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Are You an Entrepreneur or Ordinary Mortal?

In Uncategorized on February 18, 2011 at 12:33 pm

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by Grandpa, author of PTO 20-20

Yesterday I (Grandpa)  took my 18 year old grand-kid out for a
gourmet dinner in a restaurant near Como, Italy. It was an
exceptionally elegant, very expensive place. But what the heck, 
this was a special occasion –to celebrate his admission to Law School.
On the way in I noticed a display case with various sizes of
French made Limoges China porcelain. These were also some jars
wrapped in transparent shrink-rap. These were somewhat less
elegant–plain glass jars with something tan inside–also shrink
rapped. Every jar and serving dish was discretely
marked with a price. The prices of whatever it was — were
roughly one quarter the price of gold –per ounce. A four ounce container was $1,000 USA Dollars.
The kid was only interested in ordering and chowing down his
dinner a.s.a.p. He seated himself and started looking at the menu. I on
the other hand, asked the waiter what they were selling in those
display cases, and quickly learned it was the restaurant’s own secret
recipe for goose liver pate and truffles. They were available for take away.
“Do you sell a lot of this stuff?” I asked. The waiter went
to summon the boss, an attractive middle-aged woman who turned out to be
Adriana by name. Adriana explained in perfect English, that roughly two
one-centimeter cubes of her dreamy concoction was given out on a
tiny cracker as a pre-appetizer to all her lunch and dinner customers.
The waiter delivered a low key sales-pitch for the take-away packets
with the pate. She explained that a large proportion of the guests bought the pate.
They also had their own private label wines. Customers also
usually bought a few bottles to take home with them.
What does this have to do with you, dear reader?
It is my lead in to explain the difference between Entrepreneurs
who are usually multi-millionaires who make their living by making deals.
And . . . Ordinary Mortals who have ordinary jobs. They fail to see the
opportunities around them.
An entrepreneur reads the newspaper, surfs the net, goes for a
walk, enters a restaurant or does anything  –always  – looking for and
seeing deals – in other words– opportunity. He is not an ordinary
“consumer,” who sees goose liver pate and thinks, “Mmmmmm, I think I’ll buy
some of that to eat.”  The entrepreneur sees liver pate and mentally
mulls it over:
“ An interesting product. How can I make a profit on it?” In
this case, I wondered aloud with a question: Is Adriana  marketing her
product on the Internet? Her answer:
“I suppose I should, but running a restaurant and dealing with
our little sideline (wine & pate retail sales)  takes up all my
time and energy. It also provides us with a very good living. Cooking and
creating delicious food is what we (my husband and I) love to do.
Our business has improved hugely because two years ago we got a star
from the Michelin Guide. Now tourists from all over Europe put us on
their itinerary.”
/I saw an instant opportunity. Do you, dear reader? /
The possibility was that I would make an exclusive contract with
Adriana and her husband, to distribute their products on the Internet,
internationally. If that worked out well, they could create
additional gourmet products. Maybe later I would add or suggest other
products. My new <gourmet-on-the-go.com> website was taking
shape in my mind. Note: There is no such website – yet!
I won’t go into detail here, but will explain that an
entrepreneur is always on the lookout for (among other things)
an existing product or service that he can market. One rule of
thumb is that the mark-up on such a product must be at least four to one.
In other words, for it to be worth your while to promote something,
you need to be able to sell it for at least four times as much as
your cost.
Got that? 
There is no absolute rule, but many new businesses
fail because ordinary people starting a business think they can open a
boutique (for instance) and sell jeans and stuff they buy for $50
at a small mark-up, like $75. Sorry! Once you factor in –employees,
paperwork,  overhead, rent, and all other expenses—plus your
time–  a fixed location store selling luxury goods needs a  seven times
markup. $50 cost items must retail for $350.
Internet marketing has less fixed costs. Thus, if something  that
costs $5 and can be sold for at least $20, you will probably come out
ahead. The best internet products are “information.”  This will be
books, manuals, software, movies, etc. that cost little or nothing to replicate
and deliver– once the prototype is created. That is the Microsoft
secret of success. What do I mean?  You write a useful “how to” book or
