Portuguese Take To The Streets

The people are fed up in Portugal and taking to the streets to protest.  Let's listen in:


The organisers of Saturday's march are galvanised by their opposition to the so-called troika of public creditors -- the European Union, the European Central Bank and the International Monetary Fund -- who bailed out Portugal.

Now this is very good.  The Portuguese people could repudiate that debt and suffer no consequences in the slightest.  We could expect a fairly rapid long-delayed renaissance in Portuguese commerce and culture.

"This demonstration is a clear sign that 'the troika' and the government are not wanted in this country," said Joao Semedo, the leader of a far-left bloc.

OK, but don't tell me they want far-left politics instead!

The march included groups of teachers, healthcare workers and pensioners who have been especially hard hit by the budget cuts.

Well, yes, reneging on promises and cutting social services is only natural to make more money for the bankers.

After cutting salaries and pension benefits in 2012, the government this year has declared a general tax increase and expects to impose further cuts of some four billion euros.


Hmmmmmm...  Since state wages and benefits come from taxpayers, repudiation or not, recovery comes when this state-provision of wages and benefits ends.  So are the Portuguese planning to return to minimum security prison, instead of maximum security prison?  The Portuguese are past masters at free trade, then the slave trade brought the wrath of God down on them.  I guess they still need to repent of that business.

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Real Bills

There is a common term used in business, "vendor financing."  You give your customers 30 days to pay, and that is "vendor" (you) financing the buyer, your customer.  Logically vendor financing predated barter and money.

As capitalism goes the way of communism, people are looking at alternatives, or something to fashion out of the wreckage. One idea is returning to "real bills" in finance.  Problem is most people have no idea what they are talking about.

First let's make clear vendor financing is still alive and well. What has happened over several hundred years is banks got involved in secondary markets for these bills, and then used them as credit to create a further fractional reserve in credit and lend out this credit.  The multi-trillion dollar derivatives chimera is built on this mischief.

Part of spotting the problem is to understand the terms.  Today we think of "bill" as that which must be paid, such as a restaurant tab or a electricity invoice.   "Bill" in the sense being used in "real bills" means "list."  A "bill of lading" is not a freight charge, but a list of what was laden on the common carrier.  This list, this bill, is important since the value is specific to what is on the bill, what is listed.  By forgetting this point, bad actors can say "tea costing $25,000" is tantamount to "$25,000."  It is not. It is tea not money.  But by making the semantically shift, there is now $25,000 to borrow, and loan, and loan out on fractional reserve, with all of the mischief that follows.

Prior to say 150 years ago, one might await his $25,000 against a shipment of tea, and needing money may find someone to lend him some thing against the potential profits from the sail of the tea when it might arrive.  Risky business that, but any risk would be limited to the immediate parties involved.

But then the courts made a huge change, and that is transferability.  Prior to about 150 years ago, no court on earth would enforce a contract that had been transferred.  Say you and I make a deal where I promise to pay you in $10,000 in 2 years.  Today you could sell that promissory note to a third party.  Never before.  If two people make a deal, it could not be passed on to a third.  To this day the letter of credit has this provision, no anachronism that.

But with a change in usury laws and recognition of transferability, banks could get involved in the "service" of brokering this paper on secondary and tertiary markets, and then lend against it, and build some fractional reserve into it, and charge usury on the whole thing.  The result is the economic chaos we have today.

Those calling for a renewal of real bills are calling for a slight pullback from derivative madness to a time when things were not so bad.  Problem is there is nothing short of eliminating government involvement that will work.  Having state-backing of loans against paper and transferability inevitably leads to the present disaster.

Real bills only works in a free market.  If you do not have a free market, you cannot have a real bills segment of the economy.

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Exporting USA Ag To China

Here is a three minute video with a success story of USA ag items into the Chinese market...

TDC is shorthand for the Hong Kong Trade Development Council, the producer of the film.

As you watch it, keep in mind, compete on design.  Note this is a Chinese woman, selling a traditional Chinese product, into China...  and she has no idea how to go about it.  But like everyone else, she learns.

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How to Handle Legal Threats

One factor that scares people about business start up is our seemingly litigatious society.  it is not as bad as people think, but in the odd instance when one someone threatens legal action, simply say,

"You can make this business problem a legal prblem any time you want.  Why don't we talk it over as a business problem, and it you are not satisfied with any agreement we might make, THEN you can call in a lawyer and make it a legal problem..."

In 35 years at this, I’ve never been in court over a business problem.

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Big Business Customers

The great Ludwig Von Mises participated in Austria's brilliant flare before the match went out, and escaped the Nazis to end up teaching as a privatdozent at NYU. He elucidated the field of economics and took apart socialism, the reigning economic system worldwide in his time.

