Role Model – Page 2

2011 Man of the Year

January 4, 2012

This photo was taken 146,000 “Yes honey, I was wrong”s ago

Every year we choose an honoree who embodies the Control Your Cash principles. For instance, here’s last year’s. The award itself is nothing physical, just a commendation here on CYC. Winning doesn’t even guarantee you notoriety; the 2010 winner appears to have fallen off the face of the Earth. This year’s winner is erstwhile presidential candidate Herman Cain.

This is not an endorsement of his political candidacy. And the preceding sentence doesn’t mean that we reject his candidacy, either. Moot point, anyway. For the record, our guy is Ron Paul, the most principled candidate since Calvin Coolidge. But Paul’s story doesn’t illustrate our point as well as our Man of the Year’s does.

It’s an easy mindset to get into, that building wealth is restricted to the moneyed class, the bluebloods, the politicians and their scions, what the filthy people who appear to have finally removed themselves from Zucotti Park called “the 1%”. No, this is America. Believe it or not, complaining about The Man wasn’t always our national pastime.

We can agree that 130 years ago, being born into a poor family was a far greater obstacle than it is today. Let’s split the difference and look at whether being born into modest circumstances 65 years ago would result in a life of want and need.

Our previous Men of the Year have been relatively obscure; just regular folk who buy assets, sell liabilities, and enjoy the inevitable wealth that accrues. In 2011, class warfare became such an overriding theme of life in America that we had to look for a Man of the Year whose story proves that growing up modestly is neither a necessary nor a sufficient condition for staying that way. There are millions of people like that, but our winner was easy to find biographical information on.

Here’s a man who ran for the office of most powerful person in the world, and whose parents were a housekeeper and a barber/janitor. He grew up black in the 1940s and 1950s in Memphis and Atlanta, which is similar to growing up Jewish in the 2010s in Damascus and Aleppo.

Again, read what his parents did for a living. Their collars were bluer than Lake Tahoe. Young Herman studied hard in school, and applied to the University of Georgia. As a black man. In 1963. You’re not going to believe this, but they didn’t allow him in.

So Herman turned to a life of recreational drug use and folk songs. Just kidding, he attended historically black Morehouse College instead and earned a degree in women’s studies. Alright, more kidding. Women’s studies didn’t exist at the time. Math, on the other hand, did and always will. He majored in that, and followed it up with a master’s in computer science.

This didn’t guarantee him a life of riches, but it helped immensely. It almost certainly guaranteed him a job. Civilian ballistics analyst for the Navy, if that sounds like something worth aspiring to.

From there, you’re probably somewhat familiar with the story. But advancing from computer systems analyst to CEO of a major corporate subsidiary to director (and then chairman) of a regional Federal Reserve Bank was just gravy. What got Herman Cain the Control Your Cash Man of the Year award was his ability to make sound decisions that lesser people just refuse to make.

Yes, he bought some assets and sold some liabilities along the way, financial ones. But he applied the same principles to hugely important non-financial decisions, too. Living the right way (or not living stupidly) is a hell of a lot more crucial than remembering to rebalance your 401(k) with the recommended asset classes. Here’s an example.

Herman Cain’s family creation plan, in chronological order:

Get married
Have one kid
Have another
STOP.

There are some intermediate steps, e.g., look at your net worth and cash flow and determine if you can create another mouth to feed, but what we’ve given you there is the gist of it.

Your average poor person’s family creation plan, also in chronological order:

Get pregnant/impregnate someone.
Weigh having the kid versus sucking it out with a vacuum tube.
Collect welfare either way.
Get pregnant/impregnate someone again, not necessarily the person in Step 1.
Repeat Step 4.
Remain unmarried. Or get married, for no better reason than you’re already in too deep.
Divorce. Somewhere along the way, introduce substances to assuage the self-inflicted pain.

Your average poor person’s education plan has fewer steps than the family creation plan, but they’re just as stupid. And none of them involve the hard sciences.

