Payday Lender SWOT Analysis

In this article, we will discuss the development of a SWOT analysis, its development, and how it can be used to acquire financing from a bank or investor. Payday Lenders generally are able to remain profitable and cash flow positive in any economic climate due to the fact that they are able to render a lending and loan service that is in constant demand among the general public. One of the best aspects of this business is that they are able to generate highly gross margins from their lending services. A well written SWOT analysis will feature a strengths section, a weaknesses section, and opportunities discussion, and a threats discussion.

Most importantly and first, you are going to want to focus heavily on the strengths that are associated with your Payday Lender. Foremost, you should again reiterate the high gross margins generated from your Payday Lender capital lending services while also showcasing the generally low costs associated with operating this type of business. Another important mention should be the relatively low cost overhead associated with operating this type of business as they are typically located in high trafficked areas among low income people.

Also within the strengths section of the SWOT analysis, you should focus on your abilities to operate this business on a day to day basis, your experience as an entrepreneur, and how you intend to bring the operations of your Payday Lender to profitability very quickly through its lending operations.

The next section of the SWOT analysis focuses significantly on the weaknesses that are associated with this type of business. Foremost, you should heavily discuss the fact that there are many other types of businesses that operate in a similar capacity to your Payday Lender. You may also want to discuss the relatively high start up costs that are associated with an Payday Lender. Also, you are going to want to discuss the default rates that are associated with operating this business on a regular basis. Here, you should also focus on how you intend to mitigate losses as it pertains to payday lending.

Next, you are going to want to focus significantly on the opportunities that your business will have to expand during its first five years of operation. This may include developing new locations, hiring additional personnel, and engaging in a broad based marketing campaign that will ensure that your Payday Lender business is able to rapidly expand and repay its debts on a timely basis. You may also want to discuss how you intend to obtain additional capital in order to expand your lending operations.

Finally, you are going to want to effectively showcase to your SBA loan banker or investor the threats that will be faced by your Payday Lender. We strongly recommend that you emphasize a number of these issues as it will be to the benefit of your investor or banker to see how you intend to mitigate these risks as time progresses.

As always, we strong recommend that you work closely with a number of professionals including CPAs, attorneys, SBA loan consultants, conventional loan consultants, and other professionals that will ensure that you have produced a SWOT analysis and business plan that is appropriate for both a bank and a potential investor. It is imperative that you have a clear understanding of the complex nature of raising capital for your venture and by having a number of professionals in place – you will be in an outstanding position to receive the capital you need in order to start your Payday Lender.

The 16th Century Entrepreneur Who Created the Concept of the Taxi

The 16th century was a time of amazing transformation in Europe. The Dark Ages were gone, the Black Plague had run it course and Middle Age fears and superstitions were slowly disappearing. The printing press had been invented and it was completely revamping the way people communicated. Columbus had discovered the America’s and the great age of exploration was in full swing. Medical advances, the Reformation, the creation of the great Italian banking houses and the Dutch trading companies had completely changed the way people thought, worked and worshipped.

And yet, there was one area in which there had been virtually no advance since the time of Christ: transportation. Horse or mule, horse drawn carts and boat were the methods of travel utilized to convey people, goods and foodstuffs. Travel was slow. It was uncomfortable. And, it was often very dangerous. Brigands and pirates faced little in the way of organized policing. A bandit pretty much had a field day during the period.

Of all the difficulties a traveler faced, the most frustrating by far was speed: or the lack thereof. As the great Florentine, Venetian and Genoan merchant banks financed warfare, fleets, crops, expeditions and colonization, they had to continually factor a risk premium into their risk/reward computations before settling on the interest to be charged on each loan. The slowness of receiving news of progress, success or failure on the status of an investment vehicle was agonizing to all parties participating in an enterprise. Did the fleet sink, or is it close to home with a valuable cargo? Has the battle been engaged, and who won? Was a new land discovered, and what did it offer in minerals or trade goods as materials for profit?

