Recent financial news has been dominated by the initial public offering of Facebook.  Morgan Stanley underwrote the initial offering last week of 400 million shares at an initial price of $38 per share.  This served as one of the most publicized IPO’s in the history of the stock market.  At $38 per share, this created an implicit market capitalization of $104B for Facebook.

This level of valuation is approximately 107 times earnings.  For comparison, Apple’s P/E is approximately 13, and the S&P 500 index is valued at roughly 15 times earnings.  This means that earnings will need to grow dramatically in the near future in order for its current price to be supported by a valuation that regresses toward the market average.

Day 1 of Trading Tells the Whole Story

There were two notable events on the first day of trading that told the whole Facebook IPO story.  The first is that trading was delayed due to a technical glitch, and the second is that Morgan Stanley wrote a large amount of buy orders at $38 near the end of trading to avoid a net loss in price when the market closed.  What this ultimately met is that people who bought in on the first day made exactly zero money, and that feat was only accomplished by a major purchase commitment by the very company who underwrote the stock offering.

Facebook’s Future Business Model

Simple mathematics dictates that Facebook’s earnings must grow by a factor of 8.2 in order to reach a P/E ratio equal to that of Apple, which is roughly in line with the market average.  Thus, Facebook must find some way to generate MUCH higher profits than they do today if they want to avoid a wholesale collapse in their stock price.  Currently, the only path to earnings for Facebook is revenue from advertising.  Many major companies have commented that Facebook advertising is not highly effective, and GM has already announced that they will no longer advertise on Facebook.

The most valuable asset that Facebook has is a massive trove of user data.  It is not difficult to figure out that they will need to sell this data in some manner or form in order to raise earnings sufficiently for their stock price to be justified with a rational valuation ratio.  This means that the company will need to begin aggressively invading the privacy of its members relatively soon if they wish to have any hope of meeting their earnings expectations.

The Smart Money is Already Out

The most compelling story emerging from the first day of trading for Facebook is not who bought, but who sold.  Most of the people who sold shares were the early investors and insiders.  Many of the people and companies who sold a portion of their stake during the initial offering period are highly sophisticated, and frequently referred to as the “Smart Money” of Wall Street.  Thus, one must wonder if they are being intelligent when buying stock that some of the smartest firms in the world are selling as fast as they can.  Some of the key insider and “Smart Money” transactions are as follows:

• Accel Partners: 56 million shares (28% of total stake)
• DST Global: 53 million shares (40% of total stake)
• Goldman Sachs: 33 million shares (50% of total stake)
• Mark Zuckerberg: 32 million shares (6% of total stake)
• Tiger Global Management: 27 million shares (50% of total stake)
• Mail.ru Group: 23 million shares (40% of total stake)

These six sources account for over half of the 400 million shares that were initially sold to the public.  What this proclaims in large, loud, bright letters is that the smart money and insiders have already started to dump their stock in Facebook.  The IPO of Facebook singularly demonstrates everything that investors should be wary of … lots of hype, lack of fundamentals, and a high level of sales by insiders.  Ultimately, the people who are likely to be punished in this situation is the people who read Zuckerberg’s profile Time Magazine and figured that Facebook would be a great stock to own.  These are the people who will continue to be fleeced by the smart money and insiders for the foreseeable future.

And on the next day of trading, Facebook stock commenced a precipitous drop as more people who seek to unload their shares.  In the end, intelligent investors should focus on the things that matter such as fundamentals and sound business strategies.  Every time that somebody claims “This Time It’s Different” you can be almost totally certain that they are attempting to separate you from your money.  This case is no different, even if though is much more blatant.

 

There is a famous statement that an optimist will see a glass half that is full, while a pessimist will see a glass that is half empty.  The basis behind these distinctions is that people who possess a more optimistic worldview tend to focus on what is there, what is present, what is available.  Conversely, people who possess a more pessimistic worldview tend to focus on what is missing, what is gone, what cannot be attained.

To many people, the color of reality is closer to the view of the pessimist than the optimist.  After all, life isn’t fair.  The nice guy always seems to finish last.  Vast inequality exists between people and between countries that defy many people’s imagination.  How can somebody possibly be an optimist?  Optimism seems to be the province of a foolish Pollyanna type worldview that fails to comprehend reality.

