How the technology works is irrelevant

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There are very few people in the world who know how the thing in the picture above actually works. Yet, there are also very few people in the developed world who have not been a major beneficiary, and even a driver of this complex technology. There is not generally a fear of the technology that makes cars do what they do. Instead we embrace the benefits they deliver and use them in every way we can. They changed where we live, how we travel, our leisure patterns, the structure of living spaces and cities, they changed the world more than anything that came before them. They totally transformed our culture.

And it is happening again. A new set of tech tools are providing both fear and opportunity. I wasn’t around when cars became common place, but I imagine there was as much fear of the unknown then, as there is now. There was probably talk of jobs evaporating and the end of economics as we know it. And yet, it was the bellwhether for the greatest period of prosperity in human history. While it’s impossible to know how most anything works these days (division of labour), it’s very easy get behind the power technology provides to win in business. In fact, it’s probably easier to win because fear of the technology is holding so many people back. We don’t need to know how something works, we just need to know that it does. And once we embrace that fact, it will reshape our perspective and quite possibly our fortune.

The culture of the power flip

upside down house Many of the economic ideologies we learned in business school are turning upside down. What once worked, now doesn’t. What was expensive, is now cheap. What was impossible, is now humdrum. But unless we stop, consider and look, we just might miss some of these changes in what is true. Capital used to be expensive, and labour used to be cheap. Now it’s moving in the opposite direction. We used to think that the accumulation of capital was the key to success. But we forget it was a substitute to try and uncover intrinsic value. Thankfully we are starting to remember money is a tool, and not an end. Creativity used to be chosen by gatekeepers, now it’s chosen by us through sharing. We got tricked into believing that we should leave creative pursuits to others in the media, in the movies, and to the rock bands with recording contracts. To those who got picked. But now we know that was just because they owned expensive tools and could afford to buy our attention. We’ve now proved there is no monopoly on art, we’re all artists. Technology used to be expensive, and walled behind industrial barriers. We could only experiment with it while ensconced in corporate quarters building things for them as employees. Now we have NASA in our Pocket, maker spaces and collaborative tools to make better tech than those who gave us the tools to do it. The best tech now comes from hacking entrepreneurs because it’s accessible to all now, at disposable price points. The challenge most established businesses face isn’t technology, or ideas but belief systems. They develop a culture that makes them fall in love with what made them successful. It’s why big business is being disrupted after years of relative stability. Sometimes the most important thing ‘Big Co’ can do is forget what they know, and maybe even burn the map that got them to their current destination. New Book – The Great Fragmentation – out now!

Future Lab – Q & A

Future Lab

I was recently asked by the super clever Future Lab team of LS:N Global to do an interview on a few topics including: The New Australian Consumer, Crowd Finishing or Pre- Hacking (a theme in my book) The Sharing Economy (A former startup I had was early in this space), Reverse Retail, and Innovation via Skunk Works.

While writing up some thoughts in my note pad, I thought it would make a good blog entry. And then I wrote ‘blog this’ on the first page of my notes. And that is exactly what I have done – literally. It will take some interpretation (hand writing, typos, order) as it is just a mind stream of half sentences, but often the unfinished nature of things is what makes them valuable.

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 New Book – The Great Fragmentation – out now!

The Financial Wealth Ratio

old money mansion

When it comes to money there is a simple ratio which tells us the real story of how wealthy we are. Here it is:

Financial Wealth = Passive Income / Earned Income.

We should be aiming for a number which is greater than 1: The reason this is such an important formula is that it takes into account the most important and scare resource – time. While it includes money, it goes beyond it. It infers that earning money from control and ownership of assets is far superior to earning money through labour – regardless of how big the earned portion of our income may be. Passive income does not require our time to be earned.