Knowledge is power, and speed provides the edge that makes this power so important. If I know today, what my enemy or rival will not know for several days, I have a decided advantage on strategizing to my advantage and profit. In the 16th century an industrious Belgian family developed the first international service to address the ages old problem of slow communication.

The Tassis family had obtained the rights to handle a rudimentary postal service in several Duchies in what is now Belgium. The service promised a decent living for the Tassis family by the standards of the time. However, they wanted to do more, expand and create a service that could become the international standard.

The Tassis family divided the work responsibilities between family members and had them disperse throughout Europe. The key to their success was a cohesive, standardized system of fleet horses, experienced, responsible riders, a network of terminals to change horse, rider and re-route mail and packages, and scheduled delivery times. Spain, France, Italy and Germany were little more than a polyglot of feudal city states during this time. There was no central government to handle a service like mail delivery that we consider routine today. The opportunity for a private company to organize and manage an international operation of this import and scale was a wonder.

The Tassis’ received contracts to handle the delivery of mail throughout most of continental Europe. From Naples to the Danube, and Gibraltar to Copenhagen, the family built a delivery network that managers at DHL, UPS, or FedEx would admire and recognize today. A treaty, legal contract or purchase order that took five weeks to reach Genoa from Madrid, could now be delivered in seven to 10 days. As the loads increased the price was lowered and this only accelerated the use of the service.

The family became rich, powerful and across Europe became members of the aristocracy. The name Tassis in the German language is spelled “taxis”.

Today, everywhere in the world, people call for a taxicab when they need to transport themselves for a fare. The taxi service created by the Tassis’ was an important part of the development of the Renaissance.

The Tassis are responsible for one of the most elemental and important service enhancements in history. The ability to accelerate the movement of important commercial, legal and governmental communications enabled decisions to be made more quickly and on a grander scale. The entrepreneurial innovation that the Tassis family introduced enriched their family, business, government and, most importantly, the working class that benefited so much from the rapid expansion of capital and trade. Even today, we can still learn from the historical record that the ability to offer a novel new benefit pays off in so many ways.

How Entrepreneurs Can Use an MWDBE Certification to Enter New Markets

The benefit of being and MWDBE is that various state and other governmental authorities mandate that MWDBE certified firms must receive a certain percentage, usually between 25%-40% of any prime contract that is funded by the government. For example, in New York State MWDBE Construction Management firms usually get 35% on average for some very large and lucrative public works construction projects. But as in all markets, where there is a big demand or, this case opportunity, there is also much more supply, that is, competitors.

But what if a firm looked at smaller niche markets. Markets where, while there is still opportunity, ie. government funding jobs and contracts, but a very limited range of qualified competitors. My experience concentrates on the AEC market, that is Architecture, Engineering and Construction. But there are many other markets that MWDBE firms can enter, both with the AEC industry and others as well, think education, health care, housing.

If a entrepreneur who is qualified for an MWDBE certification were to do some good research, she/he could probably find small niche markets within which millions of dollars is being spent by the government, a portion of that money is probably mandated to go to an MWDBE. Naturally, this would be somewhat limited to the person’s chosen profession, but even ambulance service contracts, in certain states, are mandated to be apportioned to MWDBE firms.

This represents a safety net available for these firms or start ups, so as to facilitate the entry into new markets. Once established in the market, then a firm can decide if it wants to expand away from the state mandated revenue pool, and become primes themselves.

The legislation behind the MWDBE regulations was put there for a purpose, to help a certain sector of the population build businesses that did government work. A smart entrepreneur could find a very lucrative business in a haystack, if they’re smart enough.

Get Greedy: How Working for Free Is Killing Your Small Business

To be sure, I don’t mean “greed” in the popular sense, in which you may be envisioning Ebenezer Scrooge miserly spending his Christmas Eve counting gold coins while his hard-working and loyal employee trudges home through the snow to his meager dinner and his crippled son.

I am directing my advice to “get greedy” to new business owners and freelancers, far too many of whom seem to lack the belief that their product or service has value or that they should demand good money for that value.

WHAT IT MEANS TO GET GREEDY

I hear all the time from new business owners who feel they need to give away their services for free or dirt cheap so that they can build their brand/get exposure/make future sales/gain experience.