The Truth of Reality

In order to objectively examine the quality and power of our worldview, it is important to gain an understanding of the true and full nature of reality.  Simply put, reality is what is.  Reality is and only can be what exists, what is here, what is present.  Reality must be something … it must contain a form.  Reality must be defined by substance, it cannot be defined by a vacuous and subjective notion of what is missing.

Understanding this fundamental truth focuses the context of our experience, and allows us to live in the world of what is.  By focusing our attention on what is, instead of allowing ourselves to be distracted by wants and wishes, it creates a much more solid basis upon which to act.  Accepting what is does not mean that we cannot create change … it means that we understand how change works within the context of our present reality.  We must influence our reality in order to change it.

The Power of the Optimist

The power of seeing a half full glass comes from the focus on objective reality that can only spring from what is.  The reason for this is because our only point of influence on reality comes when we change the nature of what is.  This requires us to focus on the things we can influence, and only the things we can influence.  Most people waste their creative power by obsessing on what they feel to be missing, , what they feel to be wrong, or what they feel to be unfair.

The power of the optimist flows from their focus on what is available and what is present.  Most people possess far more power to influence their life than they are able to understand.  Our futures can be definitively shaped by the decisions that we make.  As the quality of these decisions increase, and as the proximity of these decisions converge on the segments of our life that we can influence and change, our control on the future increases.

Possibility Exists Beyond the Reach of Blame

A principal problem in the interactions between most people, companies, and governments is that too much discussion revolves around blame.  A prevalent destructive assumption is that anything which goes wrong must be somebody’s fault.  This creates a fire storm of blame shifting and blame deflecting.  To the person who seeks to influence the course of their future, they must learn to look beyond whose fault the problem is, and focus on what can be done to improve the future.

To the extent that mistakes are or have been made, it is important to learn from them so that they are not repeated.  However, excessively focusing on who is to blame for mistakes all but guarantees a lack of future achievement.  Even when bad things happen to us that we do absolutely nothing to cause, we must understand that our lives exist in a reality of random events that are largely beyond our control.  Railing out against the person who caused our hardship does absolutely nothing to improve our situation.

When understood and applied properly, these principals create a tremendous base of power for us to influence our personal, professional, and financial lives.  Many of our personal relationships encounter difficulties when we blame one another for problems or mistakes.  Many of our workplace problems revolve around assigning blame, shifting blame, and attempting to avoid blame.  Many of the financial problems that people work themselves into evolve from an unwillingness to admit past mistakes and learn.

In the end, each of us possesses the power to influence the course of our personal, professional, and financial future.  Unfortunately, there are startlingly few who choose to use this power.  Too many people allow their pride, politics, and emotions to block the actions and decisions that can shape the course of their future.  Too many people cannot let go of their conceptions about the problems and unfairness of life, and fail to create the changes in their own life and the lives of people about them that can help to bring about the changes they desire.  Each of us must make our own choices, must decide how we will view the glass, and mus take ownership over the future direction of our life.

 

An Article recently published by the International Business Times explored the potential for problems associated with aggregate student loan debt.  Since the total student loan debt outstanding exceeds $1 Trillion dollars, the scope of the problem seems immense.  When complicated by the 30% of student loans that are 30 or more days overdue, there appears to be a crisis brewing.

The concern expressed by many is that the burden of student loan debt will suppress people’s future disposable income.  To many, this presents a dire scenario where future consumption spending cannot keep growing due to the crushing burden of student loans.  It is complicated by the high rate of unemployment among recent college graduates, and has led many to believe that government action is required to “fix” the problem.

The Solution that Isn’t a Solution

When college students gather in protest rallies, they frequently hold up signs demanding that their student loan debt be forgiven.  Since the overwhelming majority of student loans are underwritten by the US government, all that this would accomplish (besides delivering a free ride to people who acted irresponsibly) is to turn $1 Trillion of private debt into $1 Trillion of public debt.  This sounds great for people that are either looking for a handout or looking to buy votes by giving away a handout with government money, but it does nothing to solve the underlying problem.

