Lazy Man and Money

SMBX: Crowdfunding Small Businesses

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A friend reached out to me the other day. We’ve traveled around in blogging circles since I started around 2006. Back then I was obsessed with peer-to-peer lending (P2P lending). I had convinced myself that I could lend money to people at 20%+ or more and make 15% on average after defaults. With the trusty exponent button on my calculator, compound interest of 15% quickly turned into enormous wealth. Unfortunately, many more people defaulted and most people were lucky to even break even.

It’s too bad because it seemed like a great idea to take the middleman (banks) out of the lending and borrowing process to make it a more efficient marketplace.

This friend wanted to tell me about a new idea. He admitted that it is a little like P2P lending, but more like crowdfunding for small business bonds.

So it works like this:

A small company decides that they need funding to grow their business. They explain how the business currently works and how this new money is going to increase profits. In some ways, you get to play Mark Cuban on Shark Tank. The difference is that you don’t buy ownership in the company and you can’t negotiate the terms. However, let’s face it, neither you nor I happen to be Mark Cuban* so we don’t have the money and influence to start trying to dictate terms. Instead, you get to be the bank, earning around 8% interest on your investment. This, like with all P2P lending, assumes that you are willing to take on the risk that the company will pay back its debt.

You might be asking yourself, “Should I be taking on this risk to earn 8%?” I don’t know of any risk-free ways to earn 8%. It can be challenging to earn 2% risk-free nowadays. With the stock market booming for the umpteenth year, many experts are suggesting that it won’t be able to grow much over the next several years – and it might crash. I humbly suggest that this investment may deserve a seat at the table with some of your other investments. After that consideration, you may decide that the following risks are too great:

1. The company you fund can go under.
2. The SMBX platform could go away.
3. The Feds could change the rules that allow this kind of investing.

I was able to reach out to the company and they told me that 60% of SMBX bonds have collateral behind them. That’s a lot better than the old P2P lending days when anyone could just walk away with a ding to their (likely already bad) credit score.

All that said I wouldn’t put too much of my money on this platform. However, after writing about bitcoin in 2011, I’ve promised myself that I would be open to putting down a small amount, such as $50 or $100 to see if it works out. Back then a $50 investment would have us living mortgage today. With SMBX, the upside is considerably less.

Nonetheless, I will own $50 of bonds on this Wing Food Truck.

Sometimes It Isn’t About the Money

When you buy a diversified mutual fund or ETF, you are investing in so many diversified companies. You have to take the good with the bad. Every company isn’t going to have the same values I have.

The greatest strength of that diversification is that I can invest in almost everything. I can even invest almost everywhere, even frontier ETFs.

SMBX allows me to invest in a completely different way. If I want to invest in minority-owned companies, I can do that directly. If I want to invest in women-owned companies, that’s easy too. If I want to invest in eco-friendly companies for Earth Day, that’s also an option. If I want to invest in businesses that are Mohawk-owned, I can do that.

You can invest in specific communities where financing may be tougher. You can literally make an impact on a small Mom and Pop business. I consider this to be the backbone of American business… and they need it now more than any other year in my lifetime.

Getting Started with SMBX

I was surprised how easy it was to get started with SMBX. The sign-up process was just a few pieces of information. I had expected it to take days to verify my bank and transfer funds. I was very surprised to find myself ready to loan in just a few minutes.

SMBX uses Plaid as its payment processor. Plaid almost merged with Visa in a deal that would be have been worth more than 5 billion dollars. That deal didn’t happen because of regulatory issues. I think the government thought that Visa would become too strong. In any event, Plaid is highly respected and considered as safe as any banking platform in existence. In other words, if it’s good enough for Visa, it’s good enough for me. Side note: A few days after signing up with SMBX, I created a Coinbase account and they used Plaid as well. So it’s good enough for $100 billion dollar companies like Coinbase.

You can get started with as little as $10. I like low minimums, but that might be too low. I guess if you are spreading $10 to a bunch of companies it can add up, but I think most everyone will invest more. Maybe it would be useful for my kids somewhere down the line. Right now there aren’t many companies that they would be interested in on the platform. In fact, there aren’t many companies overall on the platform. SMBX is relatively new and it needs time to grow to fulfill the promise of being able to offer very specific investing choices to potential investors.

So, what do you think, would you invest with SMBX?

* If you are Mark Cuban. Hi there, big fan!