If this is you, I am here to tell you something that will save your business: You do not need to give it away for free to be successful.

Ever.

Never, ever, ever.

Not even if you’re just starting out.

Never.

If you just started a business or you have a business that you feel you are working very hard at with little return on investment, I want you to do yourself a favor, right now: Start being greedy.

This doesn’t mean stealing from others. This doesn’t mean undervaluing others. This doesn’t mean providing others with less than what they pay for. And it surely doesn’t mean making Tiny Tim’s dad work on Christmas Day.

Being greedy, in business, means that you make the decision that YOU are just as important as the customer and that you deserve fair pay for your work.

WHY GIVING IT AWAY WILL KILL YOUR SUCCESS

Let’s take a look again at the unfounded reasons that I hear all the time for giving away free work.

1). “I need to give some stuff away to build my brand:” Unless you want to brand yourself as someone who doesn’t value their own work and isn’t worth the money, there is no logic to the belief that free stuff will improve the way people view your business. Ethical business practices, good quality product, attentive customer service and fair (“fair,” not free) prices will improve your brand. Depriving yourself of the living you deserve will do nothing but put you out of business.

2). “Giving away my work will help me gain exposure:” If you think that giving away your work is the best way to build your portfolio or get the word out about your business, then you must never have heard of such formerly-small businesses as Microsoft, Apple, Harley Davidson or Disney. What do these companies have in common? They all attach a very weighty value to their brand, people willingly pay it (even standing in line for hours in the case of Disney and Apple) and none of them are hurting for “exposure.”

Here’s the deal: If someone loves your product or service and had a fantastic customer experience, they are going to tell their friends and family. Giving them free stuff isn’t going to change their opinion of you. It may encourage them to try you out, one time, but it likely won’t result in the type of lucrative, mutually-beneficial business relationship that results in success.

Your goal should be to offer value, not freebies. Value doesn’t mean “free” because “free” is not a fair price. Value means that your customer walked away satisfied that the price was right (whether it’s a high price or a low price) for what they received in exchange. No matter how cheap your prices, it is your deliverables in quality and experience that ultimately make the customer feel happy with your brand.

3). “But, by giving this stuff away, I increase my opportunities to make future sales:” This makes no sense to me. If someone can afford to pay you in the future, they can afford to pay you now, right? Plus, once you give something to someone for free, you train them to devalue your work and they are more likely to try to haggle you when you finally decide to charge them full price.

4). “I need to do free work to gain experience:” O.K., so this has some merit but if you are giving products and services away to people who really should be paying, you are doing this wrong. There are some cases in which giving it away for free is necessary and there is more to come on this shortly.

Hopefully you started your own business because you have a special talent or skill set that you thought was marketable. If this is the case, your product or service has value and you deserve pay for that. You may not deserve the same pay you’ll get when demand increases but you definitely should assess what your real, true value is right now, in this moment, and charge this price.

SEVEN TIMES WHEN IT’S O.K. TO GIVE IT AWAY FOR FREE

1). It’s an industry-accepted norm: If you are a fashion designer and Vogue magazine wants a dress sample for an upcoming issue, then, yes, give them one. This is o.k. because doing so is an industry norm and even Donatella Versace would probably do the same. There is also a very clear and direct investment return to you, in the form of very good publicity, that probably outweighs the cost of whatever frock you supply to them.

2). When it’s a good investment for you: Giving away free samples of your special hummus recipe at a Farmer’s Market, when you know it will draw people to your booth and increase how many containers you sell, is fine. Holding a “buy one, get one” sale to drive traffic during times when business is otherwise dead is also fine if it makes you a profit. Cooking a free gourmet meal for a local culinary magazine writer to promote your new catering company is good publicity if it results in a write-up in the magazine and turns readers of the publication into customers. If you’re approaching an opportunity to give away your product or service with the best interests of your bottom line at heart, you will be able to tell the difference between a good opportunity and a situation in which you’re being taken advantage of.

