Archive for the ‘Economic Analysis: Tom's Take’ Category

100 to 1 Return on Your Investments

Sunday, December 4th, 2011

Sound to good to be true?

That was my initial belief, until I read recent article that reminded me of earlier times.

An investment that compounds by 14% per year will generate a 110-to-1 on an investment in 35 years. Yeah, but who holds onto an investment for 35 years? Most investors turn over their portfolio every couple of years…and never make much money.

Personally, I can’t see myself holding any single investment for 35 years. Article was also using fairly large investments. Most of us don’t have a lot to invest at one time.

A $5,000 investment compounded at 14% a year would generate $18,536 after 10 years. $35,689 after 15 years. $68,717 after 20 years. That’s a return of 3.7 times your investment in just 10 yrs., 7x after 15 yrs and 13.7x after 20 years.

How do you find investments like these?

First, find investments you can hang onto for a long time, through thick and thin. Many years ago that was the investment philosophy that assured wealth. Turns out the most successful investors still follow that strategy. Brokers push for frequent trades. Most make their money on commissions. If you buy an investment and hold it for 10 years, they don’t make much money.

Second, identify investments that solve problems. Or help us do things quicker and less expensively. Concentrate on”new.” But not trendy. Trends come and go, often very quickly. Look for “new” products, materials, or methods that make new/better use of products and materials.

Third, make investments you believe in enough that you won’t second guess yourself the first time the investment drops 20%. Like any investment, you can’t buy it and forget it. These investments still have to be watched. We all make investments decisions from time to time that we wish we had not made. Those need to be eliminated. How do you do that? A good rule of thumb to use: Any initial investment you buy should get sold if it drops 25% in value after you initially buy it.

Another common investment thought is to sell 1/2 your investment when you double your initial investment. That philosophy guarantees the return of your initial investment. You simply let your profits “ride.” If company subsequently goes out of business you have not lost any actual cash. Of course that means you need to hold the investment longer to get your 100-to-1 return.

Fourth, pick investments that are relatively cheap. High priced stocks in very large companies typically return much less than 14% compounding annually. (Many of them did for many years but have passed that part of their growth curve. Nothing wrong with these companies at all. They simply fit a different part of your investment plan.)

100-to-1 investments are designed to give you real wealth.

Keys to make this work for you.

Look for companies that occupy unique positions in their market segments. Many of these may be established companies bringing out new products or new technologies that will appeal to, or be of use to large segments of the population. Or products/service that enable big companies to operate more efficiently. Watch who is buying the investment. Stay away from trends or fads.

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“Success Isn’t Permanent, and Failure Isn’t Fatal

Wednesday, October 26th, 2011

The above comes from Mike Ditka, legendary Chicago Bears football coach and current sports commentator.

“Do something” seems to be the cry of politicians, governments, the stock market, and everyone who is getting something for nothing from someone. Sometimes “doing something” is the wrong thing.

Recently I was forced to re-evaluate our business model. The good news is that those of us in business have ability to see the results of our actions quickly. (Sometimes a lot quicker than we like!)

Have you looked at your own business/job to evaluate:
- What areas of your success may be “running their course?”
- Which are on the rise?
- Which are getting in the way?
- What should we be doing that will contribute more?

Securemploy has had a wonderfully successful program for 23 years, Securemploy Pinpoint Ads. As we asked above questions it was apparent this program had “run it’s course.” Technology had passed it by. That evaluation was hard. It had been the second most successful revenue generator in the company.

We evaluated the last option next: What were we doing that was getting in the way of our success? We were doing a lot of things that I really believe in and liked. Whoops! Believing in things is fine, but it’s no excuse for continuing programs that are marginal contributors. We could, and did, revamp some of the programs to “salvage them” until we can replace them. Others needed to get dropped.

Identifying existing programs that are on the rise was easy when we got the marginal stuff out of the way. Getting rid of marginal revenue streams gave us the time to concentrate on projects “on the rise” without adding staff.

Last question, What should we be doing that will contribute more? is always the most fun. Opening to new vistas gets the creative juices going. It’s fun and wonderful way to give morale a shot in the arm. We limited that to two meetings. Yea, I was accused of being an “old fuddy duddy.” (I’m sure that was cleaned up since I was in the room.)

This step was far and away the hardest given how fast technology is changing. We looked at things we had never considered before.

We fell back on some suggestions we have offered management companies.

All of us in hospitality industry know that buying the assets that would benefit our businesses is very difficult. We have also found that obtaining profitable management contracts is still difficult. Most management companies are left looking internally to see what they do better than competitors. Then identify how to monetize those services.

The good news? Those services already exist. That means a high profit margin on any of those services we can market.