By accelerating the government debt problem, it accelerates the extent to which drastic action must be taken.  Many (mistakenly) think that the pile of student loan debt can be dissipated with additional taxes on the wealthy.  Unfortunately, this strategy has two main deficiencies.  The first is that there aren’t enough wealthy people to pay the taxes.  The second is that most wealthy people hire lawyers and accountants to reduce their tax burden with (legal) income sheltering strategies.  The ultimate result is that the government is unable to tax away its debt and will need to inflate the currency.  Since inflation disproportionately impacts the poor and middle class, it will ultimately end up coming back to bite the people who were holding the signs demanding that the government wipe away their student loans.

The Real Problem

A paper recently published by Georgetown University breaks down the average earnings and unemployment rates for college graduates based on the level of education and course of study.  It comes as no surprise that subjects such as education, business, and engineering all have relatively low rates of unemployment associated with them and respectable earnings.  However, studies in subjects such as social sciences and the liberal arts have very high rates of unemployment and relatively low earnings.

Thus, the real problem is not that people carry so much student loan debt, but that people have chosen to take out large amounts of debt to finance an education that does not have a significant market value.  Another way of stating the situation is that people who study subjects like engineering and business do not have a student loan problem.  The reason is because their education prepares them for a career that allows them to generate an income so that their debts can be paid off.

The Real Solution

Understanding the real problem is the first step toward a real solution.  The only way for this lingering problem to be solved is for the people who are under all of this debt to become gainfully employed so that they can pay their debt back.  However, attaining gainful employment requires that better decisions be made in regard to the course of study that one pursues in their path of higher education.  This is the only method of dealing with this problem that will not result in a simple transfer of the burden to somebody else.

The truth is that all choices involve cost.  The decision to attend college is frequently very wise.  However, it is highly important to choose a course of study that is consistent with your long-term career interests.  Studying the arts is fine if you are content with living the life of an artist.  However, if you desire to climb the income ladder, then you must acquire skills that will allow you to generate value for an employer that are sufficient to justify a favorable level of compensation.

Student loan debt is not fundamentally different from any other kind of debt.  It is not good or bad in and of itself … student loans taken out to acquire skills that allow you to earn a good income to support your family are a very wise decisions.  Loans taken out to finance four years of partying a degree that offers no employment prospects are much more suspicious.  All debt is fundamentally neutral in nature.  It only becomes good or bad when paired with an investment that is good or bad.

Thus, the answer is for more people to make better decisions regarding what they study.  In the larger context, the investments of time, money, and education we make are what will define whether any resources we borrow to make those investments were wisely deployed.  Instead of demanding that other people bail us out after making bad decisions, we should take the opportunity to make better decisions in the future.  Each day is a new chance for us to learn.  We should seize those learning opportunities to make each successive day more prosperous than the last.

 

The current world is becoming very polarized and divisive.  There is an increasing trend of people to think and act as groups, instead of as individuals.  The subtleties of unique individualism are being concatenated into “black” and “white” or “Republican” and “Democrat.”  The problem that is created by this brand of mass conformity is that people stop looking to learn from people that are not a part of their group.

Ralph Waldo Emerson is famous for his belief that every person possesses some talent that exceeds his own, and that each interaction with another person gave him an opportunity to learn.  I believe that it would be wise for each of us to extend this philosophy into our own lives.  There is an unfortunate tendency in popular culture that has created a “cult of success” where people that show their financial affluence are worshiped and followed religiously by people who think that copying every facet of that person’s life will make them equally successful.

One of the important points that people frequently overlook is that luck plays an important part in many stories of fabulous success, and another even more prescient point to understand is that many things in life are more important than money.  Of all the important things that are ignored, this is probably the most frequent occurrence.  The reason for this is because wealth is quantitative … it is some thing we can easily measure.  However, relationships are qualitative … there is not a simple way to measure the quality and value of our relationships.  Unfortunately, this leads many to believe that the qualitative relationships possess less value because their value is difficult to compute.

In practice, the purpose behind building quantitative wealth is for the nurturing and maintaining our qualitative relationships.  Because of this, lifetime learning takes on an entirely new context.  Our learning takes on a magnitude that is much greater than simply earning money.  Because of this, the context of learning takes on two distinctive flavors … namely, learning what we “should” do and learning what we “should not” do.