Public disclosure forms estimate Cain’s wealth at between $2.9 million and $6.6 million. If you grew up miles and decades from the nearest lynching and/or cross-burning, what’s your excuse for your net worth?

This article is featured in:

**Top Personal Finance Posts of the Week: Psycho Suze Orman Edition**

**Carnival of the Vanities**

Filed Under: Making Smart Choices, Man of the Year, Math, Role Model Tagged With: 2011, Herman Cain, man of the year, morehouse college

Getting Fired Never Felt So Good, Part II

October 14, 2011

No one who refers to his place of employment as “the salt mines” looks like this.

If you missed it, go here for Part I of the story of John, an entrepreneurial field experiment. He’s a former wage slave who was lucky enough to get fired by a boss who wasn’t very good at assessing the value of his employees’ human capital. John got fired not over performance, but over money (among other things.)

(A note to bosses: do that, and you’re giving your employee a more accurate idea of his market value than working for you ever could.)

Sudden unemployment forced John to think entrepreneurially. He started a business, incorporated it, and started living for himself, his wife and his kid (drat, that just gave away the ending) rather than his boss’s yacht. John’s making far more than he did before, and can take days off at a stretch if he feels like it.

But there’s more, starting with the pride that accompanies ownership. That goes for what you drive, where you live, and especially where you work. There’s a reason why privately owned houses look nicer than Section 8 housing does. Any sane person will put more effort into maintaining something that’s his own, rather than something he has only a transitory interest in. (When was the last time you washed a rental car?)

Most salaried workers salivate at the idea of getting off work early, whether they choose to admit this or not. Your average successful entrepreneur just wants that day’s work to be completed, and doesn’t care if it takes 13 hours on that particular day, or 1.

In his new life as a business owner, John’s financial fate no longer rested in the hands of a single, capricious, inherently flawed human: a boss whose job description mandates paying John as little as possible.

Instead, all John had to do now was just please customers. The more he pleased (and continues to please) them, the richer it made him. The money is fine in and of itself, but every dollar Dog & Pony earns gains him greater self-determination. So why don’t more people do this?

Going it alone had crossed John’s mind before, but getting fired gave him the necessary impetus.

I had run my own company for a short time while in Detroit, but gave up on it too early. I did sound design for car commercials and used someone else’s studios. It turned a profit, but I just wasn’t prepared. And the paperwork overwhelmed me. When I received an offer to be a salaried employee at another studio I took it, and a year later Omega Center hired me.
Once they fired me, I had no choice, so this time I knuckled down and got it done.

To start a sound design business, you need a big initial outlay on equipment. With his savings hovering around 0, John buttressed them with an, ahem, credit card advance and an $18,000 second mortgage[1].

That took care of capital expenditures. Labor expenditures, at the start, were staring at him in the mirror every morning. Clients, he got through word-of-mouth and “some judicious cold calling.” That leaves the dull but critical process of getting things nice and legal.

I got the business up and licensed with the state and then went to the county to figure that part out. Given the choice between doing business as a limited liability company or an S Corporation, I went with the latter. It gives me tax advantages and better protection from libelous types.

That part can’t be underestimated. We show you how to set up an S corporation (or an LLC, which you shouldn’t immediately rule out) quickly and without fuss in our new ebook.

It took John 6 months to turn a profit. As to the magic formula for transitioning from tentative to successful, here’s it is:

You just have to keep plugging away. There’s no magic formula, just hard work and ignore the self-doubts.

The next MBA-level textbook that has that passage in it will be the first.

John started by creating a studio in his house, using the home equity line of credit to buy a laptop, a microphone and some odds and ends. The line of credit paid for more equipment as the business took off: he soundproofed one end of a hallway and created an isolation chamber to record voice talent in. John purchased an Integrated Services Digital Network line, enabling him to send and receive sound files in real time to and from anywhere. (By the way, he paid the initial advances off in 2 years.)

Eventually, with the business growing several-fold (and John’s family growing by 50%), it came time to move into real offices. Which sounds expensive to the untrained ear, but

I turned to my network and found a great banker who listened to my pitch and believed in my company.