A Man, A Van, A Plan

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Yesterday I met the second happiest person* on earth. It’s Billy from Affordable Glass. I needed a windshield replacement and that’s what he does. Greeted me with a smile shook my hand and thanked me for the business.

Two days earlier, I had told my wife to book the cheapest guy who could the job. Windshield repair is not something that you do very often… and it’s not like we’ll be crossing paths again. She insisted that Billy was really nice. I went on a mini-rant (the Patriots were losing, so I wasn’t in the best of moods), about how it doesn’t matter if he’s close friends with the Pope. Nonetheless, Billy’s prices were competitive and in hindsight, I should have trusted her woman’s intuition. Customer service does matter, even if it’s only for a 45-minute job.

He said he’s been replacing windshields for 20 years and that it is the best job ever. I wonder how many would believe him, but he sold it well. He said that he gets to travel all over the state and meet all these interesting people. I originally thought he was an employee of a big corporation, but I was wrong. He’s literally a man with a van. His wife does the scheduling and internet advertising. She comes with him on some calls. I imagine that she can do most of her work with a tablet or cell phone on the road.

We talked about many things. He ask how I found him and I told him that my wife found him on yellowpages.com (I miss San Francisco’s use of Yelp.) He told me that they spend thousands each month to appear in such directories. Then he went into something up my alley, advertising on search engines. He said that Google was the most expensive and his competitors would purposely click on his links to deplete his budget (this is commonly known click fraud that I thought Google had figured out). He said that Bing and Yahoo were a much better value for his advertising dollar.

We talked about his son and daughter and their career plans, what my wife does, what I do (I didn’t mention the blogging thing). We talked about the Patriots and other teams around the NFL. I feel like I could have brought up complex software algorithms and he’d be able to speak intelligently on it.

At the end of the visit, I thought to myself, “The American Dream isn’t home ownership. It’s lifestyle ownership.” Billy had that figured out long ago.

* Who is the happiest person on earth? My son. Just smiles for days. No one can believe that he is this happy. Yesterday he got four shots for vaccinations and screamed from the pain for about 80 seconds and then resumed his laughter. It’s almost like the reaction my dog gets when we go to the dog park, but all the time… lottery-winning level joy.

Reader Email: Can You Help Me with a Small Business?

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I received an email from a reader earlier today and I’d like to share it. I think a lot of people could find themselves in similar situation and might find the advice helpful.

“Hello Lazy Man,
I would like to ask for some low cost investment ideas as well as possible work at home suggestions. I’ve been struggling to make ends meet. I have also tried a few business ideas, but somehow can’t seem to keep afloat. I’m doing something wrong and I would like some guidance to get and keep things going.

I have had a home-made candle company as well as a small “gift shop” type business… neither managed to stay afloat. I also have had ideas of a landscaping/snowplowing/tow truck business. I am considering real estate as well. However my credit has suffered due to a divorce and I’m a little nervous about going so large when my smaller ventures have not panned out to my expectations.

Any suggestions of how to make these work? Or perhaps you have some suggestions on some others I can do while working my current full time job. I hope to transition away from the job and put my energy all into the business to quit the 9-5. Any and all help is greatly appreciated.”
Anya

As is Lazy Man tradition around here, I’ve substituted a Buffy the Vampire Slayer character for the reader’s name. In this case, I’ve chosen Anya is a perfect example as she grew into quite the entrepreneur. I also edited the email a little bit and in some cases chose some unfavorable sentence structures so please overlook those and focus on the letter’s intent.

First things first, congrats on taking a steps to try to reach financial freedom. That’s huge. Second, I should start off by saying that I’m not the world’s leading expert in any of this stuff, so I hope the reader will get a lot of other opinions. I’m also hoping other readers can share their thoughts and resources as well.

Here are my thoughts on some of Anya’s business ideas:

  • Candles – I really don’t know much about the candle business, but It sounds like a tough industry to get into. How do you compete with with the scale and distribution of Yankee Candle? I can see a small boutique candle business working if you have the right connections and product.
  • Gift Shop – This can work, but location and the product are everything. I couldn’t open up an Eiffel Tower gift shop here in Silicon Valley.
  • Landscaping/Snowplowing/Tow Trucks – These can be profitable, but the business, like many, is about acquiring customers. How are you going to lure people away from their existing suppliers of these services. Are you going to price your landscaping and snowplowing business cheaper than competitors? Will you still make enough money if you do that? These seem to be very competitive businesses. When I lived in New England, it seems I couldn’t turn my head without seeing a snow plow or landscape truck.
  • Real Estate – This is my favorite time to get into real estate. However, investing in real estate can be tough. You have to have the money upfront to buy a place. You have to have the good credit to get the best interest rates on a mortgage. It doesn’t sound like you have either. My wife and I actually own three places between the two of us and though we lose a few hundred dollars a month, we’ll own them outright in 15 years, when we expect they’ll generate around $5,000 in revenue a month. Some of that money will have to go back into the upkeep of the property and we are mostly likely going to be living in one of them, but there’s a lot of upside.

