Tag Archives: entrepreneur
In part one of this series we looked at social media as a means of hedging your traditional advertising “bet”, using it as a tool to protect against potential losses brought about by unprofitable, outdated, traditional advertising methods. While it can certainly be used in a microenvironment like a small business’ marketing campaign, social can also act as a traditional hedge.
Sure investing in social startups, or in this case, launching your own, is far from a traditional investment vehicle, but it could very well be the safest investment you have ever made. Everybody has some “great” idea for a new website that will change the world and allow them to retire early somewhere on the Italian coast, and while the odds of you becoming the next Mark Zuckerberg are more than his net worth to one, that doesn’t mean you can’t generate a decent return on your money.
You’re a mid-level executive, you bring home $100,000 a year, of which you place 5% in an ultraconservative 401K, save 10% for a rainy day, and invest an additional 10% in traditional vehicles, stocks, bonds, mutual funds, etc. Using 2012 as an example, which in a reality was a phenomenal year for the market, we can assume that you made 13.4% (S&P 2012 gain) on your 10,000 investment, bringing home a pretax profit of $1,340.
While that 13% return is certainly nothing to scoff at, and most (smart) investors would take that every day of the week, there is some semblance of a risk taker in all of us, and sometimes that SPDR ETF just doesn’t cut it. Fortunately for you, you just got off the phone with your broker and Direxion just unveiled 3X leveraged ETFs! That’s the risk you were looking for, it has high earning potential and because it’s regulated by an American institution it retains some degree of safety, right?
Now, let’s pretend you invest half of your yearly $10,000 into the 3X leveraged ETF, day one rolls around and unfortunately the market opens down 1%. While normally that would not be such a big deal, that 1% is really a 3% hit for your leveraged fund. The bell rings, and at the end of the day you’re only down $150 which brings you to $4,850. No big deal, the next day comes around and the markets surges 1% on a good jobs report. But wait, a 1% gain only brings you to $4,995, you’re still down $5. Unfortunately for you, since your lost 3% on $5,000 day one, day two’s bump couldn’t get you back to par since you were working with a depleted capital supply. Although this happens daily with traditional investments, you’re not a day trader, and it takes very little time for your investment’s working capital to be exhausted.
However, this is 2013, you decide to hop on the social bandwagon and put that freshman level computer science class to the test. Instead of investing $5,000 into some volatile fund or note that is based on an index that was created by an overseas investment bank, you decide to leave $9,000 in traditional vehicles and invest the remaining $1,000 in your very own social startup. You go with something niche, in this case, Fiesta Campus (www.fiestacampus.com), a photo sharing website for college students. You register the domain for $12.99 on GoDaddy, use Wix or the like to design and host your website for and additional $9.99 a month and boom you’re up and running. Of course you have to make it legal and your business formation costs you an additional $250. From there, you begin to build a user base and generate some web traffic, and since your business model is based on advertising revenue, you can’t make money without them. You market on Twitter, Facebook, and the like but you decide to expedite the process and spend your remaining $600 on advertising space in a local college newspaper. Fortunately, their print advertising is very cheap and $600 gets you a front page ad in 10,000 papers. That being said, only 75% of those are read by college students, and of those, only 5%, a total of 375 people, go to your website and become users. A week later, the flux in web traffic causes the value of your $13 domain to skyrocket, it increases in value tenfold, and thanks to GoDaddy’s free valuation tool, you realize your domain is now worth $130.
So, 6 weeks after your website went live your domain’s value has skyrocketed, but your domain is not your most valuable asset, your 375 users are. When Facebook went public, they were given a total valuation of $101 billion and had 845 million users, giving each a value of $121. Since we cannot reasonably assume that after 6 weeks your users are as valuable as Facebook’s, we’ll say that they are worth only 10% of what theirs are, $12.10 a user. If we then multiply that out 375 times and add in the $121 domain valuation, your social startup, which only cost you a $1,000, is now worth $4,658.50, quite a hefty return for a 4 month period.
The good news for your aspiring entrepreneurs, it only gets better. As you gain more and more users, they actually increase in value, as does your domain. However, once you hit a certain threshold, gain a solid user base, and hit traffic benchmarks, advertisers will be knocking down your door to place their banner ads on the side of your website, that fortunately for your wallet, boasts a very specific group of users and allows for highly targeted advertising.
Finally, let’s look at the potential downside, remember, gone are the days where starting a business took countless hours and tens of thousands of dollars in capital. While launching a social startup is by no means easy, nor are there any dividends or guarantees, it does provide a high potential, low risk investment that cannot be mimicked by traditional vehicles. What’s the absolute worst case scenario? You lose $1,000, less the $12.99 domain which will only increase in value over the long term, as relevant domain names are become increasingly scarce as startups and speculators purchase thousands a day. So, when you’re analyzing potential investments, ask yourself, what do you have to lose? Can you afford to take a $1,000 risk and give up some free time? If so, its time you reallocate your risk into something far more profitable and launch your very own social startup.
While I was forced to make a lot of educated assumptions regarding returns, pricing, and costs, social’s potential as an alternative investment, or hedge on traditional vehicles, is undeniable.
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© 2012 Brendan Brandt. All Rights Reserved.