So what things are included in Passive Income? They include but are not limited to Shares (Dividends), Property (Rents), Licensing Rights (Royalties)… the assets we’ve acquired or built which put money into our pockets. What it is not, is the net value of those assets, just what they generate in real returns – actual cashflow.  Much like a salary is a ‘real’ return on our labour.  And while trading large capital assets may generate actual cash returns, that return is singular and only available at the point of transaction. Unless we happen to be in the business of trading assets, it doesn’t provide a true month to month reflection on our cash position. Passive income is about earnings and probability of those earnings to be maintained over time.

Why Passive is more important than Earned: Speaking of probability, another reason passive income is so vital is that it has a high probability of increasing. Rents and corporate earnings in most developed economies increase at around 10% per annum. Wages on the other hand increase annually at less than 3% per annum. Passive income also removes the power of others. When we earn wages, we are at the whim of the work environment, the company, our boss, the economy, technological upheaval, and all other manner of things which make having a job inferior. Earned income is riskier than than passive income because it generally is not something we control. Sure we can influence it by becoming more skilled and valuable to the marketplace, but we can never have total decision authority like we can with allocating our money to a portfolio. Word of warning – passive income, doesn’t mean it shouldn’t be actively managed, or that we don’t need to earn money to acquire it – it takes effort, but builds independence. In other words a passive attitude doesn’t build passive income, quite the opposite.

As mentioned in an earlier post about building financial wealth passive income is the money we earn when we are not in the room. This is actually more important than total income is. Firstly, passive income usually grows over time. Rents go up, anyone who has rented a house knows this pattern. In good companies earnings increase over time. Secondly, passive income is important, because it should be regarded as bonus money. We can manage to live on the earned portion of our income. We know this is true because most people start with zero passive income – unless you’re a trust fund baby. The passive portion becomes it’s own eco system of building more of itself – think compound interest. More on this later.

A story about the Stars: Not those in the sky, but rock stars, sport stars and movie stars. There is no shortage of stories about these people going broke. Bankrupt after earning zillions of dollars. In fact this statistics is very telling: By the time they are retired for 2 years, 78% of NFL players are bankrupt or under severe financial stress. This documentary – ESPN 30 for 30 Broke is worth watching on the topic. How is this even possible? The reason rock stars and sports stars go broke is because they have a poor ratio. Pure and simple. They earn big, have bad spending habits and don’t create a good financial wealth ratio while they have the chance. It should be easier for them than anyone, and most don’t take their opportunity. They don’t de-risk their future.

A story about the Rich: Look at any rich (financially rich) people you know, famous, or even that local business person you admire and you’ll see a good ratio. They own properties, have equity stakes in successful businesses and make the majority of their money from the passive side, not the earned. Even most employees who get rich – think CEO’s – become so from share options more than they do from pure wages. The pattern is clear.

How to hack your ratio: The trick is to move money from the earned income denominator to the passive income nominator. Until at some point there is more passive than earned income resulting in a ratio of 1 or greater. So long as we keep our spending in check, once we earn more money passively than actively, work becomes a choice for both type and frequency. Another hack for building this equation in your favour is ensuring your earned income and passive income are in the same realm or industry. This usually gives you an advantage in your passive income building as your skill base moves you up the learning curve of both sides of the wealth equation. This strategy often results in bigger returns both earned and passive as they interact interdependently. Stick what you know, and leverage knowledge advantage to beat the averages.

Know your ratio: We should know your position, your ratio. You should have a plan to increase the passive portion. The problem is that most people go through life aiming to increase the earned portion more than they do the passive portion. This ends up as a micro version of the rock star problem. The life style spending increases with the income. Knowing your ratio allows you to aim and game the system. To set targets for increasing the passive side. If your ratio is 5% this year, then aim to acquire investments to make it 10% next year.

Other advantages with the Wealth Equation: In most economies the taxation system gives large advantages to passive income. Often dividends are fully franked (the tax is already paid for you). You can offset your earned income with the expenses associated with generating your passive income. You don’t have to pay tax as you earn this money (PAYE), and can earn interest on the returns before it gets taxed. As well as many other structural benefits, such as paying lower corporate tax rates (30% company vs 45% top rate for a mere human) via holding the passive income assets in a private company.