3). As part of a marketing gimmick: Sprinkles, a chain bakery specializing in cupcakes, is known for using their social media to engage customers and drive traffic to their store. They do this by announcing “secret” words on their Facebook page that, when repeated in-store, result in a free cupcake. Presenters at fairs and events are often able to collect information on potential customers in exchange for opportunities to enter a drawing for a lucrative free gift. These “give-aways” are all examples of greed at work because they actually hold far more sales value for the company than they do the recipient.

4). Nonprofit organizations: If you are really interested in building your portfolio, volunteering your services with a nonprofit organization is an excellent way to create sample pieces of your work, build your experience and keep your dignity at the same time. Plus, talk to your accountant. It may also provide you with a write-off come tax time.

5). As part of an exchange of services: When my hairdresser, who is fantastic but pricey, needed a new website, I jumped at the opportunity to write her content in exchange for her creating some new layers on my head and getting rid of my grays. My website design was courtesy of the editing skills I shared with my website designer and I got the bumper on my car painted for the cost of some marketing materials and social media content. If you can receive something you really, truly need in exchange for giving someone else the same, it’s a win-win.

6). To say “thank you” to a valuable customer: If you must give away something to a customer, the appropriate time to do so is not at the beginning of your relationship, but after they have already proven themselves a valued customer. If you own an automotive repair shop and a customer comes in frequently, refers you to her friends and family and has been a joy to work with then, by all means, throw in a free oil change or tire rotation every now and then with her transmission service. But let your customers earn this sort of treatment first. They’ll appreciate it more.

7). It’s Your Mom: O.K., so greedy is good in a business sense but not always a personal one. Select a few obvious family members and close friends who are genuinely worth the time investment and work for them for free. Keep this list very small and make sure your loved ones don’t take advantage. To date, my list has only included my sister, my father, my fiancĂ©, a good friend I’ve known since childhood and a cousin who was really in need. I have a much larger “second tier” list of friends and more distant family for whom I charge half-price.

Everyone else pays full price.

Every time.

Achieving "Plan B" Through Individualpreneurship – The Notion Of An Individual As An Enterprise

What is entrepreneurship?

Entrepreneurship is a competency (set of knowledge, skills, and activities) required to start, develop, and assume risk for an enterprise. An entrepreneur is an individual who organizes, operates, and assumes risk for an enterprise with the intention of transforming innovative ideas in products and/or services for a profit.

An enterprise is an undertaking for a prize or cause. It is a group of activities intended to produce income organized for:

  • Profit as a business of any size and type: unincorporated or incorporated; one or many entities, of which one is designated as the “holding entity” in a multi-entity structure; and such that one enterprise can incubate another
  • A not-for-profit association, such as a public charity or a private foundation
  • A government agency

When an enterprise is referred to as an entity, the reference is specifically to the holding entity, unless otherwise specified. The term “not-for-profit” is generic; the term “non-profit” means an entity that has been approved by a taxing authority as being exempt from income tax. “Not-for-profit” does not mean “not-for-revenue.”

As a discipline, a business delivers products and/or services to a customer for a profit. As an entity, a business can be:

  • Sole proprietorship (individual)
  • Partnership (pass-through to individuals): general, limited, or limited liability
  • Limited liability company (pass-through to one or more individuals as a partnership or as an equivalent to a “subchapter S” corporation)
  • Corporation: general with directors appointed by shareholder investors, and officers appointed by directors (“subchapter C”), pass-through to one or more shareholder investor individuals who may also be directors and officers (“subchapter S”), professional (pass-through to one or more individuals), or foreign

An upwardly mobile enterprise is a small-to-large enterprise focused on large market dominance (share being either industry-wide or in niches) with local-to-global aspiration in both traditional and non-traditional industries. It has growth potential from highly innovative people, processes, and products and/or services, and/or duplication of a business system. It is financed by founders and/or third-party investors (closely or widely-held) seeking capital appreciation, and potentially cash flow from dividends and/or interest, with medium to high risk. An upwardly mobile enterprise may be founded by one or more entrepreneurs, who either become part of a larger management team as new investors come on board, leave to form another venture as serial entrepreneurs, or retire.

