Small Biz Big Dreams

Survivorship Bias in Entrepreneurship

Chris Parsons — Mon, 27 Jun 2011 18:50:06 +0000

Survivorship Bias is the logical error of concentrating on the people or things that “survived” some process and ignoring those that didn’t. This can lead to false conclusions. Two examples are The Millionaire Next Door: Surprising Secrets of America’s Wealthy (hate this book – will save the rant for another post) or Good to Great: Why Some Companies Make the Leap… and Others Don’t (love this book, despite the shortcoming).

These two books take a very small pre-screened group of people/companies, and then look for what they have in common. In Millionaire Next Door says that Millionaires buy used cars and don’t buy expensive houses. But what about all the other people who do that? Are they millionaires? From Good to Great says that companies who excel don’t have attention grabbing CEO’s and start their transition by hiring the right people. What about all the other companies that go by that formula? Do they excel?

MD over at Studenomics had a post today that mentioned Survivorship bias for Entrepreneurship. A reader had suggested starting a business as a means to get rich, and MD replied:

The survivorship bias is lethal.

Too often do we hear about the successful small business owners. What about the 40-year old that lost his home on a bad business deal? We always hear about those that turned a tiny operation into a colossal business that employs half of the town. Nobody wants to hear about the small business owner that went poor and had to find a new job. The survivorship bias can be dangerous when one is looking into entrepreneurship.

My reply:

In my opinion, survivorship bias is not a big issue with aspiring Entrepreneurs. In fact, as I’m starting my own retail business, almost everyone tries to tell me how hard it is and how unlikely I am to succeed. Everyone has a story about someone they know who tried to start a business and failed. That’s why so many people never even try to start their own business – the risk of failure.

I hate to say it, but in every one of those failures, I could have predicted it before their launch – because the “Entrepreneurs” were completely unprepared. They didn’t even know what skill sets they should have, much less which ones they didn’t have. They believed that their undergrad degree in General Business made them knowledgable and the fact that they had been a waiter made them capable of running a restaurant…

You make your own luck in this world.

In truth, it really depends on your surroundings. If all you read were books/blogs that showed people becoming millionaires from starting their own business, and you didn’t have any one out there reminding you about the high failure rate – the survivorship bias would be quite strong. Personally, I see the opposite as more of a problem today. Too many people have failed as Entrepreneurs, and rather than blame themselves, they tell stories about how difficult it is and they expect you to fail.

You can’t let anecdotes control your life or your choices. It doesn’t matter if the failure rate of start-ups was 10% or 90%, you have to make a choice for yourself whether to give it a shot or not. You can’t succeed if you don’t try.

People said you can’t make money in airlines, and history had proved them right. Richard Branson listened, learned, then ignored them and went on to create a very profitable airline, Virgin Atlantic.

Best of Money Carnival #107

Chris Parsons — Mon, 13 Jun 2011 11:55:11 +0000

Hello, and welcome to the Best of Money Carnival #107 for the week of June 13th, 2011.

My name is Chris Parsons, and I’ve got some great posts for you today. Ten of them, to be exact, from around the personal finance blog universe. The Best of Money Carnival presents the ten best money articles each week, and as this week’s host, I was charged with picking the winners – so I guarantee that these are all excellent reads!

For those of you who are new to Small Biz Big Dreams, take a look around. We’re not purely personal finance here – my focus is combining Entrepreneurship with Personal Finance, including my failures and my less popular viewpoints.

Without further ado, this week’s Best of Money Carnival Posts:

10. Tom Drake presents Your Stuff Costs You Money posted at Canadian Finance Blog. Minimalism is all the rage these days, but I think we’ve just started to realize the true cost of having so much stuff like Tom shows.

9. Glen Craig presents Half of Americans are “Financially Fragile” – How Not to be One of Them posted at Free From Broke. Depressing figures about Americans’ financial picture with encouraging words to go with it.

8. Philip Taylor presents Does This Get Easier? Getting Ahead Financially posted at PT Money Personal Finance. Yes, it does! But I can relate to the feeling…

7. Crystal presents Craigslist – Garage Sale Leftovers | Budgeting In the Fun Stuff posted at Budgeting In the Fun Stuff. A good, hassle-free idea for getting some quick cash.