How to build Passive Income: Save at least 10% of what you earn and invest it. The two simplest places to invest would be residential property and index shares. Invest the return on investment from the passive income into more passive income generating assets – never spend any of it. If we can manage to do this, then as soon as our ratio is 1. Work becomes a choice not a necessity.

To do: Add improve your wealth ratio to your goals list for 2015.

New book – The Great Fragmentation – out now!

If you think privacy doesn’t matter….

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If you think your privacy doesn’t matter, then how about you do the following:

  • Email me your bank account details and login passwords.
  • Remove the blinds and curtains from your house.
  • Leave the door open when using the toilet.
  • Publish on your Facebook page the links to every website you visit – even those with 18+ year age requirements.
  • Tell me how much you get paid and give me the details of your assets and debts.
  • Send me a copy of your passport, driver’s license and birth certificate…oh and your mother’s maiden name.
  • Share with me your medical records, any medication you take and other details you share with your doctor.
  • Share with me all the grades from your school reports.
  • Give me copies of all your performance reviews from every employer you’ve ever had.
  • Let me hear every conversation you have, even those behind closed doors or with your partner.
  • Give me live footage of every angle, in every room in your home.
  • Give me a complete record of everything you have ever bought.

While I wouldn’t put any of these things into the shameful or evil criminal category, it’s clear we’d rather keep some things to ourselves. Sure, some of this information needs to be entrusted to other people like doctors, lawyers, accountants, employers and family members, but most of it is not for public consumption. And I haven’t even added what can be deciphered when data points are cross-referenced. But here’s the kicker – most of these are already being tracked by metadata, and many more are about to be by the IoT.

I happened upon this recent talk on the reality of privacy by Glenn Greenwald. He references behaviour from the chiefs of our biggest internet companies; yes, those who make a living our of selling our digital footprints. Many of these CEOs dismiss the right to privacy as a notion either outdated, or something only those with things to hide need worry about. It’s ironic they make a concerted effort to hide their own personal lives. The talk is a mind-opening 20 minutes which proves undeniably that the right to privacy is an issue. Not being concerned about it now will have implications later on when perhaps it is too late.

Not for any reason, privacy is simply a matter of respect for our fellow humans. Don’t let it be something you give away without due consideration of the real trade off.

New book – The Great Fragmentation – out now!

Startups are the new MTV – and 15 other thoughts for 2015

startup MTV

As we are now in 2015, midway through the second decade of the new millennium, I thought I’d reflect on shifts I am seeing in culture, commerce and technology. Many are counter intuitive to what we might read in Business Insider or Buzzfeed. It’ll take you about 12 minutes to read and it will be worth the effort. The first thought is pretty obvious. Startups are the new MTV. They’ve become a pop culture phenomenon. They are not only a cool thing to be involved in, but as like pop stardom in the 1980s, the promise of potential riches and global fame are part of the attraction. We’ve now exchanged the American Billboard Top 40 for Listicles and ProductHunt. Telling people you’re in a startup is a bit like what being in a band was a couple of decades ago. And so everyone has exchanged their Fender Stratocaster and ripped jeans for a macbook air and a desk at a co-working space. Don’t get me wrong, I think it is cool. I also think it is a reflection of an entire generation waking up to the fact that they can create something themselves, and it is no longer about following a path set by our parents, the government or the declining industrial powers that be. Bring it on.