Learning What To Do

It is important for us to seek out people whose holistic success we wish to mimic.  One pitfall that we must seek to avoid is the belief that the we can mimic a certain aspect of a person’s life without any spillover to other sections of our lives.  In truth, everything that we do has some impact on everything else that we do.  As such, when we are seeking coaching and mentoring, we should think in the context of both the skills we want to build and the person that we want to become.

Learning What Not To Do

An equally important aspect of learning is learning what we want to avoid.  In this way, we can shape the form and direction of our personal, professional, and financial lives.  The problem that many people encounter is an excessive emphasis on the factors that create external signs of success, but ignore the relationships and personal growth that is not on display to the public.  It is not a secret that many affluent businesspeople and celebrities are very unhappy, in spite of their financial success.  Thus, we see that in some cases learning what NOT to do can be just as powerful as learning what behaviors to mimic.

In the end, there are tremendous opportunities for gain available to people with the humility to constantly seek learning opportunities.  It is worth noting that these opportunities are not always easy to embrace, since they frequently involve admitting that previously held beliefs and actions were ill informed, rashly decided, or simply wrong.  These are not always the most pleasant of thoughts to embrace, but people who are willing to undertake this thought exercise will reap great rewards over the tenure of their lives.  It is certainly true that there is something we can learn from everybody, and that developing the discipline to learn will enable each person to walk on a path of constant improvement.

 

Our world is one where there is a considerable amount of risk and uncertainty.  Unfortunately, the current trend is that this uncertainty appears to be growing.  In nearly every facet of our personal, professional, and financial lives, the things that used to be taken for granted are no longer considered to be certain.

One of the most influential events of recent history is the financial crisis of 2008.  The credit bubble had escalated the stock market and real estate prices to unbelievable highs, just before they came crashing down.  A startlingly large percentage of people had been lulled into a belief that the government and Federal Reserve could “fine tune” the volatility out of the marketplace.

The reason for this belief was that for a long time, the fantasy of stable continuous growth was a reality.  In what appeared to be a triumph of financial science, the geniuses at the helm of our nation’s fiscal ship had guided us to what seemed like a magical place … a financial world where the market followed a nice smooth upward trajectory with no big disruptions.  All seemed to be bliss …

However, there is one critical observation that does not seem to receive much attention and that is asking why we allow a small group of people to have so much power over the US financial system?  It has always been true that the power to do good is also the power to destroy.  Our natural hubris dictates that we would rather have somebody be ‘in charge’ of the financial system who can ‘fine tune’ interest rates and the money supply to soften the impacts of recessions and accelerate recoveries.

The unfortunate problem with having ‘somebody in charge’ of the financial system means that any small mistake by the people in charge can create massive devastation for the entire national and world economy.  Realistically, it is inevitable that any system which relies on the discretion of a powerful committee for the health of the financial system is going to experience a dramatic collapse since it is not possible for any group of people to act correctly every time they need to make a decision.  When decisions are fragmented down to individual buying and selling decisions, prices are dynamic as people individually vote with their wallets.

Many years ago, Milton Friedman advanced a simple proposal for the Federal Reserve to grow the supply of money at the approximate annual rate of productivity growth (Somewhere around 2% and 3%) and allow the market to reach equilibrium on interest rates and asset prices.  Such a system would not attempt to mask the effect of economic downturns with accommodating monetary policy.  However, it would also lack the false sense of stability that was created by a prolonged period of smoothed cycles that was ruptured in a crash that nearly collapsed the entire financial system.

Any time that volatility can be artificially suppressed is conditioning people to panic when the inevitable market disruptions transpire.  The fundamental question that we must ask ourselves is whether it is more advantageous to make our own decisions instead of relying on the government authorities to create stability.  Change is a reality of life, and attempting to create artificial stability will not accomplish anything more than further conditioning people for panic when the fictional expectations of stability are eventually broken.

