger for God." It's a book about Fasting your way to a deeper and more intimate relationship with God. Piper paints such vivid pictures with his words and he expounds on the scriptures with great wisdom and insight. We're having a great time in fellowship, and I highly recommend this book to anyone who wants to draw closer to God. In the first chapter of the book, Piper draws from Deuteronomy 8 to illustrate how God sometimes uses trials and hardships to reveal what's really in our hearts. He humbles us, and test us, in order to build in us good character and dependence on him. We as entrepreneurs can at times suffer from too much independence. We are prone to an intoxicating self-confidence that tends to grow more  precarious as we become more successful. Christian entrepreneurs like us need storms to level us out and to flip our worlds upside down from time to time. While this might sound sadistic, it's actually sobering and very beneficial to our spiritual well-being. Storms force us to run to our God who is our refuge and strength, a very present help in a time of trouble (Psalms 46:1). Storms draw us closer to God where real success is. Success outside of the will of God is not success at all. It's actually the worst kind of failure. It is better to be down and depleted knowing that you must repent and return to God, than to be accomplished and resourceful without the leading of the Holy Spirit.

A $90 bottle of wine taste better than a $10 one.  Stanford Researchers supposedly found that "changes in the price of a product can influence neural computations associated with experienced pleasantness.” In other words, consumers draw such a high correlation between quality and price that their brains may even release chemicals that stimulate their neural pleasure center. Although this study seems interesting, the truth of the matter is that price and quality/value have little, if anything to do with each other. Price is a function of supply and demand. Value is a function of cost and benefit. Whenever there is a significant discrepancy between the price and the value of an asset, there is a profit opportunity. The stock market is full of such opportunities. The media hype and speculation surrounding a $10 stock can have it selling for $90 and vise versa. Speculation is so dangerous because you can use it to justify any price. The job of the intelligent investor is to ignore the noise and focus on the facts. In this post, I'm going to talk about the speculation surrounding AMZN, and what I think the stock is really worth. Hypothesis: AMAZON (AMZN) is way overpriced at $248.23 per share. In the chart above, I have the 5 year stock performance of Amazon and that of its brick and mortar counterpart Wal-Mart. As you can see, Wal-Mart's stock is flatline hovering between $50-$80, while Amazon's stock has jumped leaps and bounds over the last five years. Why do you think that is? Amazon and Wal-Mart have the same core competencies. They both focus on price, selection, and the convenience of one stop shopping. The difference is that Amazon focuses on e-commerce while Wal-Mart focuses on physical storefronts. Nevertheless, if you were to simply look at this chart you would think that Amazon is outperforming Wal-Mart. You would think that Amazon was a more stable company with greater earning power. You would think that Amazon's investors were earning higher returns in the form of dividends. But the fact of the matter is that none of the above is true. Wal-Mart outperforms Amazon. Wal-Mart makes billions more than Amazon. And Wal-Mart is more stable with stronger financials. The price of Amazon's stock is overpriced because the market is infatuated with tech companies. The market fundamentally believes that tech beats brick 100% of the time. The market pays a premium for e-commerce just because they're online. Amazon is overpriced because they have a rock star CEO named Jeff Bezos who have performed masterfully in the past. The market deifies leaders like Steve Jobs, Mark Zuckerberg, and Jeff Bezos. The market pays a premium for rock star CEOs. DO YOU EVEN KNOW WHO THE CEO OF WALMART IS? I read the Wall Street Journal everyday and I don't. Amazon is overvalue because they have grown exponentially in the past. The market pays a premium for past performance. But the past is not a sure indicator of the future. According to a SEEKING ALPHA article, from 2003 to 2012 the compounded growth rate of Amazon's operating cash flows was 30% but from 2010 to 2012 it was an anemic 6%. Amazon is simply not growing as much as it has in the past. CALCULATING THE INTRINSIC VALUE OF AMAZON: In real estate, there are two ways to make money. You can make money on the rent-roll and on the appreciation of the asset's value. You should evaluate stock the same way. Dividends are equivalent to rent roll in real estate, and the appreciation of book value (EQUITY/COMMON SHARES OUTSTANDING) is equivalent to growth in equity on a real estate investment. Amazon doesn't pay a dividend. It's like buying a house to rent out, without tenant to pay you rent. Therefore, the only way to make money on Amazon is the appreciation of book value. If I extrapolate the book value of Amazon based on the compounded annual growth rate of the last 10 years, and then calculate the net present value of that sum, I think that Amazon is worth between $125-$140 tops. Amazon is a $10 proverbial bottle of wine selling for $90. It's not that good. Even though their revenue is growing, it's not trickling down into profits. Eventually investors are going to want to see a return on their investments. The value is just not there with Amazon.        