6. TheCollegeHelper presents 5 Secrets To Getting A Job After College posted at TheCollegeHelper.com. The value of a college degree is a hot topic these days, but it’s still a route many people take. If you make the right moves (like these), it will still help you get a job.

5. Robert presents An Easy Side Business: Selling Online for Income posted at My Multiple Incomes. A good overview of places to sell your stuff online.

4. Miranda @ Financial Highway presents 35 Ways to Make More Money posted at Financial Highway. If your desperate for cash, it’s always good to review your options.

3. Jacob @ My Personal Finance Journey presents Can Investing in Stocks of Companies With Happy Employees Make You Money? posted at My Personal Finance Journey. What an interesting read! I can’t help but feel the premise is a bit too simplistic in and of itself (for instance, the sample size is so small that valuations could play a HUGE role), but it is good to consider regardless.

2. Neal Frankle presents 5 Best Entrepreneurial Ideas for Less than $5,000 posted at Wealth Pilgrim: Money Management Advice, Financial Stess Management, Addiction Recovery Plan & Resources. Good suggestions, but of course this list would change like the tides depending on what’s happening in the economy.

And the Winner is:

1. Bob presents 5 Things To Consider Before Quitting Your Day Job posted at Christian Personal Finance. I’m thinking about them now!

Congratulations to Bob and all of our other winners. If your post didn’t make it this time, better luck next week!

Moleskine Notebook Review

Chris Parsons — Thu, 19 May 2011 19:14:28 +0000

By a show of hands, who here has heard of Moleskine?

Until a few months ago, I hadn’t. Apparently, it’s a particularly popular type of notebook that has developed a cult following and has been spotted in several movies (The Talented Mr. Ripley among others). I discovered it via lifehacks, which highly recommends it as a tool for jotting down ideas, etc.

Now you can use any notebook to write down ideas, but I was attracted to the high-quality paper that Moleskine uses and the cult following intrigued me, so I decided to give it a try.

I bought the Moleskine Red Pocket Notebook because I wanted something I could fit in a jacket pocket, the reviews for softcover ones weren’t great, Amazon was out of black, and I prefer to write on ruled lines.

In the past four months, I filled nearly half of it up. I wrote down business ideas, blog post ideas, notes from interesting things I read, to-do lists, and anything else you could imagine. It helped keep me focused, stopped me from forgetting some of my best ideas, and was extremely handy. Truth be told, it is one of the best business tools I’ve ever used.

An unexpected benefit was that by keeping it near my bedside table I was able to sleep better. Yes, a notebook can improve your sleep! How? Have you ever been trying to fall asleep when you start thinking about something, and you just can’t stop? With a notebook nearby, you can jot down what’s on your mind and come back to it the next day.

I loved it!

Unfortunately, I accidentally left it on an airplane last week. I’ve talked with Lost and Found, but to no avail yet… Sigh.

I’m pretty upset about losing it, but am glad I didn’t have anything too vital in there. Sure, someone could steal some of the business ideas, but I’m not too worried about that. Competition is guaranteed.

I did learn a lesson though, and that is: Make a backup copy of anything important, and don’t put confidential or sacred information on something that could be easily lost or stolen (cellphones included!).

As for me, I’ve already picked up another Moleskine Notebook to start jotting down notes again.

PS: Sharpie Retractable Fine-Point Pens are the best for writing in your notebook!

Book Review: The Four Hour Body

Under30CEO Membership

Chris Parsons — Wed, 18 May 2011 17:13:08 +0000

I’m back and I’ve got a quick hitter for you today. One of the blogs that I follow is Under 30 CEO, and you can see by the name why it has my attention.

Today they announced a membership deal where you can join for $1 (for the first month). After that it is $147/year.

The membership includes Q&A sessions with established Entrepreneurs, discounts on business services, and help finding mentors/a “Board of Directors”.

I was really intrigued by the possibilities here, so I went ahead and decided to join the trial. This is not an affiliate promotion – I’m just letting you guys know about something you may be interested in. Personally, I’ve been searching for some ways to build mentors in my non-internet businesses, and so I’m getting a membership with Under30CEO to see what it can do for me.

At the end of my 30 day trial, I will post an update to let you know how it went.

PS: One resource I’ve used before, and should be using more of, is SCORE - a free mentorship program.