In this way, it is much better for us to pattern our lives in a manner that allows us to adapt to changes rather than be destroyed by them.  This is most certainly easier said than done, but it is nonetheless quite important to do.  One of the first things that we should make sure to do is ensure that our financial future is dependent on our own efforts.  Many people have been promised pensions or entitlement payments from both private companies and government entities.  Unfortunately, the same entities that have promised pension benefits are proving that they may be unable to make good on their obligations.  This has the potential to leave many people in a very difficult financial position if the pensions they had depended on for their financial future disappear.

In the end, each of us must condition ourselves to accommodate uncertainty, since change is becoming an unavoidable fact of life.  Since we are unable to stop the risks and uncertainty of life, we must take action to ensure that we are able to withstand the changes that are an inevitable part of life.  Ultimately, the future of our personal, professional, and financial lives come down to the decisions that we make.

 

In the world of economics, there is a term called “Free Riding” that describes people who benefit for services and innovation that they did not pay to produce or develop.  There are many ways in which ‘free riding’ benefits people, since technology tends to be prohibitively expensive when it is first developed.  However, as it is adopted by more people the prices come down and quality increases with the increased competition.

Thus, the people who benefit the most from technology are the ones that wait until prices decrease and quality increases before making a decision to buy.  However, none of this would be possible unless there were people that were willing to pay high prices for the new technologies.  In this way, the ‘early adopters’ of technology indirectly subsidize the lower prices for people who wait to buy since the research costs of new products are frequently dissipated by charging higher prices when the products are released.  The beauty of this system is that it is provides very real benefits to both the early adopters who pay prices and the late adopters who buy at lower prices.  Since the system is completely voluntary, all of the people involved must necessarily be made better off by the transaction, or they would not buy.

There is another version of ‘free riding’ that is much less beneficial, and considerably dangerous.  This variety of free riding involves the phenomenon of using government legislation to re-distribute resources from one group of people to another so that they can get a ‘free ride’ in the form of direct payments, government services, or tax subsidies.  The implicit danger comes from the fact that the people who are riding for free have a tremendous incentive to organize for the purpose of extracting more resources to create an even larger free ride.

This results in a ‘moral hazard’ as the number of people receiving government benefits increases relative to the number of people who are producing and paying taxes.  The source of this problem stems from the fact that a vast disconnect can grow between the number of people who produce and the number of people who ride for free on the backs of the producers.  If this imbalance grows too large, the free riders can add to the burden of the producers by continually adding new taxes and regulations.

The unfortunate part of this event chain is that if the people who produce the resources are taxed too heavily, they will either find ways to legally avoid the taxes & regulation, or choose to produce less.  For some reason, politicians seem to be terminally infected with the notion that taxes and regulations can be increased indefinitely without impacting incentives to produce.  The fundamental problem is that most people (especially politicians) are only able to see the world as it currently exists.  However, it is always true that the world of the future will look different than the world of the present.  It is also true that the activities which produce the highest returns will garner the most effort and attention.

If the best returns come from creating new products and services, vast amounts of resources will go into finding ways to develop these emerging businesses to capitalize on the opportunity.  Alternatively, if the only path to exceptional returns is through lobbying and litigation, it is all but inevitable that a bureaucratic state will emerge where a perpetually smaller portion of the populace produces anything of value while everybody else attempts to fight for a bigger share of the pie.

The problem is very similar to the farmer who killed the goose that laid the golden eggs because he wanted all of the eggs at once.  Of course, when he opened up the goose there were no eggs to be found.  Each of us should be very careful with our desires for a free ride that is financed with golden eggs.  It may be a lot of fun for a while, but big problems can emerge when the golden eggs run out.

Greece is currently experiencing this exact scenario, and the prospects are grim.  With a tremendously inefficient economy, and an extremely high percentage of total spending driven by the government, they are stuck in an economic trap.  In order to shift toward a market oriented economy with the ability to produce sustainable growth, Greece needs to go through a period of very painful economic adjustment.  However, if they attempt to forestall this “tough medicine” through continued government spending, it will only serve to expand the scope of the problem.

Ultimately, riding for free in the political arena continues to carry dangerous consequences.  Politicians love to create free rides, because it allows them to purchase votes with public resources.  However, there is a limit to how much of this structural inefficiency that a country’s economy can absorb.  Greece has already pushed past their limit, and the Unite States is approaching its breaking point at a rapid rate of speed.