And here some of the other social and tech changes I found myself thinking about over the holiday period:

  1. Anonymous Web – It seems that more than ever the internet replicates life, because it is part of where we live. And just like when we are away from the keyboard, there are certain situations in life when we’d rather remain anonymous. While I’m walking down the street I don’t wear a t shirt with my actual name on it. Yes, I am participating in society, buying, selling and just being, but it doesn’t mean I want every shopkeeper and stranger on the street to know who I am. Not all of my social interactions are branded as Steve Sammartino. And so, the web is starting to realise that sometimes we want to be known, and at other times we don’t. Apps like Secret, Cyberdust and even Bitcoin, is proving that anonymity is a valued asset in much the same way that a personal brand can be. If we consider the success of Tinder, it is largely because it pays homage how we actually behave without the web. Look at someone and decide immediately if we are attracted to them. We make judgments about people before we know who they are, assess if we like what we see, and only then do we uncover actual identity. I feel like we are now starting to find a balance between the early days of secrecy on the web – remember the emails we used to have like We didn’t want to be fully exposed. And then Facebook arrived and everything you’d be able to know everything about me via a few clicks. But now, it’s about balance. People want to be able to choose what is public and what is private. The opportunity for startups right now is around anonymity.
  2. Just Big Corporations – I can remember at the dawn of the web 2.0 era when we believed that companies with digital DNA would be different. And they are to some extent. It is fair to say that every revolution makes commerce a little more human. But I feel as though this year we all realised that the corporate hero of today with their playful primary coloured logos and desire to change the world, are well, just the next batch of large corporations. Google, Facebook, Twitter, Netflix, insert your favourite company from the post web era, and you’ll see their objective is the same as those that came before them: increase shareholder wealth. The most poignant realisation of this for me has been the general awareness that few of them pay their fair share of taxes in localised operations. People forget that General Electric, Shell and Ford were once as loved as Twitter. They too made life better for their customers and took humanity a few steps forward. Another thing our wonderful tech saviours have in common with their industrial counterparts is they have the same birth line as their forefathers, one which favours profit maximisation over all things. Just consider this for a moment: 29 of America’s 100 top-paid CEOs collected more in compensation than their corporations paid in income taxes. Don’t be evil?  To your shareholders at least!
  3. Privacy – a Private Industry – While I think there has always been a trade off between privacy and access to public infrastructures (we all need passports & drivers licenses to travel independently), it became clear this year that in order to protect certain privacies, privacy will need to become a private industry. (Gee that was a mouthful.) All governments in democratic countries have made it clear that they would rather protect against statistically insignificant threats and maintain data control than grant their citizens rights to freedom. Australia might possibly be one of the worst offenders. Expect to see an uprising of startups providing software layers to protect end users and aggregate public data on them so they have awareness of what their digital footprints look like.
  4. Little Data – Big data has been a buzz word in business for a few years. I’m now seeing the emergence of little data as consumers are starting to realise the value of information about themselves and will start to use it as their own commercial platform. Read here, ‘make it available to the corporate market to buy’. Just like a strong social media voice became an asset, expect personal data trails to have as much or more value in the coming years. The challenge for entrepreneurs will be to create places to teach non-techies of its value, show them how to wrestle control of it and provide platforms to commercialise it.
  5. A.I. Fears – Artificial Intelligence has become a hot topic of the day, with technology luminaries including Elon Musk and Stephen Hawking even likening it to the nuclear threat. That is a type of technology which could become a species threat before we realise what we’ve created. Whether this is true or not I’m in no position to comment, but what I will say is this. It is among the hottest spaces for deep research and Venture Capital investment, and like all technologies before it, humans will roll the dice if there is a big dollar to be made, regardless of the potential externalities they might create. It seems the financial paradigm is still the key driving force even as we enter a collaborative age.