Some of these ideas may require funding. Fundbox is a company that has business loans for women. Here’s their latest womens business loans interest rate.

Here are my tips in no particular order:

  • Watch Shark Tank – Watch the ABC show Shark Tank on Hulu. The show has a lot of people with ideas much like yourself trying to get funding for their business from experts. The experts pick the ideas apart looking for weaknesses and decide if they want to invest in the company. Though this may be bigger than you had in mind, there are some small business such as lotions that make the show from time to time. Most of the older episodes on Hulu are free, but the current season’s require Hulu Plus, which has a one-week free trial.
  • Read About Some Side Hustles – My friend J Money at Budgets are Sexy has a Side Hustle Series of second jobs that people take to earn some extra money. Some are not stay at home and others like “phone actress” may not be a fit for everyone. I don’t know if any of these are a fit to transition into a full-time business, but it’s worth reading about them.

    While on the topic of “hustles”, I hate the use of the word hustle because it has that double meaning of trying to trick someone out of their money. I wish people wouldn’t use it to describe a legitimate business.

  • Work from Home – Clark Howard has some great Work from home suggestions, with good tips at the end to look at the FTC suggestions to avoid bad work from home opportunities. (And yes pyramid schemes masquerading as multi-level marketing “opportunities” like MonaVie are represented.)
  • Read The Millionaire Fastlane – This is one of my favorite books covering entrepreneurism. It is a pretty dense read as it makes you think on almost every page, but that’s a very good thing. I reviewed Millionaire Fast Lane by MJ DeMarco too.
  • Look into Kickstarter – Kickstarter is a place where you can get funding for creative ideas. I honestly don’t know much about it, except that a friend of mine, Adam Baker, got six figures to get his movie made. There are probably some good tips on how to use it successfully on Man Vs. Debt. One of the great things about Kickstarter, as I understand it, is that you have limited initial risk, since you are using other people’s money to get the idea off the ground.
  • Look to Sell Products on Etsy – The website Etsy is kind of like an Ebay store of crafts. I just did a search and found 47,419 items in handmade candles. Perhaps that method of distributing your candles or anything else you create can help you be profitable, at least on a small scale.
  • Fix Your Credit – The mention of having suffered with credit hurts. I recommend signing up with Credit Karma, as they will analyze your credit and give you tips on how to improve it. Oh and it’s free. Having good credit will be helpful if you need to borrow money to get your business off the ground or help it scale better. When you get to that place, one place I would look into to raise money is Lending Club.

I realize that these tips are general. I’d love to say, “The towing business is the answer and it can’t fail”, but the truth is I can’t. If it was clearly the answer then everyone would do it and the competition in the marketplace would drive the prices down to where it wasn’t profitable for everyone.

Anya, hopefully, you find these tips helpful. Good luck, and I’ll be in touch with you via email.

Lazy Man Sites Hacked and the Lessons We Can All Learn From It

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If you’ve been wondering why things were a little quiet around here lately, it’s because yesterday some of my sites were hacked. Fortunately, I’ve put Lazy Man and Money on a separate server that went unharmed. I also have backups of everything made each day to Amazon’s S3 service. So if hackers get to my server, I should be able to restore things back to working condition fairly quickly.

It turns out to have been a pretty minor hack that was easy to reverse. All my data was safe and the sites are back up today.

The disappointing thing is that my provider, Dreamhost, allowed this happen. When I reported it, they went to a cop out excuse that I was running old WordPress software or insecure plugins. It doesn’t explain why all my sites got hacked, even ones that didn’t have WordPress installed.

I had three questions immediately come to my mind. Who did it and why? How would I protect myself from it in the future? What can I learn from the experience?

Who hacked me and why?

This is very difficult to answer (other than the obvious “SecurityBus”). Was it someone who just likes to hack sites for the challenge? Quite possibly. However, I was alerted by Amthrax who, like me, tries to educate consumers in the dangers of multi-level marketing. It instantly got me thinking, “What if an MLM company hired someone to hack me because I’ve been critical of them?” It’s pure conjecture at this stage, but it would make sense.

