Saturday, February 08, 2014

Escaping The Mental Money Trap

When the Bible said, "love of money is the root of all evil," it was focused on the ability of greed to tempt people away from their faith.  But you don't have to be religious to worry about the impact that money has on our minds.

As a true blue capitalist, I believe that money can be an incredible force for good.  Using money as a medium of exchange has enabled mankind to build incredible material wealth, to the point where today's poor live better than medieval royalty (at least in most developed nations).  But that doesn't prevent me from acknowledging that it has negatives as well as positives.

Stanford's Jeffrey Pfeffer has been studying the effects of money, which differ based on origin:
"Money that comes from the work we do makes that money more important to us. “The money in that case is a signal of competence and worth, and that makes it addictive, because the more you have, the more you want,” he says.

Because companies generally reward good employee performance with money, that money “becomes equivalent to the love of the organization,” says Pfeffer, and it will never be enough because it is so strongly connected to people’s feelings of self-esteem and self worth. “Companies should try to find other ways to signal competence and worthiness to their employees,” he says, such as helping them find purpose or meaning in the work itself, rather than the compensation."
It's a sad irony that the money we earn through our hard work is more toxic than money we inherit or receive through investments.  While I don't ascribe some kind of moral superiority to labor over capital (I could hardly be a capitalist otherwise!) many politicians and policy makers do.  Yet it is precisely that earned money which is the most addictive.

I'm torn because I hold two conflicting beliefs:

1) Money, as the primary tool of the invisible hand of the free market, is an incredible force for good, and ought to be distributed fairly (e.g. in accordance with value creation).

2) Money, as our collective obsession, is a dangerous drug that we have to learn to deprioritize in our emotional lives.

For me, the resolution is to recognize the value of money as a means, rather than an end.  I view the money in my various accounts as a means of improving my life and the lives of my family, rather than as a worthwhile goal in itself.  I value it inasmuch as it allows us to travel to visit family, or to pay for a gym membership.

(Note that when people actually are poor, nothing matters more; there is a huge difference between not being able to pay the rent and not being able to stay at the nicer hotel you prefer when you go skiing)

It's not enough to claim that money doesn't matter to you because "it's just a way of keeping score."  Baskets are just a way of keeping score in a basketball game, but because they are all that matters when it comes to winning, they become your primary focus.

Take the emotion out of money; those feelings belong with the things money can do, not with a set of numbers that are meaningless in themselves.  Only then can you escape the mental money trap.

Friday, February 07, 2014

So You're Shutting Down Your Startup And You're Scared...

I ran across Startups Anonymous, and a post entitled, "We're Shutting Down and I'm Scared" caught my eye:

For better or worse, I've either been through or participated in shutting many companies down, so I thought it would be fun and potentially useful to provide my blow-by-blow advice:


After over two years, backing from a well-known accelerator, nearly one million in funding and a decent amount of traction, we’re shutting down.

> Over half of all *VC* funded startups go belly up, so you're definitely not alone.

I’m scared. I’m also sad, disappointed, ashamed, embarrassed & deflated. But mostly just scared.

> That's natural. The way to get past the fear is to take action.

Nobody but my cofounder and I are aware we’re shutting down yet. It’s been a few days since we made the decision and I haven’t even gotten up the courage to tell my family.

> The sooner you tell them, the better. If the situation were reversed, would you want to know as soon as possible, or later, when there wasn't any time for you to help?

We haven’t paid ourselves a salary for some time with the hopes that we would raise more money, but also because we couldn’t afford to. My wife was counting on me to raise more money, now I have to tell her the news.

> You'd better tell her right away. She is an equal partner in your life. And if she leaves you over money, you're better off without her.

We didn’t leave enough money in the bank to pay off our debt, so now we need to tell people we can’t pay. Are they going to come after me, or my house and my car? I’m broke and I’m scared.

> It's called piercing the corporate veil. As long as you didn't sign any personal guarantees, legally you have no personal obligations.

Our investors believed in us. They believed in what we were building and our abilities to execute on the vision and future we painted for them. Now we need to tell them that we lost their money. Will they forgive us? Will any investor ever trust us again?

> Over 70% of pre-A companies lose all their investors' money. If you have professional investors, they know it's simply part of the game.

What are we going to do now? I can’t afford to start from scratch again. I’m broke and it’s not fair to my wife to go any longer without pay. Even if I could, what would I even do? Will I be able to get a job? I can’t go much longer without a paycheck. But, I can’t imagine working for somebody else. I wish my wife understood that.

> The sooner you tell friends and family, the sooner they can help you find a job. And I don't give a damn that you can't imagine working for somebody else--upgrade your imagination and do what you have to do to support your family. I'd wash dishes or clean toilets if I had to. It's not like I don't do both at home for my own family!

Are we going to get ridiculed for failing? What’s more scary, is anyone even going to care? After all, maybe that’s why we didn’t make it.