produce a valuable piece of  software for a niche market. Then you sell it
online for what amounts to almost pure profit on every unit sold.
Overhead is nominal and you can run your business from your bedroom.
To go off on a slight tangent, an entrepreneur always keeps his
eyes open for any kind of deal or opportunity. When it appears, he
pounces. Years ago, I was walking along a street in Buenos Aires,
Argentina. I was on a boat cruise. Only had one day to spend in town.  As it
happened, I passed a run down old mansion that had seen better days. It had a
big sign up on it, “For Sale –Open house Today”… I went in
for a look.
The place was like the California Estate in the movie classic,
Citizen Kane. It was piled high with furniture & art works — junk mostly.
Yet I saw a few items that if real, were of great value. 
I had been to art auctions in Europe and the USA. Because of
being observant and storing information for later use, I knew the
style of certain artists whose works I saw there.
The contents of the ruined house were sometimes on the wall,
sometimes on the floor. This dusty, run down property hd broken windows and
water leaks. The mostly damaged contents had obviously been there for
years after the owner, a collector from Europe had passed away. Some 
framed etchings, possibly by Rembrandt, were water stained and half
eaten by worms. I asked the guy selling the place
“what are you going to
do with all the junk?”
He said it would soon be taken away by a
bric-a-brac dealer. He’d be  cleaning out the house — in exchange for any
saleable stuff he could find among the debris. To make a long story short,
I picked maybe a dozen of the prints, oil paintings and sculptures
I thought might have value. It was a quick “cash and carry”
deal.
I surmised that the artists of the 1920’s he had collected, who
might have a market value in Europe, were unknown in Argentina.
I knew it was going to be a very good gamble.
I only could take what would fit in a van-type cab. A hired cab
took me and my soiled merchandise back to the boat. I paid a nominal
sum  for what I selected. When I got back to Europe,  I made out like a
bandit.
But that’s another story.
Why do some people see (and make) deals like this, and others,
never make even one profitable deal in their lifetime?
Answer: Most people never had role models who taught them to
think like a tycoon. They are not looking for deals. All they know is “I
want to find a job.”
Even after reading this, you may make some mistakes and bad moves
– Unprofitable deals are always the result  if and when you
don’t really know/understand the market. I once bought a Rolls Royce only a
few years old, for what I thought was a super-bargain price. I later
learned that an older used luxury car (or yacht!) is really hard to sell. Why?
Mainly because insurance, overhead, parts and repairs are very
expensive. People who can afford a Rolls will usually get a new
one.
A high priced luxury product will only sell (used) at a very deep
discount. Recentky I had a top-of-the-line 2009 Mercedes that cost the
first buyer 160,000€. I was not a fool  to overpay. I got it cheap: 25,000E.
Do you know anybody who would pay 35,000euros? I found someone
and was able to make a profit on that. Why? Only because
I bought cheap and sold cheap. You make the profit on the buy.
Pay too much and you are sunk.
Then there was another time when I saw an ad for the entire
contents of a big public library going up for sale by sealed bid.
The minimum bid was $10. I knew from a prior visit there,
there was one original edition book (I still have) worth at
least $1000- to me. I went to the library, and to my surprise,
that book was to be included. I also figured that as
waste paper, all the books and magazines were worth at least
$3000. So I bid $10.05.  As it turned out I was the only bidder.
Once again I made out like a bandit: I identified several rare
books — each worth a few thousand dollars. I sold them quickly.  
Other books I had no time to sort through, I sold quickly to
book dealers for $2000 for the lot.
In two weeks I made around $17,000 on books I had bought for $10.
After that, whenever I saw an advertised auction or sealed bid
sale—in one those legal papers that  few people read– I always bid
the minimum  $10 on everything. I never bid over $20. As a result
I have many slivers of real estate and assorted this & that.
Adjoining property  owners will hopefully buy those slivers of
land for considerably more than what I paid.
Why doesn’t everybody do what I do/did?
They don’t – that’s all.
After reading this, you can start to think like an entrepreneur.
But
thinking isn’t enough. You must actually make the bid on deals
that make sense.
By the way, I didn’t do anything with the liver pate and
truffles.

Grandpa

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