Ready to buy TWTR (Twitter)? Not I

Today, yet another company popular in many people’s eyes made the IPO debut on the stock market: Twitter trading under the symbol TWTR.

This is the perfect opportunity to lay out the reasons I’m NOT investing in it.

  • Twitter is a seven year old company, and has yet to turn a profit.
  • Companies with no profit aren’t places to turn to, looking for dividend payouts
  • They have no history of growing their stock price…because they just started trading.

My wealth building plan is based on strong cash building opportunities. That is where my rental property comes into play. While it’s boring to only get a monthly report on people paying rent, it has gone off without a hitch yet again. A little money moved into my real estate check book, and in three days, a smaller portion of it will flow out to pay off the banks that have empowered me to buy this property.

I got my monthly dividend from Vanguard Natural Resources, despite an overall lack of exciting news and bell ringing on the stock market. I scheduled an electronic payment of that money to help knock out my HELOC a little bit more.

A couple weeks ago, another chunk of money was routed into my EIUL where my total principal value continues to rise, and will not decline in value.

None of this is fancy, but it’s working great. These investments have proven themselves to yield cash and grow over time. Twitter has proven nothing. It might be hot right now, but IPOs aren’t the place where wealthy people make lots of money. The people that make a real killing are the ones that get a chunk of equity from the company. For example, if you are an employee and have been issued options at $2/share (which is totally made up), you stand to make good money. But if you are a first time buyer, the opening price was around $45/share. Big difference.

So, in a nutshell, I’m not diving into Twitter. If you want to, make sure you are doing because you have a solid reason, NOT because you are emotionally connected to the buzz.

For the record, I am fanatical Twitter user. I buy paid Twitter client apps (tweetbot) on all my devices and chat all the time. It doesn’t make me a Twitter investor.

Happy wealth building!

Some key tips to building a better business

At the bottom of a really good article explaining the fallacies of comparing $0.99 smart phone apps with $4 lattes at Starbucks are some good tips when it comes to building wealth.

  • Build an app experience that’s unique and doesn’t feel “easily replicated” 
  • Provide something the user sees as valuable to their daily life 
  • Package it such that it shows off its craftsmanship 
  • Find creative ways to profit off of a “free” version (Starbucks doesn’t do this…. yet) 
  • Quit complaining about money wasted on cups of coffee
If you are going to build a business, it’s important to look at what successful companies have done in the past. While the author is speaking of smart phone apps, the list he wrote above can be generalized to just about any business.

Provide real customer value. You may need to interview real customers. Talking to someone other than family and friends can provide a unique, objective feedback. Add the means for customers to fill out quick, short surveys, and you may found out about BIG issues. People rarely fill out surveys, and even rarer still when things are working great. But when something really sucks, they are more inclined to give you a piece of their mind. Make it easy for them to do such, and you will know what is really bad in your business.

Packaging is an interesting beast. I have noticed that in every Apple product that I buy, they package it in a special way so that opening it is an entertaining experience. It’s not silly and garish, just slightly sophisticated, enough for me to remember. Think about something similar that would fit your business.

Consider buying your competitor’s product and trying to use it from a consumer’s point-of-view. What was good? What was bad? What can you do to narrow any gaps where you are behind, and widen any gaps where you are ahead?

All of these things take time and money, but it is the sort of business costs you must invest to stay ahead of your competition.

This also ties in with Paul Graham’s suggestion that when you have a choice of building something easy or hard, go for the hard one, because your competitors will be more heavily taxed to chase you upstairs rather than lumber after you downstairs. If you add a new customer service, and it is easy to copy by your competitors, they can easily add it too, and then your advantage vanished. But if it was hard, they may or many not catch up. While they are working at it, you can be working on your next advantage. A string of improvements like that will set you apart.

Paul Graham discusses how to make wealth

I recently was pointed to a wonderful essay by technologist and start up founder Paul Graham. For those of you running in software circles, Paul Graham pursued LISP and even tried to build his own dialect of it, “Arc”. He has been involved in startup companies, which are a bit of a rage amongst software geeks, especially in the Bay Area.