> You won't get ridiculed for failing because nearly everyone fails. As long as you didn't do something incredibly stupid and/or illegal, no one will give a crap. In life in general, no one wastes any time thinking about your problems, except maybe your mother. We've got our own problems to worry about.  Get your life in order, build up some cash, and rehearse the following line:

"My last startup failed.  Here's what I learned...."

Good luck next time!

Motivate yourself from within, not with comparisons

John Lilly at Greylock recently wrote an excellent post about how entrepreneurs often fall victim to survivorship bias.  Because we tend to hear about positive outliers, we end up feeling inadequate:
"The companies and people we all compare ourselves to are the ones who won, and who are winning. The Googles of the world. The Dropboxes. Ev & Biz & Jack. We compare ourselves to some of the most outrageous successes in the history of the world. We compare ourselves to the winners and the survivors."
John is absolutely right.  The survivorship bias is one of the main reasons entrepreneurs are so vulnerable to imposter syndrome.

Yet simply avoiding survivorship bias isn't enough.  Comparing yourself to others is one of the main ways the humans make themselves less happy:
"In one of the Stanford studies, Jordan and his fellow researchers asked 80 freshmen to report whether they or their peers had recently experienced various negative and positive emotional events. Time and again, the subjects underestimated how many negative experiences ("had a distressing fight," "felt sad because they missed people") their peers were having. They also overestimated how much fun ("going out with friends," "attending parties") these same peers were having. In another study, the researchers found a sample of 140 Stanford students unable to accurately gauge others' happiness even when they were evaluating the moods of people they were close to—friends, roommates and people they were dating. And in a third  study, the researchers found that the more students underestimated others' negative emotions, the more they tended to report feeling lonely and brooding over their own miseries."
Nor is this limited to Stanford freshmen (presumably the founders of tomorrow!).  I've been around long enough to know where the bodies are buried.  Many of the people that Silicon Valley founders think are "successful" are frantically paddling to stay afloat, just like everyone else.  I put myself in this same category; to repurpose Twain, the rumors of my success are greatly exaggerated.

The best answer isn't to be more realistic about your comparisons, it's to focus on the things that actually matter.  True happiness and fulfillment come from within, not what others do, say, or think of you.  Because while motivating yourself through envy and ambition might bring financial success (though I doubt it brings more success than simply striving for its own sake), it will never bring you happiness.

Thursday, February 06, 2014

The Hate List

Today, I got a chance to meet a very impressive entrepreneur, and I learned a new way to find a great idea.

John-Thomas Marino was a software engineer when he and his co-worker Daehee Park decided that they wanted to start a company.  But rather than just build an app, they took a very different approach: The Hate List.

JT was a newlywed, and had recently spent $3,200 on a Tempurpedic mattress (the same one that I, alas, also spent thousands of dollars on).  He didn't like the buying process--or the price tag--and decided to figure out if there was a better way.

So he and Daehee assembled a Hate List by brainstorming all the things that they hated about buying mattresses.  They then set out to fix all those problems.

The result is their current startup, Tuft and Needle, which makes high-quality foam mattresses and sells them for a fraction of the cost of the traditional mattress makers.  A Tuft and Needle queen-sized mattress is just $399 and the shipping is free.

Despite having just started selling mattresses last year, Tuft and Needle has the #1 ranked mattress on Amazon, and the #6 seller in mattress sets.  Not bad for a bootstrapped, profitable company that makes all its products in California.

Buying a mattress is just one of a legion of pretty universal activities that suck.  Pick your own, make a hate list, and figure out how you can overturn the industry.  As a bonus, you'll be reducing the amount of hate in the world.

Wednesday, February 05, 2014

How To Protect Your Time (20 minutes at a time)

The great Eric Barker has another informative post up on his blog.  The dilemma we all face is that saying "Yes" makes us happy, but we have to say "No" in order to stay focused and accomplish anything of note.  So how does one do both?  Eric cites a number of accomplished experts:
"So how do you say yes and no?

It all starts with “protected time” for your important work.

Make a few of your prime hours inviolate. Anything threatening them gets a “no.” Period.

Charlie Munger always kept one prime hour for his personal priorities.

You’re not that much of a time management ninja? No problem.

Focus on protected days instead of protected hours.

Adam Grant has days where the door is closed, the answer is no, and important work gets done."
I'm certainly not as successful as Adam Grant, let alone Charlie Munger, but I think my technique for protecting my time offers more flexibility for the average person.

As I've written in the past, I use the Pomodoro method, and focus my attention and energy into 20-minute work sessions:

I've been Pomodoro-ing for over two years now, and the key benefit is that it makes me mindful of how I'm spending my time.  Having a timer go off every 20 minutes is an easy way to make sure you don't take a "5 minute" break, and get up from the couch 4 hours later after a "Chopped" marathon.

Protecting a day seems hard.  Even an hour might be difficult, given how schedules shift.  But 20 minutes?  Anyone can protect 20 minutes.

And even in 20-minute chunks, I find I can get a lot of important work done.