My “Profit Instruments” Failure

Small Biz Cleanup: Weekly Reading Rental Properties

Chris Parsons — Wed, 27 Apr 2011 17:13:59 +0000

Things have been a bit inconsistent here, but there is a lot going on with my wife’s business which I’ll be sharing soon. Due to this, the redesign of this website has been pushed back but I am going to be spending some time cleaning up old posts soon so don’t expect any posts for the next two weeks.

In the mean time, here are some great posts from around the web:

Landlord Rescue has an article I stumbled across for cash flow analysis of rental properties, it’s a great primer on a concept that is simple in theory, but difficult in reality.

20′s Money features a guest post about how an Average guy in his 20′s got started investing in real estate and an original piece. If I could do it all over again…

Canadian Money Forum has a thread on acquiring $1.8 million (I assume through inheritance), with lots of comments on what the person should do with the money – an interesting read of differing view points. I would get a bigger house, nicer cars, and then invest the rest. Some towards starting businesses, some towards real estate, and some towards stocks. What about you?

Andrew Sullivan wants you to Look up from your IPhone and Talk to Him. He hits the nail on the head. I am increasing annoyed by anyone who plays “Words with Friends” or anything else every 2 seconds.

The Financial Blogger asks How Would You Invest $10,000 into your Business? This is a great idea because it makes you think and also challenges you to consider finding ways to do what you want for cheaper.

Escaping the 9 to 5 has some “case studies” on six self-made millionaires. I was highly intrigued by the title, but disappointed with the article. These are brief PR pitches, not case studies – thus the quotes in my link. Still, it was interesting read.

Ben Horowitz has a really interesting piece on the Psychology of Being CEO. Honestly, I just wish I could relate to it better as a CEO… one day.

Scott Young says you can change history because We Are The Story We Tell Ourselves. The power behind this concept is amazing. Memories are not facts, they are very flexible, and I believe that confident, successful people’s memories emphasize the successes, where as unsuccessful people’s memories emphasize the failures.

Under 30 CEO has a post on the Origin of Profits. It’s a well thought out piece that is easy to lose sight of – providing value to your customers is all that matters.

Don’t let Competition Derail you

Chris Parsons — Mon, 25 Apr 2011 14:52:56 +0000

Many people view competition as a bad thing, and use it as an excuse to not start a business.

Competition is a good thing because it proves that there is a market for what you want to sell.

Still, competition does make your life as an Entrepreneur more difficult because your customer will have more options vs if you are the only game in town.

So what if there is some indirect competition and you know there is a market? That would seem to be an ideal situation, right?

The truth is that just because there isn’t any direct competition before you start your business doesn’t mean there won’t be any as soon as you do start your business.

Take my wife’s side business as an example. Before we started the business, there were already a ton of birthday service businesses, even one or two focused on young girls, but none that offered the parties we wanted to offer. The market was there, indirect competition proved it could be profitable, and we felt confident in our offerings being unique.

Less than a year later, at least 5 other local businesses have started offering the same services as us. Wow!

It’s a frustrating thing that many first-time Entrepreneurs are surprised to find out, especially when the competition outright copies your ideas. When your competitors see a chance to make money, they are going to seize it. Business is ruthless. Every day, your competitors will try to take away your customers.

You have to be prepared for that, but what can you do about it?

Don’t worry about it!

That’s right. Ignore what your competition is doing. It doesn’t really matter.

90% of your focus should be on your customer and what value you are providing them. The only reason to pay attention to your competition is to know what other options your customers are comparing you to.

Any energy spent worrying about what your competition is doing is energy that could have been used instead for providing more value to your customers.

Update: A guy much more seasoned than myself, Venture Capitalist Fred Wilson, recently posted about the pros and cons of competition. It, along with most of the other stuff he posts, is a great read.

Slow Carb Diet Tinkering, Changes, and Results: 3 Months In

Chris Parsons — Sat, 16 Apr 2011 20:48:42 +0000

After one month of the diet recommended by Tim Ferriss in The 4-Hour Body, I told you about the Slow Carb Diet results I experienced.

And now I’m back with another update!

After 3 months, not much has changed since the end of the first month.

On February 1st, I weighed 193lbs with 18% body fat.

Two months later, I weigh 188lbs with 15% body fat.

Disappointing, but not the diet’s fault… You see, after the success of the first month I decided to start experimenting to make the diet permanently sustainable while decreasing “sacrifices”.