Securemploy applied that rationale internally. It has identified some programs that appear to have good profit margins, can run for several years, and can be modified/tweaked as technology continues to advance, hopefully without major capital expenditures.

Yes, it was hard to drop a program that 23 year successful program. Mike is right, “success isn’t permanent.” The goal is to avoid failure. It may not be fatal, but it’s sure not fun!

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Branding-Nationally & Internationally

Tuesday, July 5th, 2011

Demand for Talent has Gone Global.

Talent scarcity is worldwide. The world faces declining fertility rates. Education standards vary greatly. Last, worldwide there is an aging population.

Employers need strategies to retain employees as well as faster strategies to attract talent.

The solution to recruiting challenges includes collaborating with other companies, educational institutions, and even cutting across industries.

Business leaders and their employees need to encourage broader understanding and cooperation between cultures. It’s simply a fact of life to the success of any business, no matter how small.

Employees need to at least welcome change.

This recession has taught employers around the world how to do more with fewer employees. Remaining employees at least are open to change. The best actually embrace change. Unfortunately that has meant the disparity between the best talent and the rest has become much more pronounced—in their jobs and in their standards of living.

It’s important for all businesses to do a better job training, motivating, and coaching employees. Likewise, employees need to take more responsibility for their own careers, motivation, and the types of coaching they need and best respond to.

Your Company’s Growth

Smart companies and entrepreneurs spend time thinking how to attract and retain the employees that will contribute to their growth and profits. Growth is much more than increasing sales. It involves identifying additional products or services existing customers want. Identifying additional market niches. Finding pockets of business where your company can carve out a competitive advantage.

Tools You Can Use

More and more companies are using contract labor. Businesses have more short-term market opportunities and opportunities to provide a highly targeted set of skills or services. That also means business needs to look at more out-sourcing instead of doing everything ‘in-house.’

Self-education, through all the tools available on the Internet is a rapidly growing trend. What is your company doing to identify additional skills your employees need? Then helping them find Internet sources they can use to acquire the skills.

Employers need to work with local schools to acquaint the schools with the skills schools need to be teaching. That also means schools need to become much more flexible in what they teach. In the US that will be a tough transition given how entrenched the public education system is. Many feel this is a primary reason so much is being done with training through the Internet. That enables individuals to take responsibility for their own educations to assure they get the skills to enable them to thrive, instead of survive.

Improving Communication

While there will be increasing reliance on the Internet for educational opportunities there is also increased need for better communication skills when face-to-face. The Internet is still relatively new, and ‘texting’ is very new. All of us are still identifying when that’s the best way to communicate and when face-to-face, or actual voice communications are more effective. As we become more comfortable video texting communications will improve.

The reason for face-to-face communications is to enable the use of more senses, hearing, voice inflection, facial/body language, etc. Video communications can enhance communications. As the need for skills expands worldwide so does the need for all of us to acquire some foreign language skills, especially those of us responsible for recruiting employees for our organizations.

We don’t need to speak several foreign languages, but we need to know how to use the Internet to enable us to communicate easily with people who communicate in different languages.

Summary

Increasingly we live in a global world. That is unlikely to change. Step back and identify how your company can effectively benefit from globalization. What skills do you, and your employees need? Where are the business opportunities? What can you do differently?

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Economic Analysis: Weathering the Storm: Tom’s Take

Friday, April 23rd, 2010

Was just reading that 61% of US Government expenses are covered by the taxes the government collects. Other 39% has to be borrowed.

The Congressional Budget Office (CBO) has already forecast a 4.5% deficit to GDP for the next 10 years.

Meanwhile, the government continues to spend money we don’t have on programs that will never increase real tax revenues or the size of the taxpayer base. In the last 50 years the federal government has made no real attempt to solve the above deficit problems long term.

So what does it mean for hotel business as we look “down the road?”

One persons problem is another persons opportunity.

As the government gets bigger and bigger obviously there will be more business from governmental agencies. Equally important will be all the companies calling on various government agencies either to sell to, or get something from the government. Then there will be all the companies who call on the government who are just trying to get a piece of the action.

Historically, “insiders” have gained the most from swings in governmental spending. That’s why there are so many lobbyists trying to influence governmental agencies. Yes, they are trying to influence policy, but more important is having advanced information that can benefit them.

How do you become a government insider?

Knowledge is power.

Who in your community will benefit from the government taking a more active role in our economy? How much do you know about those entities? How can you learn more?

Even if your business is in a small town there are businesses and organizations that work closely with various business organizations. Be sure you know who they are and have a plan on how to increase your business from those organizations. They are going to have needs for hotel rooms, create group business, and have a need for recreational programs. They can benefit hotels that specialize in transient business or group business, and they can benefit resorts.