Upwardly mobile enterprises are the heart of Wall Street.

A lifestyle business enterprise owner operates an enterprise in a local community, and may also be the founding entrepreneur:

  • Either as an active owner-manager, making a living from its activities for their own lifestyle
  • Or as a passive owner-manager, with an active management team in place

Lifestyle business enterprises are the heart of Main Street.

A lifestyle business enterprise owner can be a sole proprietor, partner, member (and usually also a manager) of a limited liability company, or a shareholder investor in a corporation (and usually also a director and an officer).

An employee is an individual who provides services in exchange for compensation under an explicit or implicit contract for hire, whereby the employer (hirer) has the right to control what work is performed and how. An independent contractor is self-employed; the hirer has the right to control only the result of the work, and not how it is performed.

What is individualpreneurship?

Individualpreneurship is a mindset for thinking about oneself as an enterprise, actively developing and managing multiple sources of income, and without being highly dependent upon any if possible.

Sources of an individualpreneur’s income include:

  • Employment
  • Entrepreneurship/business ownership
  • Investing

The individualprise represents the aggregation of all sources of an individual’s income. Gross income results from wages from employment, and from both revenues (commissions, dividends, fees, interest, rents, royalties, and sales) and from capital gains from both entrepreneurship/business ownership and investing activities. Net income (profit) results from gross income less the cost of revenue and the expenses required to generate it. The cash flow generated from net income generates wealth, which can be used for investing activities and supporting a personal lifestyle.

The broadest definition of wages includes all remuneration or compensation paid for services rendered by an employee, whether in cash or in other media including bonuses, commissions, and gratuities, based on piece, task, or time.

The need to develop and manage multiple sources of income arises from increasing uncertainty about economic, regulatory, and social trends.

For many individuals, the primary source of income is remuneration from employment, and the largest asset is their home. Employment is an active form of income – in effect employees exchange time for money. However, the best forms of income are those that are residual and passive.

Residual income results from an initial transaction at some time in the past for which an ongoing cash flow is received; passive income results from transactions where the individualpreneur is not actively involved.

Examples of residual income include enrolling members in systems where downstream commissions can be earned; selling items, such as subscriptions that are automatically renewable, or consumables where the ordering is processed by third-parties; and affiliate programs based upon referrals.

The rise and fall of employment opportunities

Prior to the industrial revolution, families were in effect enterprises. Augmenting farm work with other trades and crafts, families flourished in cottage industries working from home, effectively as a group of individualpreneurs. Merchants brought raw materials to homes and would take finished products to markets. Entrepreneurs would “put out” work to families, who were in effect their subcontractors.

As the industrial revolution progressed, work was transferred form homes to factories when the required machinery became too large or expensive. Initially, the “put in” system was used whereby workers in a factory were treated as subcontractors, and eventually became employees. Labor movements were founded to fight for workers’ rights, from which today’s employment and labor laws have evolved.

As the economy shifted from family to commercial and industrial enterprises, employment opportunities grew. Workers could expect long-term employment opportunities as manufacturing demand increased. Through improvements in manufacturing techniques, such as production lines and automation, the scale of units produced increased dramatically. Through improvements in energy, transportation, and telecommunications technologies, reach extended into new geographic markets for acquisition of materials and supplies, and delivery of end-products.

However, recent globalization trends have changed the cost structure of certain activities through outsourcing to providers who offer economy of scale, or to lower cost production markets. As a consequence of information and process control technologies, work has shifted from manufacturing to knowledge-based services. Technology can play a major role by creating jobs in new areas and eliminating them in others.

Enterprises have been impacted dramatically by these trends. For example, “big box” and online stores have had an impact on retailers on “Main Street” – but the savvy ones offer specialty products coupled with exceptional service. Even the local coffee shop is impacted by the price of green beans in global markets. Many manufacturers have downsized through strategic sourcing of components to scale providers, and in the construction industry, general contractors take advantage of prefabricated assemblies. As industries shift from manufacturing to knowledge-based, a major differentiator is marketing capability. Marketing capability requires understanding customer needs and wants, and responding with products and/or services designed for niche or mass markets, regardless of where the components are made.

