July 26, 2013

The Startup: Best option for retirement.

So, I am 42. I have no retirement. I had some at one point, but had some brilliant idea that if I fixed my house up (cause otherwise it would have either fallen down or been condemned) then, it would be a pretty good place for my family to live and we would have a decent amount of equity built up. So I cashed out my retirement and by the time I got the place fixed up, most of our equity evaporated in the housing meltdown, and my company which serviced the real estate and mortgage industries kind of went with it. Fortunately, we were able to sell before we lost the place, but we got a lot less out then we had put in, even though we bought a major fixer-upper and it was a pretty decent place with a little bit of key work needing to be finished on it when we sold it.

I know, long sob story. I am not the only one who lost just about everything in this downturn. We moved to Texas looking for work, which never panned out, and ate through what little we had left. We finally ended up in my parents basement and I picked up an online consulting gig. We managed to pay off all of our debt with the consulting before I got a regular job. It doesn't pay that bad, all things considered. But it doesn't have any retirement benefits, no options, no future. I should probably have opened up a IRA or something by now, but I haven't cause we have been catching up on years without insurance other things where anything that could be put off was. So, back to where I started. I am 42, and have no retirement.

Funny thing. My father was exactly at this same point when he was my age. He went and got a job with a big mega corporation, that put a decent amount into a 401k. That lasted about 10 years, and then he got laid off in his early 50s. He was able to land a similar position with a much smaller company, but it was big enough to have 401k support as well. He put in his time there and retired at 62 1/2. Turns out, what he saved wasn't enough. They have social security, and a little bit from his retirement savings, but big things keep eating into their principal. He needed at least double what he put aside, if not triple.

So, here I am in a similar situation, only no 401k. I make enough, and have no debt, but I don't have much extra. I also have no equity in a home or real estate anywhere. So, I have been figuring what I am going to need for retirement. Trying to figure out what my best options are. Where I live is very close to work, but doesn't have the lowest cost of living. The schools are good, but still have the typical problems public schools have. In any other direction from my work at the same distance, the cost of living stays about the same, but the schools are not as good and some of the neighborhoods can be quite creepy. I have 6 daughters, so, I get a little paranoid about safety sometimes. I can lower my cost of living if I go far enough away, but then the commute becomes very long, and I don't really save much.

If I were to try to get a comparable job with another company in the area, I could probably get better pay and a 401k, but when I started to do the math, I found myself looking at the same situation my father has found himself in. He worked himself nearly to the bone and when he finally retired, he doesn't have enough. So, this led me to think about what my options are, and how each of those options might affect my eventual retirement. I looked at doing contract work and freelance work. I looked at setting up my own consultancy. One option was to find a better job I could do with a much lower cost of living. There were only 2 options I came up with that had an expected outcome that exceeded my expected needs. All of the other options would use up the next 20 years of my life and leave me short of what I need.

Both of the positive options had to do with startups. First, if I were to come on as a very early founding team member or early key-hire, and the company had a successful liquidity event after 3 to 5 years, I would probably have more than enough cashable equity to cover my needs and then some. This is even more the case with the second option, where I am the founder of the startup, and it also eventually gets to a liquidity event. If it were successful, it wouldn't have to take the next 20 years either. In both cases, it is not a sure thing, but it is a big risk.

I have done startups before, but there were lots of things wrong with how the business was set up. One of which, they were primarily service oriented where I was exchanging my time for money. There is only so much you can get when you exchange your time for money. Sure, there are a few (patent lawyers?, brain surgeons?, industrial spies?, former presidents?) that can charge very high rates, but I am not one of those. While I can make a decent living doing doing service oriented work, it will never create wealth like a successful startup that has a product can.

So, since startups are not a guaranteed route to success, and the other roads are dead ends, what is to be done? Well, make sure you pay attentions to the mistakes you make, and learn from them. The thing that makes startups the best option is that, you are not limited to one. Even successful startups have a tendency to be on a short time table. A solid liquidity event often is within the first 4- 7 years. Even when it isn't, startups are very quick to adapt compared to established companies. And, then there is the whole lean iterate and pivot approach. One startup, many shots on goal. If it isn't working, take what parts do work, and try something different with them. Sounds easy right. Well, if it was, there would be tons of successful startups out there. Oh, wait, there are. Still is easier said than done. Just don't quit. Kind of a bit harder with a large young family and a day job to support them. I guess my iterations just have to move slower. But, fortunately for me, I have never been short on great ideas. I just need to get one to the point that its greatness is readily apparent.