How would I protect myself from being hacked in the future?

I think the best thing I can do is move things to my own server with more robust back-ups in place Dreamhost has back-ups as well, but I’m starting to trust them less when they are blaming me for the hack rather than investigating their own systems.

What can be learned from being hacked?

I believe hacking will forever be a risk in the digital publishing business. I need to treat it like any small business would. The corner bakery may not have hackers, but they are at risk of a riot (at least here near Oakland and San Francisco) or theft. I have a friend who owns a Subway and he’s been robbed at gun point twice. Seems to be part of the nature of running a Subway in his neck of the woods. It’s unfortunate and I fear for him, but he knows the risks and he’s an adult and wise enough to make his decisions.

I’ve got a homework assignment for every reader here. (Don’t worry, remember I’m Lazy so this will be easy.) Come up with a list of 3 top things that pose a risk to your income. Next to each one, write one or more things you can today to lower or eliminate that risk. Put the list on your bathroom mirror until you successfully put in place all those safeguards.

As Angel said near the end of the Buffy series, “I’ll go start working on the second front. Make sure I don’t have to use it.”

Extra Credit: Leave a comment with your business, risks, and steps you can take to minimize the risks.

Our Early Retirement Plan: My Personal Income (Part 2)

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If you are just starting this, I suggest you start at The Introduction – Part 0. Alternatively, you can jump to Our Early Retirement Plan: Where We Are Now (Part 1).

My income and my wife’s income are dramatically different from most people. I don’t have a 9-5 job. Yesterday I mentioned how I make money from websites and from a small business.

Businesses

I run a few websites, but the one you are reading is by far my most successful. While I’ve put numerous hours into it, it’s starting to pay off well. In fact, the websites scale quite well. While it takes me awhile to get the websites going and producing income, but once they do, they can work without much time or effort on my part. Of course if I want them to continue to grow, I have to put significant effort in. However at some point, I might just say, I’ll spend a day and write a weeks worth of content and then vacation for the rest of the week.

The small business that I work on with my partner is a service. We do some work in acquiring clients as well as some start-up. However, once things get going, there’s very little day-to-day work with providing this service. We are keeping the business in stealth mode for now, so I’m not at liberty to discuss the details. Sorry.

It’s hard to believe that I could have these businesses 33 years from now. I’ve been at each of them for a very short time now. However, if these incomes were to last until then, I could live an essentially “retired” lifestyle. In fact, in my weird definition of retirement these two businesses are almost an ideal fit. I would have a sense of accomplishment, but still the freedom to travel and conduct my business from anywhere… or I could outsource these businesses to others and keep large percentage of the profits for myself.

Some may ask what they can do to duplicate the businesses I have. Sometimes it’s simply a matter of keeping your ears open for money making opportunities. I wish I could say that I planned these business from scratch. However, I accidentally fell into both businesses. In addition, network and surround yourself with smart people.

Retirement Nest Egg

In addition to those businesses, I have $125,000 in retirement accounts invested in stocks. If I were able to invest this money and make an 8% return, it’s possible to make 5% after inflation. Compounding this money for 33 years would seem to produce a potential $625,000 nest egg. I would need to pay taxes on some of this money (it’s a mix of Roth IRAs and 401Ks), but perhaps I’d still have $500,000 in equivalent to today’s dollars (since I factored in inflation). Experts estimate that you can withdraw 4% of that nest egg in retirement without impacting the nest egg itself. This would be $20,000 a year.

In addition to this, if my businesses take off, I can shelter some of the income in self-employed retirement accounts. I might even be able to put as much as $40,000 in a SEP-IRA. In addition, my tax attorney is saving me a lot of money by pointing out how many things are now a deduction with these businesses. These two extra tools will also help.

Rental Property

I mentioned in part 1 that I have a rental property. It’s currently worth less than I pay for it. I barely make back my expenses on it at this point. However, in 30 years it will be paid off and any income that it earns after that be a nice supplemental income.

Conclusion

It’s difficult to impossible to estimate what the businesses will make so far in the future. However, my websites currently make around $40,000 a year. My other business makes around $24,000 a year at this moment. Add in the $20,000 cash flow from the nest egg and it looks like I have a decent chance of having $84,000 when I retire. And while I don’t count on social security, it would be a solid bonus. I could definitely sustain myself on $84,000 a year. In some areas of the country, both my wife and I could live off that money.