I believe there is a symbiotic relationship between small and big business, following Drucker that is, innovators and conservators.  The innovators introduce the new, and ever improve it iteration after iteration, until it gets to a point where the conservators spot it as a candidate for commodification.  It is at this point, one way or another, the conservators apply their economies of scale to the formerly specialty item, and bring the cost and price down to where virtually everyone has access to that material benefit or service.

This is how the free market works, and it is the only system that offers progress and justice. The instance the state or some other entity has the power to interfere, the system then gets distorted to some degree, usually a matter of zero-sum gaming, to benefit one group and harm another.

The Mises quote below is risible today.  Big business today depends entirely on the state.  If their subsidies were withdrawn, their entire operations would disappear faster than Hostess Twinkies did.  The days of big business depending on patronage of customers are long gone, and it will be a problem apres deluge if people do not understand the proper role of big business.  Big business grows organically, and cannot be "protected."

McDonald's has an astonishing array of beneficial regulations and subsidies, and is doing fine in USA, as well as the the other anglophone welfare states.  But in the growing but less regulated (no coincidence there) economies, McDonalds cannot keep up.

Asia/Pacific, Middle East and Africa (APMEA) turned in a 9.5 percent decline, despite strength inAustralia - steeper than the 5.8 percent analysts had anticipated. McDonald's cited continued weakness in Japan and the shift in the timing of the Chinese New Year.

At the same time, the founder of Subway says he could not have begun today.

FRED DELUCA: It’s continuously gotten worse, because there’s more and more regulations. It’s tougher for people to get into business. Especially a small business. I tell you, if I started Subway today, Subway would not exist, because I had an easy time of it in the ’60s when I started. I just see a continuous increase in regulation. - See more at: http://freebeacon.com/subway-founder-subway-would-not-exist-if-started-today-due-to-government-regulations/#sthash.Rha3Q8kp.dpuf

Regulations are killing the USA economy.  But who cares, the game is on tonight and the EBT card has just been reloaded.

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"Big business depends entirely on the patronage of those who buy its products: the biggest enterprises loses its power and its influence when it loses its customers."

— Ludwig von Mises, in Economic Policy

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Hollywood Gets More Bailouts

One problem with the copyright laws is the system bills fifth parties to hire fourth parties to punish third parties who buy from second parties who have no obligation to first parties.  So, if someone downloads a video off the net (third party) you and I (fifth party) must pay law enforcement (fourth party) to go after the entity that offers the video online (second party), a video which is putatively "owned" by the first party.  Where is the agreement between the first and second party for the second party not to offer the download of the video?  But it is against the law!  When did the 2nd party agree to this law?  but everyone must follow the law!

Why?  These laws make for chaos, and interfere with the spontaneous order of a free market.

Look at Apple.  Apple attracts artists by offering to pay them money on each download if the artists bring their work to Apple.  This is contract law, not copyright law.  Apple devised the supreme system for downloads, in both storage, delivery and the ipod players.  Apple is example #1 of the real world without copyright law.

Now, the welfare queens who promote murder for oil with their propaganda films (Argo, Zero dark thirty) and applauds he whom minister Farrakhan calls the "murderer in the White House" by weirdly featuring the First Lady surrounded by soldiers at the oscars, now get to extend their reach, at the expense of fifth parties, for "copyright" enforcement.

Proponents say the focus is on deterring the average consumer rather than chronic violators. The director of the organization behind the system, Jill Lesser of the Center for Copyright Infringement, said in a blog post Monday that the program is "meant to educate rather than punish, and direct (users) to legal alternatives."
Each Internet provider is expected to implement their own system. The program gives each customer five or six "strikes" after a music or film company has detected illegal file-sharing and lodged a complaint. The first alerts are expected to be educational, while the third and fourth would require the customer to acknowledge that they have received the warnings and understand their behavior is illegal. The final warnings are expected to lead to "mitigation measures," such as slowing a person's Internet connection speeds.
Officials involved in the effort acknowledge it's unlikely to stop the biggest violators. There are ways to disguise an IP address or use a neighbor's connection that is unlocked. Public wireless connections, such as those offered at coffee shops, also won't be monitored.

So the whole thing is pointless, who cares, it costs the beneficiaries nothing.  Feel free to forward this by email to three of your friends.  

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Mark Cuban Wrong On Passion

I've disagreed with Mark Cuban before, and a seminar participant sent me a Mark Cuban post, to wit:

I hear it all the time from people. “I’m passionate about it.” “I’m not going to quit, It’s my passion”. Or I hear it as advice to students and others “Follow your passion”.