What’s the best way to tap into this buisness?

Use the Internet.

Create a social media campaign using email to reach out to organizations for each market segment you are interested in.

When thinking social media we immediately think of Twitter and Facebook. Instead, create your own social media network and let it expand based on people who are interested in what you are offering.

Have a monthly email that appeals to a highly targeted group of your customers. Ask them to subscribe and to share your emails with others they know who would be interested. By appealing to a highly specific group of customers it becomes very easy to write to them. It’s much easier to write for a narrow market. As soon as we try to write information that will appeal to a mass market we have to spend a long time carefully thinking about the market we are trying to appeal to.

This blog is written first for the hotel industry and secondly has some applications to the overall hospitality industry. Were I to write this for a much broader audience I would have to write much longer blog articles and use lot more examples, and I could not be as specific. I have a great deal of admiration for people who have the ability to cogently write for large mass audiences.

Break your marketing emails down to as small a market segment as you can. This will enable you to exchange information and feedback that is highly targeted to the needs of the specific segment. Your goal is to increase your business from that segment by 10% each year. Will you always hit the goal? Probably not, but having an aggressive revenue goal will keep your monthly emails highly targeted.

Share what’s working for your hotel. We are all peers, very, very few of us are really competitors.

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Economic Analysis: Plan Now to Profit from Coming Oil Shortage

Wednesday, April 21st, 2010

U.S. Military is warning that by 2010, surplus oil production could completely disappear. By 2015 the oil shortage could be 10 million barrels per day.

Obviously shortages of that nature would have severe impact on business for hotel/resort/conference center industries. It will even spill over to restaurants. China has hundreds of millions who will have economic capability to buy cars over the next few years. It is projected they could absorb any excess capacity. India’s consumption of oil is greatly increasing.

Whether the above time frames are exactly right, all businesses that plan on being around 2-5 years from now, need to evaluate how to expand their business if oil and gasoline shortages get severe.

There’s Opportunity Here!

Resorts that are close to cities stand to benefit from this. Resorts that are farther away have opportunity to develop business alliances with tour operators and mass transit providers. Developing that business will take time, so get started. At the very least you will be developing additional business.

Suburban hotels will benefit from those businesses and citizens that are close to them. But they too will need to develop some alternative means of transportation. Hotel shuttles will need to be expanded, or the hotels will need to tie in with mass transit providers. Mass transit providers will probably also get into the charter business to optimize fleet usage.

Hotels and restaurants will have more opportunities to work together.

We know the amount of oil is limited. We also know that alternative fuels can only meet a small percentage of the worlds demand. New technologies to solve energy problems are years away from mass commercial applications.

Progressive hotel owners, General Managers, and other executives are starting to evaluate where they are going to get their business several years from now. The population of the world will double in the next 50 years. Executives who will be most in demand are those who pay attention to trends and identify how those trends can benefit their business.

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Economic Analysis: Uncertainty Can Be Good News: Tom’s Take

Wednesday, April 21st, 2010

Robert Frost said, “In 3 words I can sum up everything I have learned about life. It goes on.”

Friday I was reading that crisis in Greece continues to worry investors. RE market seems to have turned the corner in the US. Next article said RE market remains weak. Meantime, volcanic eruption in Iceland has royally screwed up airline flights. To point UK has sent ships to pick up stranded citizens in the Baltic. Stock market rallied. Wait a minute, it dropped Friday on news of yet another scandal.

What the heck (alright I tamed that down) does all of this mean? How do we make it work for our businesses?

The more I read the less I know. If I don’t like one analysis I can read a little more and get the opposite analysis. Economics has always been more art than science. Yet, people, or at least the media seem to be dwelling on economic predictions more than ever.

“At first I was uncertain, now I’m not so sure.” Anonymous

Those of us in business need to be aware of what’s going on in the world. But then move forward without relying too much on what’s going on. Another quote I like, “There’s nothing wrong with looking back, just don’t stare.”

There are certain things we know.

The world knows that natural resources are depleting and the population is exploding. Likewise, each of us should know what is going on in each of the communities we do business in. Which businesses are growing and which are contracting. But do we?

I was recently talking to a VP Operations who has been asking their hotel management teams:

  • When was the last time the GM’s asked their teams, specifically, which local businesses were growing or poised for growth? When was the last time the sales team visited those businesses to learn what their needs were?
  • When was the last time they attended Chamber of Commerce Meeting? Met with the local CVB? Had lunch with their peers from other hotels? Attended a Rotary or Kiwanis meeting? Were involved in another civic activity?

This VP was worried that the teams were concentrating on today’s business to the exclusion of future business. The VP was right. The GM’s had not been asking the first question. Attending a staff meeting it was quickly apparent Department heads were not getting into the community to learn what was coming. Most of the Department heads belonged to one or more organizations, but they rarely attended meetings.