As this point of no return approaches, each individual person must become aware of the fact that they will ultimately be responsible for their own financial future, since the government is all but certain to be unable to deliver on its past promises.  In the end, it is the actions that we take, which will determine the future of our lives.  With each passing day, we should seek to take actions that propel us closer to our goals.  This is the best defense against the danger that is posed by a societal free rider problem and its inevitable consequences.

 

An article was recently published by Reuters entitled: “The New American Dream is Renting to Get Rich.” The thesis of this article is that home ownership is not the fast-track to wealth that it used to be.  It also makes the point that many people would be better off renting and investing their surplus income in wealth-building investments than by sinking all of their income into owning a home.  The article also went on to explain how many people who had purchased homes during the boom lacked the financial resources to pay for building wealth through other investments, and became solely dependent on their home equity for their net worth.

This serves as an excellent backdrop for a deeper discussion on what wealth really is, and what wealth building is really about.  A useful first step in changing the way we think about wealth is to take the dollars out of the equation.  Instead of thinking about our personal wealth in terms of a dollar value, we should think of it in terms of what we own and what is produced by those assets.  In order to help articulate the difference between asset types that comprise our wealth, we like to separate wealth in to three tiers of assets.  The characteristics of your wealth portfolio in terms of where the assets land on the wealth tiers exerts a high degree of influence on how your personal financial future will unfold.

Tier 1 Assets:

Tier 1 assets are physical assets that generate real cash flows.  Examples of these assets are mines, energy exploration contracts, income producing real estate, and other such physical property.  The reason for positioning these assets in the top tier is because their physical nature and residual cash flows make them the most dependable and least volatile.  For most people, it is not always practical to have full ownership of physical assets such as this, so it can make sense to invest in companies that own and operate these types of physical assets and pay out a significant portion of earnings to investors.

Tier 2 Assets:

Tier 2 assets are fully owned business enterprises.  The reason why these assets are ranked below physical, cash producing assets is because their returns are typically more volatile.  The upside of volatility is that it frequently exhibits greater growth characteristics, but the downside is that it frequently carries more risk.  By fully owning a business enterprise, it allows you to exhibit a significant degree of influence on its financial success.  Many people build their wealth with Tier 2 assets in the form of a business and diversify into Tier 1 cash producing, physical assets.

Tier 3 Assets:

The third asset tier holds investments where the returns are completely dependent on market sentiment in regard to the asset value.  Metals such as gold and silver fall into their asset tier, along with growth stocks that don’t pay dividends.  Home equity is also a tier 3 asset, and this is where its danger lies.  When the value of an asset is completely dependent on the sentiments of other people in the marketplace, there is an omnipresent risk of value collapse if market sentiment turns south.  Almost every market bubble takes place in Tier 3 assets, as people purchase with the expectation that others will purchase for perpetually higher prices.

The way to apply this construct to our personal investment portfolio is to determine where our wealth fits on the asset tiers.  Unfortunately, most people have an extremely high percentage of their wealth concentrated in Tier 3 assets that fluctuate in value based on market sentiment, and rely completely on value increases from that same market sentiment to deliver their future returns.  When your wealth is concentrated in Tier 3, you will be highly exposed to collapsing bubbles that destroy market valuations as people shift out of a ‘buying frenzy’ into a ‘selling frenzy’ that collapses asset prices.

The most prudent advice for 21st century wealth building is to push your wealth as far up the ladder of asset tiers as possible.  If you own Tier 3 assets that are highly volatile, seek to shift more of them toward Tier 2 assets that you can influence or Tier 1 assets that are more stable.  By and large, assets in lower tiers tend to be more volatile, offer the potential for higher short-term profits, and involve higher transaction costs.  Many people who are successful in building businesses would be well advised to diversify their wealth portfolio to include more Tier 1 assets that produce stable cash flows without the necessity of their direct participation.

As prudent investors, we should seek to build our wealth around vehicles with strong fundamentals.  We should also seek to minimize the proportion of our assets that exist at the lowest tier.  We should also be mindful to avoid the temptations of “easy money” from Tier 3 assets that are experiencing temporary price spikes.  Attempting to speculate on the movement of volatile assets is an inherently risky business.  In the end, our best opportunity for long-term prosperity comes from sticking to fundamentals and building a high-tier wealth portfolio.