The consequence is that job markets are dramatically changing, and that old assumptions for employment have become invalid. The notion of working for one employer for forty plus years is no longer possible because technology is changing the structure of industries and the nature of employment. Downsizing has become common, and it is a challenge for the education system to keep up with changing trends in the knowledge, skills, and technical requirements for jobs in emerging enterprises and industries.

The increase in consumer debt coupled with unstable employment opportunities has created stress for many individuals and their families, especially for those who are unemployed, face foreclosure on their homes, or even bankruptcy.

What is “Plan B?”

The term “Plan B” is used to describe an alternative course of action in case the preferred or primary “Plan A” fails. For many individuals, Plan A is a combination of a good education leading to a well-paying job. This form of Plan A stresses individual achievement through successes in education and employment – failures are usually downplayed. However, changing trends in employment put pressure on most individuals’ Plan A, who may face downsizing or even their employer going out of business.

For others, Plan A is a combination of entrepreneurship and business ownership. This form of Plan A can result in failure. However, ultimate success in entrepreneurship and business ownership is often achieved by learning from mistakes and failures over time, and by building teams. Plan A for entrepreneurs and business owners may change from time to time as their ventures change. Eventually, many entrepreneurs and business owners finally get it right as lessons from past failures lead to successes. Many entrepreneurs and business owners become investors in other enterprises with a sense of “wanting to put back,” and often with a higher tolerance for risk than those who have, in effect, earned income in exchange for time.

The uncertainty of the economy, regulation, and social trends as evidenced by downsizing, high consumer debt, government debt and unbalanced budgets, and high unemployment has created the need for all individuals to have a strong “Plan B.”

An effective Plan B begins with the notion of an individual behaving as an enterprise in their own right – the individualprise. Whereas Plan A may provide a primary source of income, developing a Plan B means understanding opportunities for earning multiple sources of income and allocating time efficiently by prioritizing on the best. Executing a Plan B may allow an individual to keep their primary form of employment, but work on other income producing activities, such as part-time employment, home-based businesses, or investing in real estate and/or securities.

The income statement of the individualprise is the tax return – after all, if the an individual has multiple strong streams of income, taxes are likely to be an important consideration.

The basis structure of the Individual Tax Return (IRS Form 1040) applicable to both Plan A and B activities includes:

  • Wages
  • Interest (Schedule B)
  • Dividends (Schedule B)
  • Business income from sole proprietorships (Schedule C)
  • Capital gains (Schedule D)
  • Supplemental income from rental real estate, royalties, partnerships, and subchapter S corporations (Schedule E)

The tax return offers clues as to opportunities for alternative sources of income; however, it is useful to separate the type of income from the forms of business, such as sole proprietorships, partnerships, limited liability companies, and corporations.

Types of income include:

  • Wages – all forms of compensation for full or part-time employment
  • Interest on investments
  • Dividends on investments
  • Capital gains on investments
  • Net income from active revenue generation such as commissions, fees, rents, royalties, and sales less expenses
  • Net income from passive revenue generation activities – primarily real estate rents and royalties less expenses

Types of business forms include:

  • Sole proprietorship and single member limited liability company – an individual that sells products and/or renders services, including as an independent contractor to hirers
  • Partnership or limited liability company – where an individual is a partner or member in an enterprise that shares profits, losses, and capital with others – the individual may be a general partner or member-manager, or a limited partner or member; a single member limited liability company is considered to be a disregarded entity
  • Subchapter S corporation – where an individual is a shareholder investor in a corporation that passes its profits and losses through to its shareholders – the individual also may be a director and/or an officer, and as such earns wages as an employee in addition to receiving dividends
  • Subchapter C corporation – where an individual is a shareholder investor in a corporation that is taxed separately from its shareholders, but may pay tax on the dividends received (thus is subject to double taxation) – the individual may also be an employee, and as such earns wages in addition to receiving dividends

Only individuals and corporations are legal entities, and as such, corporations have separate rights and privileges from their shareholder investors. Individuals are natural persons. However, a juristic person is a group of natural persons behaving as if they are a single group, such as in a partnership, a limited liability company, or an association. A company is a group of individuals that make up an enterprise regardless of business or legal form.