Action Plan

Hotels had their sales teams calling on known accounts and local businesses. Department heads had to attend at least one civic function a month. By dividing up civic organizations, each hotel assured attendance at majority of meetings and functions. Things that should have been happening all along, but in the effort to get immediate business, things that were not being done systematically.

Results

First month hotel picked up 4 additional catering functions. Booked 3 small meetings for the next month. All a result of sales team calling on businesses they added to their list of prospects. Attendance at civic functions and meetings resulted in booking 3 wedding receptions, an anniversary party, role out party for expansion at local business, and events for 3 new businesses that were opening within 3 months. Plus over 20 leads for other business functions with potential for over 300 room nights.

VP’s prodding reminded Department heads they were all responsible for sales for their hotel.

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Economic Analysis: In 4 Sentences-Tom’s Take

Friday, April 9th, 2010

Received the following in the email the other day. I wish I knew who made the statement to give them the credit due.

“You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

What one person receives without working for, another person must work for without receiving.

The government cannot give to anybody anything that the government does not first take from somebody else.

When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation.”

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Economic Fundamentals-Making Them Work for You:Tom’s Take

Monday, April 5th, 2010

US became a world power based on our manufacturing prowess. Our world role as a manufacturer of products has greatly decreased.

This recession is the first instance that the government is creating most of the jobs (since the Great Depression.) Their attempt of course is to restart the economy.

Unfortunately, the loose spending policy and stimulus by the Federal Government, and the willingness of State, County, and City Governments to continue overspending does not contribute to a sustainable recovery. Our government continues to deal in microeconomics instead of macroeconomic fundamentals. The governmental policies continue to create asset bubbles. Sooner or later, like all bubbles, they will pop.

How do we protect our businesses?

Understanding the above is the first step. Second step is protecting our companies by minimizing the business we do with asset categories that are bubbles, like commercial backed mortgage securities. If we have to deal with them, then we each need to recognize we are dealing with risky markets and we need to develop alternatives as fast as we can.

There’s nothing wrong with doing business with risky sectors of the market as long as we understand them and don’t depend on them.

How do we protect our businesses? If government at all levels is taking a larger role in all aspects of society, then we need to structure our businesses to attract more government business.

Some of that business will be directly from the government. More business can come from various businesses and organizations that do business with governmental agencies close to you. Identify and market to those companies to encourage them to do business with you when they are in town.

Be proactive identifying business opportunities based on today’s market conditions.

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Economic Analysis: Tom’s Take

Sunday, March 28th, 2010

Where’s US economy heading and how do you make it work for you personally and in business?

US economy has never dealt with a recession like this one. We hear lots of talk about U shaped or V shaped recession, with few others thrown in. Appears to me we are closest to recession that has held Japan down for many years. Plain old stagnation. Can it switch to a stagfation? Yes, but the way we need to react as individuals or businesses is the same.

Why don’t we care which it is?

In a stagnation, the economy just doesn’t have much recovery. In a stagflation, we add inflation to the mix.

What’s different from previous recessions?

In past recessions, small business has lead the recovery. This time government is trying to lead the recovery in the US, and internationally in those countries most affected. Many states in US are in serious financial trouble and are raising taxes. Likewise many counties, cities, and towns. In the past we have not experienced the severe budget shortfalls at all levels of government. As governments at all levels have to raise taxes to make ends meet, it significantly slows the ability of American business, especially small business, to recover.

Whether government overspending just slows the recovery or leads to inflation, the result will be the same. A very slow recovery for the US economy, and by extension, other countries that are severely impacted. Increased government taxes and programs adversely impact business two ways, directly from the taxes, and indirectly from time lost adhering to more governmental regulations.

What’s solution for individuals and businesses?

Reduce debt and increase cash reserves. The goal is to have sufficient funds to take advantage of an upswing in the economy, personally or as a business. Or to preserve existing personal or business lifestyle should inflation pick up.

Personally, people need to do everything they can to reduce their amount of debt. Reduced debt enables increased savings or simply paying cash for more future purchases.

Many businesses, especially small businesses have done excellent job of reducing debt and expenses. Now they need to identify ways to increase revenues while still holding costs down.

How can business increase revenues?

Find new sources of revenues. Existing sources of revenues will not be enough for most businesses. Then back it with great customer service. As an example, have real people answer the phones. Use voice mail only as a last resort. Biggest customer complaints is not finding a phone number for a business and then only getting voice mail, that often goes unanswered. Business can not afford to let any sales opportunity go by, and providing great customer service enables more sales opportunities.

Share your success stories.

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