What a bunch of BS.  ”Follow Your Passion” is easily the worst advice you could ever give or get.

...    Why were you not able to make a career or business out of any of those passions ? Or if you have been able to have some success, what was the key to the success.? Was it the passion or the effort you put in to your job or company ?

Why ? Because everyone is passionate about something. Usually more than 1 thing.  We are born with it. There are always going to be things we love to do. That we dream about doing. That we really really want to do with our lives. Those passions aren’t worth a nickel.

Mark Cuban is missing a part of the whole picture, which I'll get to in a moment.  He is widely followed because he is a billionaire.  But there are plenty of other billionaires who would disagree.  For example Steve Jobs.  Steve Jobs died doing what he loved, that for which he had a passion.  Mark Cuban quit his day job and is in a search for something to do, like Bill Gates. So as a test, when reading something, stand it up against the speaker's peers.  Jobs vs. Cuban.

Next, give it your test.  What does your own experience tell you?  When Peter Drucker says "entrepreneurs do not take risks" then think that through.  It sounds contrary to everything you have ever heard. In that case, if you think about it, it is clear that Drucker is right... entrepreneurs do not take risks.

Perhaps Mark Cuban is simply one of those accidental billionaires like Paul Allen.  He is an example of survivorship bias, "he must be right, he is rich."  If he had found passionin his work, he's still be doing his work, and not seeking validation in celebrity by funding TV shows and sports teams starring himself.

Cuban is right to note everyone is passionate about something, passions are cheap and plentiful.  Cuban might have noted the etymology of the word passion, and its Greek root meaning "to suffer" the meaning it holds to this day.  Cuban is right to note the call to passion is empty in its widespread use. Here is where Cuban is wrong, passion is only half of the formula, the other half is the experience of joy when working on that which causes you to suffer.  It is a defining moment to find among all of the things that cause you to suffer, to find the one, unique to yourself, that gives you joy to work on the problem.  The winning combination is to have the two together at once.

So passion is key, it is the beginning, it is fulfilled in joy, and it is this combination that drives the "hard work" which to all the world seems to be, but in fact is subjectively hard play on the part of the entrepreneur.  Jobs vs, Cuban.

Mark Cuban does many good things, but ultimately he loves the state-intervention welfare system that has benefitted him so much.  We all love a system that works for us, which is why I love anarchy.  He's love it too if he found that combination.

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Start Up Failure

On another observation, along the lines of why people do not start-up companies,  or fail in trying, I've observed two competing modes of thought that lead to failure:

1. This will not work.

2. This will work.

These have to be the two biggest problems in business start-up.  But John, they are exact opposites, they cannot both be wrong!  But they are both wrong, for the same reason.  In neither case is the thinker working from empirical evidence borne of testing the idea.

If you are not testing your idea first, on customers, then you have no means to form an opinion one way or another.  Neither one nor two can be right because neither can be known.

Other minor fail-thoughts are "what if I do not succeed?"  Succeed at what?  Steve Jobs started a computer company when there was no such thing as telephone salesmen and stereo salesmen were as cheesey as used car salesmen.  Jobs died the #1 telephone and stereo salesman.  If you are working on what you love you only fail if you quit.  Also, success is subjective so to worry about "success" is you allowing others to define the worth of your existence.  This is an unworthy experience and expression of the life you were given.

A further fear is "I need to cover expenses."  No you don't.  If you look at your budget, it is full of stuff you can live without or things that can wait.  You can make it on a Starbucks income if you have to, while you launch.  If you think not, the problem is you just have not spotted the problem to solve in which everything else in your life becomes irrelevant.

"But I need health care for my kids!"  No you don't.  They don't let kids die for lack of insurance.  "But if, if, if, if..." then you run up a million dollar medical bill and it gets written off and you go bankrupt. So what?  Countless bankrupts go on to bigger and better, including Thos. Edison.  And his most successful company went bankrupt recently.  So what?

If you are arguing it can't be done, you'll win that argument.  If you make progress in spite of troubles with significant others, progress in spite of unemployment, progress in spite of medical issues, progress in spite of no money, you'll keep making progress.  And it is good training, because even tafter people become super successful they make progress in spite of troubles with significant others, progress in spite of unemployment, progress in spite of medical issues, progress in spite of no money progress no matter what.

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The Right Target Market

Teaching a seminar last Saturday in Cupertino I drew something on the board to emphasize a point regarding targeting specialty stores instead of the main market.  It occurred to me that a beginners mistake is to target the entire market for a given item, says shoes, when in reality the ONLY market is that tiny subset of buyers of specialty shoes.  A beginners mistake is to study the entire market which is a complete waste of time, instead of testing one's hypothesis in the only market one can hope to enter, and that is the specialty market.  The graph looked like this.