Entrepreneurs may start enterprises in any business form, but lenders and investors may require a specific form, and may place personal guarantees in individuals for contingent liabilities. Venture capital and investment firms may place specific requirements on business forms and management structure, such as being a Delaware subchapter C corporation. Thus a founding entrepreneur could become a shareholder investor in an enterprise that they are no longer in control of if an investor group brings in its own management team. Delaware is the preferred choice for incorporation for many investors because of its well established corporate laws.

Although self-employed individuals are treated as business owners through sole proprietorships, single member limited liability companies, and single shareholder corporations, they are unable to leverage their time unless they can delegate to trustworthy employees, or earn residual and/or passive income.

Individuals who are sole proprietors, partners, and members in limited liability companies are subject to self-employment taxes, and shareholder investors who are officers in subchapter S corporations are subject to employment taxes.

Achieving “Plan B”

There are many ways to develop and achieve a Plan B that has multiple income streams, and it is possible that one component may become the new Plan A eventually. Some opportunities result from converting a hobby into an income producing activity, whereas others result from leveraging professional qualifications and experience.

Examples of income producing activities include:

  • Part-time employment
  • Establishing a home-based business on a part-time basis, that has the potential to become full-time
  • Earning fees and commissions from referrals through affiliate marketing relationships
  • Earning royalties and fees through writing and speaking engagements
  • Investing in real estate for rental income and capital gains
  • Investing in securities for interest and dividend income and capital gains

Businesses that require separate physical premises, inventories, and employees should be avoided as a Plan B because of the high overhead of carrying costs, insurance, payroll, risk of theft, and governance. Whereas the notion of owning a restaurant can be a dream to many, all too often such an enterprise becomes nothing but a nightmare.

Home-based businesses can take many forms such as buying and selling products on the internet or providing professional services on a part-time basis. It is important to note that home-based businesses are subject to licensing and zoning laws and regulations, and may be subject to property, sales, and use taxes, in addition to income tax.

Any form of revenue generating activity requires business development and marketing capability to create awareness and build relationships. The degree of selling experience necessary is a function of the type of business. These activities can be routinized through duplicable, predictable, and measurable processes that can be learned over time.

Some investing activities may require active trading to ensure that capital gains can be properly realized in up markets, and to prevent losses in down markets.

The best form of income is both residual and passive, whereby ongoing cash flow results from activity that occurred in the past, and for which little or no management activities are required in the present.

An effective way to achieve a blend of residual and passive income is through a combination of sources from membership systems and investing activities as follows by:

  • Enrolling customers in membership systems where commissions are earned from ongoing sales of consumables, for which the ordering and distribution is handled by third-parties – this activity generates residual gross income
  • Investing the residual income in an investment portfolio that diversifies risk, and generates cash flow from interest and dividends – this activity generates residual gross income; the income is passive if the portfolio does not require active management through trading
  • Note: investing in real estate may generate residual income from rents; however active management may be required for finding tenants, negotiating leases, collecting rents, paying expenses such as utilities, and performing maintenance and repairs; investing in securities may require some trading to hedge from risk, and to take advantage of capital gains.

A shorter-term objective of Plan B is provide a hedge against Plan A as an alternative. A longer-term objective of Plan B is to gain financial independence – the state of having sufficient wealth to cover expenses required by a certain lifestyle. Wealth is achieved by having sufficient assets and income producing activities to generate a gross income that exceeds all professional, physical, and personal expenses required by that lifestyle. Wealth is a source of capital for future investment. It is usually advisable to eliminate debt in the quest to achieve financial independence.

Enterpriship

A key success factor in developing a Plan B is understanding those enterpriship (entrepreneurship, leadership, and management) competencies that are essential to income generation.