 

U.S. public schools may serve up a lot of lessons to the 49 million students who roam their halls, but most don’t offer entrepreneurially minded kids much help in pursuing their passions.

On a recent trip to Atlanta, I met Matt Smith, a freshman at Georgia Tech who already has two startups to his credit, GoRankem.com and, now in beta, Insightpool.com. Smith was 13 when he realized he wanted to learn something different from what was being fed to him as “important” at school. He knew that if he ever stood a chance of learning about entrepreneurship, he was going to have to cook up an extracurricular program for himself.

A self-professed nerd, Smith was interested in technology at a very young age. Barely into his teens, he was already devouring tech-related blogs and news feeds and attending Atlanta tech conferences. The key, he says, was getting out there and meeting people. Many encouraged him, and he never got the impression that others believed he was too young to be taken seriously.

I asked him about his experiences and how parents and potential mentors can help bridge the knowledge gap for kids who have an entrepreneurial bent. “High schools are focused on the next step, which is usually college,” Smith says. “But they’re not preparing you for the real world. They’re making you live inside this bubble of secondary education. It doesn’t have to be that way.”

Want to help kids get traction on the entrepreneurial path? Smith recommends encouraging them to:

• Read. Most kids know where their passions lie. There’s a wealth of printed and digital information available for every industry sector and every level of understanding.
• Develop relationships. Help entrepreneurial kids get out into their communities and build relationships with people who can assist them in clarifying, then attaining, their goals.
• Search for and create opportunities. Motivate kids to explore options such as finding teachers who can act as advisors. Also, many universities offer internships and summer programs for high school students.
• Build something. Encourage kids to get their hands dirty by writing a computer program or starting a small business. Help them understand there are no guarantees that their plans will work.

Indeed, one of the most influential ways parents and mentors can help kids is by steering them toward new thinking about The Big F: failure. “Anyone who wants to be an entrepreneur has to learn to accept failure. That’s not something we’re taught in school,” Smith says.

Adults can break the taboo of The Big F by rewarding kids for taking risks and trying new things, then reinforcing the lessons learned from those efforts.

Smith’s final words of advice for adults? “Don’t undervalue what people can do just because of their age. And that goes for people who are older or younger than what you perceive as the norm. We should be more interested in great minds and solutions than the age of the people who are bringing those to the table.”

This article was originally published in the February 2012 print edition of Entrepreneur with the headline: Generation Next.

Article source: Entrepreneur.com

 

Recently, much attention has been brought to the topic of inequality … most specifically, inequality of wealth and income.  Underlying this attention is a fundamental belief that some people are able to earn a level of income that is disproportionately high relative to other people on the economic ladder.  This belief stems from a misunderstanding of the difference between a person’s ability and their production. At first blush, these two attributes feel tightly related … and in many respects they are.

Most people require some measure of ability in order to produce a product or service of value.  The desire to develop ability is why people attend college, and it is what most people perceive as the driver of our ability to earn an attractive income.  The link that many people fail to appreciate is that our total value as an employee or entrepreneur is based on their ability, and amplified by the financial and organizational leverage of their business organization to create production.

This generates an effect that has caused tremendous misunderstanding.  The compensation of corporate executives has received a considerable amount of attention in recent years.  Many news reports show how CEO’s earn a high multiple of the earnings for an average employee at a corporation.  Most people who see this feel that there is no possible way the CEO can be 40, 50, 100, or 200 times as valuable as the average worker.  This is where the difference between ability and production becomes important.  The CEO’s ability to drive value is based on their ability, amplified by the organizational leverage of the business.  The CEO does not possess 50 or 100 times the ability of the average worker, but is able to use organizational leverage to drive 50 to 100 times the results or more.

What Does This Mean For Me?

There is something important that each of us can take away from these insights about ability and production.  In order for each of us to fulfill the greatest potential for our professional and financial achievement, we must find a way to employ organizational and financial leverage to amplify our ability so that it produces exceptional results.  This means that our professional and financial walk should focus on both the acquisition of superior skills and the opportunity to leverage those skills so that they generate exceptional results.