The first thing I did was change the diet from one cheat DAY, to 3 cheat meals each week. So, on Saturdays I eat whatever I want for lunch & dinner and then I have one additional meal each week to eat whatever I want.

It sounded good in theory, as I didn’t think it would have any substantial effect on the body fat results and would give me more flexibility during the week.

Unfortunately, theories don’t always work out the way we want.

What I found was that by trying to give myself more flexibility, I made it more difficult to stick to the diet the rest of the time.

I ended up cheating even more than I did before, although I did still stay cognizant of the amount of processed carbs I was consuming.

Simply by controlling the amount of processed carbs that I consume I’ve been able to lose a small amount of weight and avoid gaining more, but without the structure of the diet I’ve failed to continue to lose tons of weight.

The other thing that I did was to start incorporating more fruits into the diet (fruits are not allowed in Tim’s version).

What I’ve noticed so far is that fruits with a lot of sugar (like oranges, tangerines, plums and bananas) don’t make me feel healthy the way proteins and vegetables do. Further, rather than the sugar from these fruits satisfying my sweet tooth, they seem to worsen it.

Berries, while still sweet, don’t seem to have effects quite as bad.

Another thing that I’ve been experimenting with is ways to get adequate protein for breakfast. I struggle to make myself eggs/bacon, so I need something I can grab on the go. For a while I was drinking Myoplex Lite, as this has > 20 grams of protein, BUT it has milk which adds weight, so I only drink these after I work out now.

I continue to play with these factors to find a system that will work best for me. Clearly, the Saturday Cheat Day with no fruits works quite well, but I personally find it impossible to adhere to 100%.

My plan is to change the diet so that I have one cheat day per week, but not decide it in advance. So, if during the week I want to go to dinner spur of the moment, I can and eat whatever I want, but then I don’t cheat on Saturday. I am only going to eat berries – no high sugar fruits, in order to keep cravings low. I now eat Premier Nutrition Protein bars for breakfast most days, which you can buy at Walmart or Sam’s Club. They have 30g of protein, 0 trans fat, and only 24 grams of carbs. They are by far the healthiest protein bars I’ve been able to find.

PS: I went on a week long trip for work during this time and ate terrible the whole trip – gained almost 10 lbs. So, I actually lost a lot more weight when you factor in this additional weight I had to lose.

The Difference between Confidence and Arrogance

Chris Parsons — Mon, 11 Apr 2011 12:17:01 +0000

Having self-confidence is vital to success. Unfortunately, there are many people who struggle their whole lives with not having enough confidence. I’m not one of them.

I’ve always felt very strongly that I could succeed at whatever I put my mind to. This is not always a good thing, by the way. I’m sure that I won’t get many sympathizers from those of you who have struggled with self-confidence, but for people like me, the struggle is always to maintain the right amount of confidence. There is a fine line between confidence and arrogance.

My friends in high school/college would say that I was cocky (another way to say arrogant), but I would disagree. I always said that there was a difference and that I was just confident.

There is a difference.

Self-Confidence is defined as having strong belief or full assurance in one’s one judgement, ability, or power.
Arrogance is defined as an offensive display of superiority or self-importance.

I truly didn’t view myself as being better than anyone else, so I felt very strongly that I wasn’t cocky or arrogant. But it didn’t really matter what I thought or felt…

What mattered is how I made other people feel. Whether intentionally or not, I made people feel like they weren’t good enough.

Remember on the SAT where you had to compare words to each other and find the matching pair?

Confident vs Arrogant = Knowledgable vs Know-It-All.

Being a know-it-all is closely associated with being arrogant. Sufferers of one often suffer the other.

Being Confident is a good thing, as is being knowledgable. Being arrogant or a know-it-all are not. These traits make people avoid you or dread being with you.

Not everyone will react this way, of course. Some people will just accept it and not let it bother them – especially other cocky know-it-all’s.

I used to think that it was other people’s problem if they didn’t like me. Let’s get this straight: You don’t have to be something you are not in order to try to get everyone to like you. No matter what, somebody somewhere isn’t going to like you. The bottom line is,

You don’t have the right to make anyone feel as if they aren’t good enough to be around you because the truth is, you aren’t as great as you think you are.

No related posts.