Carrier Pigeons Helped Create the World’s Most Famous Banking Fortune

Whether in business, warfare or affairs of the heart knowledge, the more the better, is often the most crucial element in determining event outcomes. The ability to know what the competition for a business deal is strategizing is potentially game changing. A General upon learning details of a rivals battle plan gains immense advantages in plotting counter-strategy. Knowledge is often not quantifiable, but it is invaluable.

One of the most famous and consequential uses of real time knowledge occurred in Europe in 1815. Early in the 19th century information obtainable through communication channels about distant events was painstakingly slow to arrive. Roads were rough, unfinished, really little more than cart paths. There was no wire transmission or speedy organized courier services for delivering messages over vast distances. Word of the outcome of a battle, treaty or an important political affair could takes weeks or months to arrive where the result was most keenly anticipated.

The Battle of Waterloo is possibly the most famous military engagement in history. The battle site, the tiny, remote Belgian village of Waterloo, is synonymous today with one’s “final act”. Waterloo became Napoleon Bonaparte’s denouement. His inglorious defeat by the British forces, commanded by the Duke of Wellington, expedited his exile to the tiny island of Elba and the decline of France as a military power for almost a century.

Prussian, Austrian and Russian armies had allied to fight with the British against Napoleon. All of these great armies, moving across vast swaths of Europe terrain needed extensive provisioning, arming and logistic support to maintain troops as they girded for the great battle. This was an incredibly expensive enterprise. Massive funding was required to support the campaign.

The Rothschild banking family was already famous across most of Europe for providing a secure funding source for national governments. The Rothschild’s had established five branches of their enterprise. The largest, most important were based in Paris and London. The final Napoleonic war was largely funded by Nathan Rothschild of the family’s London branch. This house had provided large sums to both the British and the French. The Rothschild’s were famously indifferent to rulers and governments. Nathan Rothschild once famously remarked, “The man who controls the British money supply controls the British, and I control the British money supply”. His goal was to profit no matter whom was in power or won a war.

Nathan Rothschild knew that early knowledge of the winner at Waterloo, details of the battle, the severity of the loser’s defeat would be invaluable in financially manipulating markets to profit from the result. The family had invested heavily over the decades in field agents that forwarded tips and messages, fast packet ships and trained carrier pigeons to speedily deliver notes.

The arrival of the carrier pigeons in London with specific battle results from Waterloo provided Rothschild the information he needed to begin to plant rumors. Initially he spread the word that the British had lost. Investors began to adjust their bond and security positions in reaction to this negative news. Rothschild took opposite positions, and then, he strategically released the actual truthful news that Wellington had vanquished Napoleon. This enabled the family to profit on both sides of the trades. It is estimated that the Rothschild family extrapolated an increase in wealth of 20 times their pre-war capital.

The foresight to train a winged air force of carrier pigeons proved fortuitous and extremely profitable for the banking house of Rothschild. The edge they enjoyed in receiving real-time information, and spectacularly profiting from the knowledge, became legendary and only increased the perception that they were a family of financial Merlin’s. Their power and wealth has multiplied exponentially in the past 200 years and has been maintained to this very day.

In modern business and finance, the ability to glean information about competitor’s plans, information that will affect asset valuations and marketing strategies is invaluable. Governments spend billions of dollars trying to steal state and commercial secrets. Private investigators are used every day to scope out the fidelity and affairs of married spouses. Information is power.

Entrepreneurs can learn an important lesson from this chronicle about the Rothschild’s use of carrier pigeons. If your project has true commercial value it must be protected. You must assume that there are people working at the same time on a similar opportunity. Time is not your friend.

Whether you can uncover a competitor’s plan or an adversary learns your project’s details, the first owner of knowledge stands to maximize profit. Placing second in this process is a sure path to losing the crucial first to market product advantage. The Rothschild’s earned fabulous riches from simply learning the outcome of a battle before competitors. In order for entrepreneur’s to successfully profit from their efforts they must harvest every bit of relevant and available knowledge as quickly as possible.

Knowledge is invaluable, but it must be secured and utilized with diligence and due haste.