Once we understand the importance of production vs. ability, it becomes apparent that a narrow view of ability misses much of the picture when it comes to driving results.  Unfortunately, this has become fodder for politicians advancing a “class warfare” platform where they attempt to use people’s frustration with the unfairness of life to garner support for their candidacy.  The truth is that life is not fair, and most of us would be very unhappy if it were.  The simple fact that a person is born in the United States of America means that they will have access to more opportunity than nearly 80% of the world’s population.

People who live in the United States don’t necessarily possess any more ability than people from other countries.  However, they are able to leverage their abilities to a much greater extent than those other people to produce greater results.  The dramatic inflow of immigrants to the United States stands as a testament that people seek the opportunity to leverage their abilities so that they produce greater results.  From both our personal standpoint, and from the perspective of the larger economy, this demands a simultaneous focus on both enhancing our personal abilities and figuring out how we can leverage those abilities to generate greater productive results.

Equality vs. Achievement

In the current political environment, much attention has been steered toward equality and the lack of equality in regard to incomes and achievement.  The way that these large inequalities emerge in a free market is by competition for the best business talent by entities who can leverage that talent to produce very large results.  What happens is that the people selected to lead these large enterprises are compensated very highly because the results they can drive exceeds their compensation many times over.  To many people, this feels inherently unfair.  However, it is a necessary component of generating optimal productive output for the economy.

The way that economies grow is by people and businesses creating new products and services.  The way that individuals benefit from this is by the opportunities that emerge to both work for these new businesses and enjoy the new products that these businesses create.  Thus,the path to affluence means that there must be freedom to create, risk of failure, and rewards for success.  This is something that we must understand in our personal rise to achievement.

One thing that we should be careful to avoid is the assumption that all inequality is identical, and all profits are equal.  Some companies profit from creating products and services that people voluntarily purchase, while others “profit” by lobbying the government for special contracts, trade protection, or other regulatory advantages.  The former example is what drives economic growth.  The latter is nothing but a drag on the real output of others.  Unfortunately, the earnings reported to wall street make no distinction where the profits of a business come from.

This represents a conflict for those seeking greater equality, since the graft of people who use the power of government to enrich themselves appear to be the same as those who legitimately create useful products and services.  There is also a cautionary note that we should take notice of, since the great affluence we enjoy in the United States can be dismantled quickly if the capitalist system is torn down.  Similarly, the size of the government-entitlement regulatory system is not sustainable.  In order to reclaim the future, we need to create both people of ability and opportunities to leverage that ability.

In the end, most of us do not possess the ability to singlehandedly alter public policy.  However, we do have the ability to impact the decision we make in our own life.  Thus, we should all seek to simultaneously increase our own personal abilities and seek opportunities to leverage that ability so that it produces greater results.  This represents more than an opportunity to create results for ourselves … it is a channel for growth of the larger economy through our efforts.

 

Last week, Google announced that it would begin rolling out “Search, Plus Your World,” which is an integration of regular organic listings, PPC and social updates via Google Plus from your inner circles. For those people who thought social networking was going away any time soon, think again. This update is a bold statement by Google to say that social is here to stay; maybe more-so than ever.

Marketing people can almost instantly see the value in this update. For example, let’s say I’m a consumer shopping around for a new digital camera, more specifically, a Canon. If I type Canon digital camera into the search engine, not only will listings from CNET, Best Buy and Amazon come up, but any status updates from my inner circle that mentioned those exact keywords. Notice from the screenshot below, that social listings find their way to the top, this is no mistake. Social listings are more trustworthy sources than a random organic listing. Think of it as a referral.

In the image below, I used “brandon laws” as the keyword in Google, and it brought my Google+ page plus and any updates that mentioned “brandon laws.” These are identified with a little blue icon to the left of the listing that looks like a person. It actually reminds me of the original Myspace logo.

This biggest problem with this update is that Facebook, Linkedin and Twitter are not included. The adoption of Google+ was huge early on, but all signs are pointing to the fact that people just aren’t using it. A Facebook integration is much needed in the future if this new update is going to be successful. There is no doubt that the potential is huge though.

Article source: Search Engine Marketing for Small Business