Of course it is not to scale, but the only market for the start-up is the tiny circle...ignore that big circle, it's not for you.  Concentrate on that tiny circle, the market for specialty goods and services.

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The Basis for Business Start Up

I quiz people on what is necessary to start up a business and rarely do they say "customers."  Usually they say money, a product, a dream, passion, a good idea, business skills, and if they do get around to anything like customer, it is expressed in the oblique: market or research or some variation of that.  Rarely the cold hard word: customer.

Since the customer is undeniably the most important thing in business, my classes are built on that fact, and it becomes the first step in building a business.  But that begs the question, what to sell?

I think I know why business proposers do not mention customer first and foremost in starting a business. The problem is precisely that, "what to sell?" I think they intuitively know their ideas will not survive customer contact.   Often people desiring to start a business are pursuing a fantasy, a dream, and they hope they have hit on a winning combination.  Look, so many people buying t-shirts!  China is buying so much USA wine!  In Poland they have these great cookies we do not have here!  I have this great connection overseas!  My language skills will help me!

Three common patterns emerge from this group - front runners, followers and the  entitlementarians.   Front runners see that wine exports to China are jumping and say, hey, I am going to get in front of that business, I'll get between the buyers and sellers and make a commission.  The followers say "hey that guy became a billionaire with facebook, I am going to make a facebook," or  "wow look at all the gourmet cupcake stores opening, I am going to open one too!"  The entitlementarians say "I have all these degrees and experience, so I choose this position in world trade, and I expect people to work with me."  This group is the most susceptible to government programs, consulting with lawyers, creating logos, and first securing all of the presumed trappings of legitimacy. They have business plans that would burden a camel.  All will overwhelm you with their insistence that they have a winning combination.

The only thing that legitimates a business is its customers.  Nothing else.

Now here is the problem with these three bases for business start -up.  If and when the customer says "no" these people have no fallback position.

Why will customers say "no"?  To the front runner, the buyers and sellers are already established, and they know each other well enough, so that if the business they have both been in for 20 years experiences some surprising growth, they can handle it.  Why do they need you?  If Golden Gate Wines has been struggling in Hong Kong for 20 years to introduce USA wines to Hong Kong drinkers, and the Chinese drop  duties and restrictions on wine in a surprise move, why would a USA winery work with you, and not Golden Gate wines when exports skyrocket?  If there is a surprising advantage, it is those in the field now that benefit, not the newbies.

If gourmet cupcake shops are everywhere, what makes you think those who've been in it 20 years have not already scoped out your location and judged it unworkable?  They know.  Or more to the point regarding fads, what makes you think just because they have lots of stores they are making any money?

Now all of these examples may represent businesses that start and thrive.  I have no opinion as to the viability of anyone's idea.  I merely point out what I have observed over the years as to what seems to fail. In a minute I'll get to what seems to succeed.

But before that, back on the point as to my opinion is worthless as to any specific plan, there is an opinion that matters.  And that is the opinion of the customers  And there is no reason you cannot get the customers opinion before you put pen to paper, or even much think about your idea.  Simply ask yourself, who is your customer?  Who will pay for what you offer?  And then go pitch your idea, one way or another to the very people you think will buy from you.

Just because you are talking to customers does not mean it needs to be a sales call.  In fact, you calling on customers to make a sales call is probably a terrible idea.  I've broken down business start up approaches into plan A and plan B.  In both approaches, the entrepreneur first speaks to the customers, but in neither approach does the entrepreneur attempt to make a sale.

You must at some point speak to a customer.  is there any reason why that cannot be the first thing you do?  It need not be a sales call, it can be a mere "test of a hypothesis."  Eg, "I believe if I import these cookies form Warsaw, you will buy them from me for your shop.  Am I right?"  That is no different then after importing cookies form Warsaw asking if people will buy them.  Ther eis no reason you cannot test an idea or a sample, before you actually buy anything from overseas, or get a biz license, logo, write a plan, etc.

As Drucker says, entrepreneurs do not take risks.  If you think they do, you have been woefully misled and should stop all entrepreneurial efforts until you correct this view.  You can find the book in which Drucker explains this in any library, or you can buy it on amazon.com.



If it is your understanding that "entrepreneurs take risks" it is critical you cease all business efforts until you have corrected yourself on this point.

My contribution is to have shown how once fractional reserve lending was not longer a criminal act, and charging usury on fractional reserve lending no longer a criminal act, how banks conspired with textbook publishers to introduce the idea of "entrepreneurs as risk takers" to sop up this fiat credit banks were lending, and to hobble anyone who might pose competition to the big biz/big govt fascism extent in USA.

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