Weekly Reading: Business Startup

Chris Parsons — Thu, 31 Mar 2011 14:34:16 +0000

Once again, I’m presenting you with some great reading from around the web, and most of today’s links are about starting a business and as usual a dose of personal finance.

The Digerati Life has a video for How to Launch a Small Business. It’s relatively basic information, but has some good insight from someone who’s been there.

Art of Manliness presents 10 Money Saving Startup Items, and has some options for cheap/free accounting software, logo design, and more.

Investor Junkie presents a similar article, Steps to Start a Business, which offers advice on starting a business on the cheap. One financing option they mention that I hadn’t thought of is Peer to Peer lending.

Chris Brogan present how to Bridge the Gap between Online & Off on Entrepreneur.com, and it’s a good read for anyone with an “off line” business and online presence.

The Financial Blogger shows How to Invest in Yourself. Online courses, consulting, and books are great options. I have not paid for any consulting, but I may at some point in the future. I’ve paid for online courses before, but there are so many out there you really have to do your homework.

Personal Finance Related:

Drive a free car for life by MTMA advocates a cool strategy for keeping vehicle costs low. The idea basically allows maximum savings while avoiding major car depreciation. In my opinion, cars are the single worst purchasing decision that Americans make. Most people buy vehicles much nicer than they need, and it costs them a ton of money over their lifetime.

BripBlap says Everyone should want to be Wealthy. I hope no readers of this blog disagree, but unfortunately many people out there view wealth as a bad thing.

The future of retirement is pondered by The Amateur Financier, who shows that the whole idea of retirement is quite recent, and will continue to evolve from it’s current state. I couldn’t agree more!

Consumerism Commentary asks How Much Does it Take to Make you Feel Wealthy? The author’s number is $5 million, as this would provide $100,000/yr at a very conservative 2%. Personally I feel safe assuming an 8% return, which means I would only need $1.25 million to have $100,000/year. Is that enough to make me feel wealthy? No, but it would sure make me feel warm and cozy on the inside.

Benefits of a Free Event to Promote Your Business

Chris Parsons — Tue, 29 Mar 2011 19:33:42 +0000

My wife and I started advertising her business in the local family-focused magazine 2 months ago. Immediately we saw more visitors to the website and started getting more calls, but we weren’t really booking any parties yet.

Potential customers needed proof that we were a legitimate business and provided a good service.

We knew the advertising was doing the job of getting the word out, but it wasn’t resulting in sales so we started thinking about other alternatives and ways to provide social proof . We were offered a booth at a local kid’s event where we could do a give-away, sell things, and promote the business. The event was free for families to attend and featured a lot of inexpensive/free activities for the kids.

The booth fee was fairly steep, but we figured if we could book two parties and sell at least $100 worth of inventory we would break even. The event had over 5,000 people attend the year before, so it didn’t seem hard to imagine .

We decided to buy some inventory just for the event, and also try to move some product we didn’t have much use for with the parties. We wanted to make sure we didn’t run out of inventory, but at the same time didn’t load up on stuff that we couldn’t sell. We had around $500 worth of inventory on-hand to try and sell as it was probably the most we could sell, but didn’t hurt us too bad if we didn’t sell it.

One primary goal was to collect e-mail addresses of potential customers in order to advertise our specials and company news directly with little to no cost.

The day of the event we sold over $100 worth of inventory (but well short of $500), and two days later we booked a party with one of the mom’s that stopped by.

Unfortunately, we failed to consider what types of people attend a free event like this. There weren’t many people willing to pay for much merchandise or for our services.

We did manage to get about 75 e-mail addresseses of “potential customers”. Many may not be in a position to pay for our services right now, but the cost of maintaing the e-mail addresses is basically free, and gives us a pool of potential future customers.

Ultimately, the benefit of a free event is to help familiarize people with a new busines and provide social proof - even if it doesn’t directly produce a positive ROI.

Another benefit was meeting other Entrepreneurs that could help us, even though they weren’t potential customers. One of them used to own a related business and offered to sell us some of the supplies, which might be a good way for us to get quality goods very inexpensively. The other gentleman we met provides direct-mail advertising, which we will be testing out shortly.

Although only one person that stopped by the booth at the kid’s event booked a party, since the event we have booked almost an entire month’s worth of parties. Coincidence? Doubtful.