There is a new business model in Silicon Valley that banks on the assumption that USER BASE = PROFITS. A lot of social sites and tech startups like Instagram believe that as long as they can grow the user base fast, they'll be able to make money later. It's a GROW NOW, MONETIZE  ME LATER mentality. Facebook validated Instagram's business model on April 10th 2012 when the social media network bought Instagram for $1 Billion in cash and stock.

The truth of the matter is that Instagram is just a red hot fad right now. It's not a business. Instagram doesn't have a value proposition. They don't have customers. They don't have a monetization strategy, and there's no way they're worth $1 Billion without a proven revenue model. I think the Facebook purchase of Instagram will go down as the worst acquistition in social media history, even worst than NEWS CORPS $529 Million purchase of Myspace in 2005. Let's look at a few BIG GROWTH, NO PROFIT Companies that fizzled out after investors finally woke up: Groupon was one of the hottest and most captivating companies in the world at one point. They had a seemingly revolutionary daily deals business model that raked in huge year-to-year revenue. In 2009, Groupon earned $14.54 million in revenue. In 2010, Groupon earned $312.94 million in revenue. That's more than a 2,000% year-to-year increase in revenue. The only problem is that their revenues never trickled down to net profits. Groupon lost $1.34 million and $383.64 in 2009 and 2010 respectively. Groupon IPOed on November 4 2011 at a price of $20.00 per share. Due to hype and pure speculation, their shares rose 40% on the first day of trading to close at $28.00. But at the close of the calender year 2011, Groupon posted a net loss of $279.76 million dollars. In 2012, Groupon lost $54.77 million. Then investor work up. They said, "This company never made money before. They haven't proven they can add value to a paying customer over the long run." Groupon is a Ponzi scheme. Today (May 1st 2013), Groupon shares are trading at $6.10. Furthermore, Groupon fired their founder/ceo Andrew Mason. It's a mess. And then there was Zynga, a social gaming company that generates revenue by (TRY NOT TO LAUGH)  in-game sale of virtual goods, mobile game download fees and advertising. Download fees and advertising are okay. I get it. But the in-game sale of virtual goods? Really? I so don't get it, and neither does Zynga apparently. In 2011 Zynga lost $404.32 million. In 2012, Zynga lost $209.45 million. That's not a business. Zygna is a Ponzi scheme. Zygna IPOed at $10.00 per share and has subsequently lost 70% of its value. You can buy ZNGA at $3.09 per share today, and in my opinion that's still way too high. If I asked you for a loan to start a new business, you'd basically want to know:

1. HOW MUCH DO I NEED TO INVEST?
2. WHEN AM I GOING TO GET MY MONEY BACK?
3. WHAT IS MY PROFIT?

That's just basic. If you invested in Groupon, Zygna, Pandora Internet Radio, Trulia, Marketo, Instagram or any other company that hasn't proven marketability ,you have no clue how to answer questions 2 or 3. Instagram wasn't a good investment. It was a shot in the dark, sheer speculation. In Good Businesses Grow Small I lay out at step-by-step customer-oriented business approach that is built upon the twin pillars of profitability and sustainability. You can't have profitability without sustainability, and you can't have sustainability without profitability. The two go hand in hand. That's why businesses have to MONETIZE NOW and at the same time focus on customer retention/referrals. USER BASE = SUSTAINABILITY, but never PROFITABILITY. Read Good Businesses Grow Small for a healthy prospective on profits and growth.