Top 10 financial hacks

There is no point being a successful entrepreneur, or selling a startup if we have no idea how to handle the money we get. So here is my top 10 financial life hacks.

  1. Spend less than you earn, no matter what that amount is. The net result is happiness.
  2. Allocate cash to savings & investments before anything the day you get your profits, pay or dividends.
  3. Never go into debt for anything which does not appreciate in value.
  4. The real definition of an Asset: Anything that puts money in your pocket. The accounting definition of an asset is flawed.
  5. Do not trade stocks. Trading makes the broker and tax man rich and you poor.
  6. The greatest financial instrument is ‘compounding’. It only happens when we hold assets, not by trading them.
  7. If you can’t afford a consumer product in cash, you can’t afford it.
  8. There is no such thing as ‘financial engineering’. It was invented by Wall street to trick you.
  9. The best type of share investment is an Index Fund. They are investments in civilization. If that fails, we have bigger worries than our money.
  10. Invest more in education than entertainment & ‘things’ and you will outdo society financially.


ABC 7.30 report – Virtual Offices

I was fortunate enough to feature in a story on the ABC 7.30 report this week. The topic was on virtual offices and digital offshoring. My business rentoid got a nice little plug which is a bonus on a non-commercial channel. The opportunity arose from this newspaper article I was in on the topic in the Sydney Morning Herald. Which goes to show media exposure also has a compounding effect for your startup as well.

Although the story and offshoring in general has it’s detractors (unions love the status quo, unless it involves profit increases they want a share in). I’m very proud of the fact that I’ve worked with talented people in developing markets.

  • My team get paid more than they’d get locally.
  • I’ve helped team members get more work, and mentored them in building their own businesses.
  • I like investing in developing markets because improves living standards.

It’s our job as entrepreneurs to create positive situations with tech innovations, and there’s no doubt in my mind having an overseas team does this, while building a business with beneficiaries locally (employees, revenue, community) as well.


Unexpectedly Awesome – BBC

Sometimes it’s worth being even just a little bit awesome. We don’t need to change the world, maybe just having a little bit of public fun is enough. The usually conservative BBC did that for me today when I realised the following: The BBC video player has a volume which goes to 11.

It’s what I call unexpectedly awesome. I was delighted. So much that I’ve linked here to little video of Warren Buffett being interviewed. Upon which you can learn something and also pump the volume up to 11.

Startups – do something a little bit awesome.


2 schools of business valuation

A favourite game of entrepreneurs, especially in the technology industry is discussing whether companies are worth the price they are bought out for. $1.5 billion  for Youtube ………. Sales prices with infinite price earnings multiples (because there are no earnings, or they are loss making). Versus a company being sold for a few times it’s annual earnings with a long period of earnings history.

A more relevant discussion would be which school of business valuation was used during the transaction, and there are two:

1. Sale price representing believed potential

2. Sale price representing return on investment reality

Which is more valid? Well it depends on which side of the equation you are residing. I’d say when selling, we should be aiming for potential. When buying we should go with reality. When buying a business the simplest question to ask ourselves is this:

On current earnings, how many years will it take me to get back my original investment.

web media poster

There’s no doubt certain industries are more likely to sell using the potential valuation method. Burgeoning industries like the internet, IPO’s and even railways 200 years ago are good examples. To get away with selling on ‘potential’ the industry needs to be growing, the future unknown and your company well known. If your startup ever gets enough traction to sell to an incumbent, then take what you can get – sell on potential.


Timing vs Time in

The timing versus time in argument is a long standing one in investment circles. And it gos a little bit like this:

People who are for ‘timing’ the market proclaim that smart investors should time their entry and exit for their investments. And that investors should exit when markets are too hot, for example when price earnings ratios are well above the long term average. And enter at the opposite end of the spectrum. Resulting in higher profits.

People are are for ‘time in’ the market proclaim that smart investors should stay in the market at all times. That when you enter or exit the market does not matter so long as the investment has been in market long enough. Which will result in a long term result of profitability due to the period of time in the market, allowing market averages to endure.

Both parties happen to be correct.

What neither side bothers to discuss is most important factor in either strategy. Probability. The probability of success of either the two different investment strategies. It turns out that it’s a pretty simple proposition related to risk and probability.

Timing the market – Can have very high returns (losses) but a much lower probability of success.

Time in the market – Has average returns (rarely losses) and a very high probability of success.

Numerous studies have proven the above to be fact.

How does this pertain top startups? Well it reminds me a lot of the internet and entrepreneurs attitude towards it. Most entrepreneurs believe that the only way to succeed is to win big. To sell out our startup to some digital behemoth. Our business brains have been hijacked by the Techcrunch stories and the large novelty checks presented to the likes of My Space, Facebook, Digg, Flickr and friends …

These are a little bit like investments where the market has been timed. It’s a low probability event. Sure there’s a lot more to it than a passive investment vehicle, but the probability of it happening is so to us, is so low that it’s not worth considering.

What we ought do instead is focus on the high probability events. In an entrepreneurial sense success is a very long term proposition. So our goal should be to remain in the entrepreneurial game as long as possible. As we do this we inevitability move up the learning curve and increase our chance of winning at some time in the future. Winning may not mean a cheque in the millions, but it might mean earning 5 times what we could in wages, as well as having a lot more fun doing it.

So how do we stay in the game?

Keep our costs low. Know how to bootstrap. Enjoy the simple things in life. Know that the having is in the doing, not in the owning of stuff.

Startup Blog says: Use probability to your advantage


Quote from Warren Buffett

Here’s a quote for Warren Buffett – who has been consistently among the few richest people in the world for the past 20 years or so.

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual insights, or inside information. What’s needed is sound intellectual framework for making decisions and to keep emotions from eroding that framework.”


Firstly let’s define investing as something which we we see as worth putting a consistent effort into to achieve a long term result.

So it is fair to say we invest in many things such as family, health, finances and business ideas. The key interpretation from the above quote is that it’s not about being an intellectual guru, rather our success will be a function of having a robust framework to work towards. That this information is available to everyone, and if we have to the discipline to stick to it our investments will yield results far beyond our expectation.


Startup Blog Live – episode 3

I’ll be doing another Startup Blog Live session at 8pm this Thursday night. It will be via under my twitter sign up which is or @sammartino for current members.

Thursday 13th August at 8pm – Live.

TV Studio

The topics of discussion will be Tactics vs Strategy – which was the topic of a blog post below and a very important issue for startups and entrepreneurs. If you can make it – ask a question in teh comments and I’ll answer it live for everyones benefit. Last time we had over 70 people tune in. So join us.


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