How Much Is Each Facebook User Worth? – http://thenextweb.com/socialmedia/2012/03/31/how-much-is-each-facebook-user-worth/
Stock Market Performance By The Numbers – http://www.wyattresearch.com/article/2012-stock-market-performance-by-the-numbers/29185
Top 5 Niche Social Networks – http://computer.howstuffworks.com/internet/social-networking/information/5-niche-social-networks.htm#page=0
Advertising Rates – http://www.cavalierdaily.com/page/advertising-rates
Hundreds of emails come across my desk each day. On a good day I read, I mean actually read, 5. Those 5 come from people I deem extra important or contain a subject line that extraordinarily excites me for some reason or another. What of the other 95 you ask? I skim them. I briefly read them before filing them away into some miscellaneous Outlook folder or deleting them forever. Frankly, I don’t have time to completely read and / or respond to every email that I receive each day, that being said, I don’t want to. Does that make me lazy? Because I don’t want to spend 8 hours a day sorting through pointless emails? No. Rather, myself – and i argue, gen. Y as a whole is/am efficient. Why waste our time reading countless emails that contain an unearthly amount of unnecessary information? Maybe it’s growing up with internet, smartphone, and social media at our fingertips that has conditioned us to be lazy as many gen. Xers see it (efficient in my eyes). Why would I spend 10 minutes reading an entire article in the New York Times when I could follow their columnist on Twitter and get the 3 major points in 30 seconds? If I’m interested / want to learn more, I’ll click the attached link and read the full article. Social Media has completely revolutionized the way we take in information, I no longer need to browse Fox News, CNBC, and various blogs to get my morning fix (insert CNN and MSNBC if you lean to the left). Instead, I can follow The Factor and Jim Cramer on Twitter and get the exact same information, only condensed and delivered to my smartphone with the click of a button. However, the laziness / efficiency doesn’t stop there. I’m an avid reader – not books (they take too much time) but I do frequent certain websites – Mashable, Inc., and Entrepreneur to be specific. Each day I read roughly 30 articles. That takes me 20 minutes. First of all – if the title doesn’t have some sort of number in it i.e. “5 Ways Really Smart People Better Themselves” I don’t read it. Articles like the afore mentioned are the easiest for me to breeze through and pull the important points. I can pull up that article, read the 5 bullet points, and in 20 seconds I’ve comprehended the same amount, if not more than the reader who spent 15 minutes reading through all the nonsense just to get to those same 5 points. I’ve been asked why I do this by several people, most of them much older than I, as I assume the equate this with not “taking the time to stop and smell the roses”. I give them the same answer every time. I skim through articles, stow away various tidbits of information I find useful and then formulate my own ideas rather than those outlined specifically in the articles at a later date. Since I only spend 20 minutes a day reading and not 2 hours, I have an extra 100 minutes to stop and smell the roses.
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P.S. I wrote this article in 15 minutes while listening to a video by McKinsey’s David Edelman.
When sitting down to think over our business’ “social media strategy” all too quickly do we gravitate to Facebook. While Zuckerberg certainly knows how to stay on our minds, no longer is it the most advantageous business tool in the social landscape.
Regardless of your business type, whether you are service provider or direct retailer, you’re selling a product. While Facebook doesnt hurt your pitch, it’s certainley not the most beneficial, cost effective, or efficient.
- If you want to build you brand’s presence or establish yourself as a thought leader, sure you could use Facebook but wouldn’t a blog provide a better online forum? Couldn’t you push out content faster and to a more engaged audience if you used Twitter?
- If you wanted to network and interact in a group setting, again, you could use Facebook, but isn’t LinkedIn a much more valuable tool, providing specialized groups, and professional feedback?
- Lastly, if you wanted to cold prospect, making contact with 1,000 of random leads a day, could you even use Facebook? No. On Twitter and LinkedIn you certainly can.
Which leaves us here, has Facebook become obsolete? Satisfied with being thinned out and mediocre in ever category, not the best tool for any one scenario. Or has Facebook done the right thing, and established itself as a utility player of sorts? You tell me.
In the rapidly evolving world of micro blogs, social media, and html5 the college startup has become increasingly common. While many economists advise against starting a business in a recession and financiers are reluctant to provide small business loans, a new breed of entrepreneur is emerging. With minimal expenses, little responsibility, and plenty of free time, intrepid college students are going into business for themselves. In theory, college provides the perfect climate for launching a new business, but what are the motivating factors that drive students to become more than just that?
When launching my first business at 19, it boiled down to three things.
Boredom- Sure I took classes on everything from fine arts to ethnic conflict, stayed involved in campus activities, and made time for friends, yet I somehow remained dissatisfied. For many young entrepreneurs like myself, launching a business is an opportunity to channel personal talents in ways that academics cannot.
Fear- I have always been somewhat of a news junkie but even students who remain completely uninterested find it impossible to remain uninformed. Between the classes, flyers, and dorm room chatter students are immersed in a world of knowledge. While for many this results in a spot on the dean’s list, for me it translated into fear. Sure I was intelligent enough, got good grades, and had a respectable internship, but constantly hearing about a turbulent job market scared me. Was I really going to be able to land a decent job upon my graduation? Starting my own business seemed like a win – win, either my business would succeed and I would be financially secure entering “the real world” or the endeavor would fail and I would walk away with an improved resume. Regardless of the outcome I would be better off than I started.
Opportunity – College is an incubator for creativity. Of course there are countless hours spent studying, but free time is plentiful. This, coupled with bountiful campus resources; mentors, technology, and most importantly other students, creates an ideal environment for young entrepreneurs. While both are potentially available in countless other scenarios outside of college campuses, I found the collegiate environment to be one of a kind, a sort of all in one think tank, test market, and mentorship program that provided everything necessary for me to launch a successful business.
So what really motivates young entrepreneurs? Are they, like me, motivated by fear, boredom, and opportunity? Or is there another force driving them to succeed outside of the classroom?