If I can do that, I am sure I can create enough wealth and get to an adequate liquidity event. That will take care of my retirement needs. Even if my retirement looks a lot the same as what got me there. The difference, I won't be financially dependent on it's outcome, and I might just get there a lot sooner.

July 12, 2013

Self sufficiency, the global economy, and 3D printing.

For a long time, I have had a dream of being self sufficient. I would like to have my own land that is paid for, generate my own electricity, raise my own food, provide my own materials, and pretty much live without having outside expenses. Yeah, I know, that certainly does not seem practical in the current day. Especially when taking into account high technology and our interconnected economies and lives.

But, it gets me thinking about the concept of self sufficiency. Self sufficiency can apply to more than just an individual or family. It can apply to towns, counties, regions, states, and even countries. It certainly applies to our planet. If we can't get it here, we don't get it. That could change one day, but we are a long way from mining asteroids and living on other planets. On smaller scales, though, self sufficiency is largely discouraged in the world.

Historically, that hasn't always been the case. For example, not that long ago, every family who lived in the Kingdom of Tonga was required to grow a garden. They had to grow a certain amount of food to take care of themselves. Even though they still had trade, and bartered things back and forth, the policy was set to make sure that each island was able to take care of itself, which for a bunch of small islands which are prone to be hit by hurricanes, can be important. Still, the storms did come, and could sometimes destroy all their food and wipe out the population of an island, but this policy was a strong factor in avoiding famine and want. It also made sure that people were contributing to society.

Today, areas that are not self sufficient in a regional sense, are more prone to disasters and famines. They might receive help from outside, but if they don't have local resources, recovery and survival are more difficult.  True, we have lots of charity, but isn't the best charity helping others provide for themselves.

I suppose the proponents of the global economy would disagree. They want everyone specialized, and only producing their specialized goods, which are then sold the world over. Technology and the costly manufacturing plants needed for modern cars, computers, and so forth require immense investment and concentration of resources to be viable from a business perspective.

Even more so, globalism has embraced the idea that all people should be active consumers. An example of this is a recent policy from China. They want to bring the peasants into the cities and make them part of the global economy. The idea is they will have jobs and be active consumers. Currently, these people are very poor, but are marginally self sufficient. True, they have no benefit from technology and are without much that most of us in the modern economy consider essentials. On the other hand, they produce most of what they need. Might globalism be more efficient in producing what they need to survive. It might, but it will sacrifice any form of independence they have, and eliminates diversity.

The downsides of globalism exist on both the personal level, such as the loss of independence, and at the global level. If the world needs a certain commodity, and it is made too uniform, either in the place it is produced, or in what is being produced, the risk becomes much higher that it will be disrupted. A classic example is the banana blight of the 1920's. The banana that people sold was called the Big Mike. Commercial growers wanted to sell that one cause it tasted best. Unfortunately, it was a monogenetic crop, and a single fungus wiped out the global production. Fortunately, it was not a staple crop that kept large populations alive. Today, we have massive homogenization in crops, as certain seed companies seek total monopolies of major food crop seed production. Corn, wheat, oats, and to a lesser degree rice and beans are all being subject to this process. At some point, these monogenetic crops will be wiped out by some kind of disease that targets some uniform defect or weakness. Then we will have world wide famines and all the horrors that come with it. Technology is being used to create and strengthen globalism, but while it does make some very wealthy individuals, it doesn't necessarily help the poor.

However, technology might also hold the solution to these problems. It revolves around a different approach to manufacturing. Specifically, what is being called 3D printing. We are still a ways from being able to do this, but if each community had the means of manufacturing anything they can get the raw materials and the plans for, it would change the balance from massive investment into huge centralized facilities to localized production of everything but certain raw materials. Certain raw materials are by their nature scarce, and located in adequate concentrations in only a few places in the world, but the rest, the bulk of the materials could be produced locally. Sure, the designs that are used for those machines are not going to be locally produced, but if I could run down to the local 3D manufacturer and have them print up my new smart phone or kitchen appliance or perhaps even my custom fit name brand running shoes, and pay them for the goods and be on my way, my local economy would benefit. True, the designs and services like the custom fit design used for my running shoes would have to be provided elsewhere, but that is why the internet and 3D printing have to go hand in hand. And it lets product designers reach a much broader market without the manufacturing headaches. It might even help encourage people to consume more intelligently. In being closer to the source, people often appreciate it more.

When this is really available, then the local economy can be highly self sufficient, while still being part of the global economy. Local economies would still have to produce or purchase raw materials, but the overall commodities become much simpler, and with it, much more resilient to economic disruption. Not to mention, wouldn't it simplify life?