  6. Digital – still a flawed strategy – Every day I work with startups and large corporations trying to uncover the secret sauce of the startups. I’m the guy who plays on both sides. If there was one thing I could tell the Fortune 500 on their immediate future it would be this: there is no digital, there is only life. Consumers don’t delineate their digital and analogue existence. And so neither should companies. Having a digital strategy is flawed by definition. It reflects the viewpoint that digital is that bit 0f the business over there (pun intended). Today having a digital strategy is akin to having an electricity strategy. Pointless. Strategy is all encompassing, which means there shouldn’t be a digital director or division. It’s everyone’s job to know this stuff, and fully understand the new tools of business. The people who don’t get it by now need to be replaced.
  7. Maker Movement Momentum – Internet of Things – While both of these topics are hot, it seems price alone is not enough for both the enter the mass market. Both 3D printers and Internet of Things infrastructure are cheap. A decent 3D printer costs around $1000 and companies could turn consumer products, cases and pallets (shoes, shampoo, toothbrushes) into ‘computers‘ for cents on the dollar through technology such as RFID. Like all emerging technology the capability is not the problem – it’s the education of the possibilities. It’s the unleashing of imagination, and the handing over of the tools to the public and mash up their development process. It’s the creation of open source platforms that enable anyone who can type to make something. These are the missing links and prize is big.
  8. New Age Conglomerate – In business we went from diversification being in favour in the 1970s and the 1980s, towards expertise through focus in the past 20 years. This year it seems, the age of the conglomerate is on the comeback trail. As the lines of who we compete against are increasingly being blurred – Digital Demarcation – companies are beginning to compete horizontally. We are also seeing lots of backwards and forwards vertical integration. Google becoming an Auto Industry player. Amazon becoming a movie studio. Netflix a TV studio. Distribution and data is where the power lies, it’s no longer in making things. But on the acquisition side, it’s far more likely in the modern age that the company chooses to keep the newly acquired company separate from the new owner. To be run with separate management, in a separate building, and keep their cultures away from each other. Facebook claim to have done this with Oculus. With the switching costs lower than they’ve ever been through consumer history, it’s important that separation is maintained so that new business maintains its value as a defensive play. We’ve now entered an era of the technology conglomerate. Just as Nestlé wants to sell you food regardless of your tastes, so too Facebook and Google want to collect and connect your data, regardless of device, app or interface. It seems that Zuckerberg has been wise enough to realise not everyone likes Facebook, and so is doing a nice job of keeping the brands as separate strategic business units. In any case, all shareholders care about is the aggregate profit and ROI. Just like Nestle is inevitably in your shopping basket, the Google and Facebook are inevitably in your pocket – regardless of the name of the service.
  9. Bitcoin is Good, Blockchain is Great – This people realised that the best thing about bitcoin isn’t really the currency. It’s the Blockchain. For the uninitiated, the Blockchain is a public ledger of all bitcoin transactions that have ever happened. In addition to this, it is stored in a decentralised way – that is, everyone has access to the entire history as it is tired and updated on all the nodes participating in the network. It is not controlled or owned by anyone – unlike other currencies. More importantly it is a system which can be replicated in other industries and technologies. Venture Capital Fred Wilson has gone as far as calling this era of investment the ‘Blockchain Cycle’. In many ways it can be compared to other open source advancements like HTTP, The Browser, Search, Social, Mobile, and now Blockchains.
  10. Self Drive Reality – This is moving well beyond fantasy. While I think we can all agree it is inevitable, launches of self drive cars for sale to the general public are now touted as being as soon as 3 years away. This chart does a great job of showing what’s coming. For me, the self driving car is not nearly as interesting as its consequences. Consider these thoughts for example: car parks will be a thing of the past as we send our cars home to rest. Rich kids getting cars for their 13th birthday to drive them around. Traffic jams evaporating as cars talk to each other. Cars becoming mobile rolling lounge rooms where screen time becomes a major revenue source for auto makers. Sleeper cars…? the opportunities are endless. The question is which industries will benefit from moving fast.