In his essay, How To Make Wealth, Paul discusses some core points developers should understand before they dive into a startup company. While coming to grips with joining a technological startup, he sprinkles this essay with key elements of wealth building that stretch to any business. If you are reading this blog and are not a software developer, every word of this essay is still of high value for you to read.

Let’s visit some of the highlights.

Leverage

Paul discusses how a fresh, young software developer working for a big corporation could probably average $80,000/year in salary. If you worked at a startup, it is not unreasonable to assume your work would be better valued at around $3 million. This may sound ridiculous, but when you move into a startup environment, a lot of barriers are removed, empowering you to build a lot more wealth than you ever imagined was possible.

But the demands rise as well. As I mentioned before, when you trade up for higher performance, it’s possible to move a bigger load. That is the nature of leverage. And no lever is of any value if it’s not used. So don’t expect that you can join a startup and not be expected to carry much more than a typical corporate job. The other half of that coin that Paul points out is that no one expects you to work at that rate forever. The idea is to generate enough value and growth that your company is either acquired, goes IPO, or some other aspect where you ultimately get paid off and possibly catapulted into better prospects.

Money is not wealth

Moving beyond the subject of software startup companies, Paul makes several powerful points. One of the biggest is the fact that money is not wealth. Money is simply a medium we use to exchange with other people. Wealth is what you build. There are strong opinions on what is and isn’t wealth. If you dig deep into the arguments that are out there, many of these boil down to two opposing viewpoints: either there is a fixed amount of money/wealth in the world, or there is a variable amount.

Would you would like to be the richest person in the 1600s or a relatively poor person in today’s age? Most people quickly answer they would prefer what we have now. The reason is that we have more now than people have ever had before. This is the result of generations of people building new wealth, not simply moving existing wealth around between different people.

There is a great inertial force at work. Each person that is born will work a certain amount of time, generating a certain amount of wealth for society. One big criticism from fixed wealth believers is that a new invention, like the cotton gin, is invented, it puts existing laborers out of work, essentially rerouting the wealth they were generating. But these people don’t simply go home and stop working forever. Instead, they find new jobs, new pursuits, and redirect their existing energy into other places, continuing to create wealth in other places.

Work smarter, not harder

It’s really interesting that every now and then, I pick up some amazing insights from my daughter’s favorite cartoon: Duck Tales. In one episode, Scrooge McDuck is explaining to his nephews how he got wealthy. He repeats several times, “worker smarter, not harder.” There is no harm in working hard, but spinning your wheels and not creating much isn’t going to be effective in your wealth building plan. A critical factor in growing wealth is building something people actually want and working strategically to get that product into as many hands as will buy it with as much efficiency as possible. Your first instinct may be to double your hours of assembling your product, but it may be better leverage to automate some or all of the process. There is risk in that you may need a loan or entertain bringing on board an investor. But if you can succeed at building more without burning more hours, your time may better serve at visiting more stores to develop more sales.

Another type of leverage are the tools you use, and the means you employ to reach as far as possible. One of the reasons Facebook was so successful is because it a) provided something people wanted (socializing with current friend and finding past ones), b) it was free, c) ran on any computer with no effort, and d) sold ads to companies that wanted to get inserted into all this networking we as humans enjoyed. We already mentioned that more physical labor may not the best step to take. Technological leverage like developing a web site to market and sell your business is of undeniable benefit in today’s society.

Wrapping it up

One of the most interesting things I found in Paul’s essay towards the end was comparing small businesses with big ones. Paul compares this to a big person chasing a small one. When you reach a decision on what to add to your business, consider it as a choice to either run downstairs (easier) or upstairs (harder). In all likelihood, the small guy can run faster than the big guy upstairs. This creates a bigger lead for the little guy, which can materialize as wealth your business creates that your big competitors can’t keep up with.

Yes, this essay may be long, but it is definitely worth a read if you are thinking about running your own business or joining a new, small startup. If you are working on your wealth building plan, consider this essay a valuable lesson plan as well. Perhaps it will inspire you start your own business.