  11. Long Form Content – After years of reduced attention spans and short form content the long web is making a massive comeback. Long Reads and the growth of the Medium blogging format (which both advise the expected reading time) are examples that humans need intellectual nutrition, not just snacking. Add to this the tremendous growth of podcasting.  Apple expects over 7 billion podcasts to be listened to on their iOS alone. So what happened? It’s another case of the infrastructure and bandwidth catching up to desire. What we often forget is that the economics need to make sense before we embrace something fully. With smart phones coming with ever increasing data we now have infinite topic mobile radio at zero cost. But in addition to this I think we are realising that ears are the killer human app as they are the only sense we seem to be able to multi task against.
  12. Screen Equalisation – The reality of all screens are equal now. They all have the same capability, and the humans at the end of it don’t care about legacy revenue, or traditional media supply chains. People don’t care how media companies built their business or report their revenue by media. They expect all content to be available globally on any screen on the day of release. This includes new movies. It seems that finally some Australian content providers are starting to pay attention. In the next month there will be a myriad of launches for new content streaming services; Presto, Stan, Netflix Australia, HBO Go, Hulu +. If there is one overriding thought with media, it is this: the direct connection to paying customers is what counts, not the device.  The fact that Sony generated $15 million in revenue for ‘The Interview’ by selling direct on line is a bit of a clue, yet most are betting they won’t even embrace their own example. There is no such thing as TV or Cinema, only screens and content.
  13. Assets Are Optional – The Alibaba float made many step up and pay attention. At the time of writing it is valued at $256 billion. The thing it made many people realise is that manufacturing is no longer a closed shop. Anyone can play and that access really is greater than ownership. The financial heroes of today are no longer building factors of production, but connecting people to them. Now anyone can get anything made in over 4 million factories listed on Alibaba. This is quite a shift, and it is one of the big things which is causing disruption. The financial advantage startups now have is to be unburdened by the cost of infrastructure. Uber owns exactly zero cars. Apple owns exactly zero factories and Airbnb has more than 800,000 hotels rooms of which they own exactly zero. It turns out that old world assets are now optional. And the new asset is in fact data.
  14. Corporatisation of Social Spaces – A fact we should remember is this: if there are lots of people, eventually the corporations will arrive. I’m certain you’ve noticed that social spaces aren’t really looking so social anymore. They’ve been converted from Town Squares into Hypermalls. My Twitter feed is now ensconced with advertising, as we all should’ve expected. If we have a conversation at someone else’s house, we generally have to follow their rules which can be changed at any time without notice. What this means in a data driven economy is that we’ll generally have our attention sold on our behalf, or we’ll need to purchase our own privacy back. Two juxtaposed examples of this dichotomy are: Google’s decision to offer ad free subscription based web surfing (a very clever move in my view) compared with McDonald’s Australia who placed advertisements inside Instagram to which the negative comments as close to inevitable as anything ever gets. Just check their feed. I can imagine the brief: ‘Please target those who hashtag #Food or #Foodie in their posts’ – a massive fail in the age of context. While the corporates are here to stay, the key ingredient for successful participation (from both people and companies) will be about participants understand the sub-culture of the domain in question.
  15. Virtual Reality gets Real – It seems as though we might actually find some short term usages for virtual reality hardware such as Oculus Rift (Virtual) and HoloLens (Augmented). Which both now live in the stable of tech giants Facebook and Microsoft respectively. But I can’t help but feel both might suffer / benefit from Amara’s Law. It will be hard to predict when these technologies will go from cool to useful, but when they do they’ll both be world changing in ways we never could’ve imagined. Much like the super computer which lives in our pockets.

If you liked this post, you’ll probably love my new book – The Great Fragmentation – I’d appreciate it if you checked it out, or give it a review on Amazon if you’ve already read it.

Have a great 2015, Steve.

How to build financial wealth in 1 sentence.


The way in which all financial wealth is built, time immemorial is this:

Find a way to make money when you are not in the room.

This formula has never actually changed. All the traditional investments fit this definition. Property, Rents, Dividends, Interest, Equity and even creating a startup which becomes bigger than us. Essentially, we need to invent more than 24 hours in a day through the labour of others. We need revenue which is controlled rather than earned. We can build it, or buy it, either way can work. Some ways are faster than others. But if you want to generate money, then you need to bethink this maxim. It tells all about the financial future.

New book – The Great Fragmentation – out now!