Today, Dog & Pony has 3 full-time employees and grosses about $600,000 a year. The studios sit in the epicenter of Las Vegas, the city with the worst unemployment in the state with the worst unemployment in the country. Yet Dog & Pony’s revenues have increased in each of the last 4 years.

John did go to college, but not for this. There are hundreds of schools that offer useless degrees in subjects like women’s studies and sociology, but only a handful that have begun teaching the practice and study of entrepreneurship. (They include the University of Nevada-Las Vegas, whose entrepreneurship program CYC’s own Betty Kincaid helped found.)

John’s personality and attention to detail made him popular among peers and clients while he worked for Omega Center, but that reputation only translated into so many dollars while he was an employee. Actually, it only translated into so many 7¢ amounts: see Wednesday’s post. When John became a business owner, his positive reputation turned from a desirable attribute into a force multiplier. The beneficiary of his hard work, commitment, and reputation was now him. Just as it should be.

John didn’t have a 5-year plan. No sales goals, no revenue goals. He had literally no expectations. Which doesn’t mean he thought he was going to fail, but rather it means he took success as it came. He doesn’t hire people on a schedule, but as they become necessary:

I couldn’t handle the phone calls, billing and studio work so I needed an assistant. When there was too much studio work for just me as a producer, I hired another. And so on…

As for the numerical drudgery of bookkeeping, taxes, and payroll, those are easy enough to handle that Dog & Pony does most of it internally.

It’s surprisingly easy to run QuickBooks if you just knuckle down and read the damn manual. Our office manager/zookeeper handles it, and a once a month we receive a visit from a professional bookkeeper. And we have a great accountant.

You can see John is full of regret, and dying for a chance to return to the unpredictability of a “steady” job.

What was the hardest part about deciding “OK, I’m going it alone?”

Just doing it. Sorry to sound like a Nike commercial, but the biggest impediment is always self-doubt. If you can get past that hurdle, and your skill or business is viable, then you’re on your way.

Controlling your destiny is what this whole personal finance game is ultimately about. We’ll say it again and again. You can do this. John proved as much. But the 2^nd, 3^rd, 4^th, 5^th and thousandth steps can’t happen until you take the 1^st.

[1] Do we recommend this? Under normal circumstances, of course not. But John wasn’t buying jetskis or installing an atrium. He was purchasing his destiny. To draw a parallel, under normal circumstances you shouldn’t stuff your face with Klondike bars and Jack Links. But if you’re emerging from a week on the Ross Ice Shelf without food, then eat whatever you can get your hands on. Worry about survival first, and only make decisions about quality once you have the luxury of doing so.

**This article is featured in the Carnival of Personal Finance #331-Global Stock Markets Edition**

Filed Under: Capitalism, Entrepreneurship, Healthy Living, Making Smart Choices, Role Model Tagged With: Dog and Pony Studios, entrepreneur, John McClain, Las Vegas, sound design

Getting Fired Never Felt So Good, Part I

October 12, 2011

It’s obscured, but his right middle finger is pointing directly at conventional employment.

You want a real-world example of someone who flipped the bird to the idea of being an employee and never looked back? Here’s Part I of a test case for (and testament to) the wisdom of sacrificing a “secure” paycheck for the riches that come with self-determination. The thrilling conclusion will come Friday.

You don’t know him. His name is John McClain, and he’s the youthful 46-year old founder/owner of Dog & Pony Studios in Las Vegas. They do sound design for movies, TV shows, commercials etc. But that’s secondary to what the business has been able to do for its owner. Not only does has it created gainful employment for multiple people, it’s allowed John a lifestyle that includes a second home and exotic vacations.

(Wait, that sounds overly grandiose. The vacation home is a modest cabin in small-town Utah, not a private Caribbean island. And Laos is cheaper to visit than you think.)

He didn’t start the business in his parents’ basement, recording his friends’ conversations on 8-track as a precocious preteen and growing the business over decades into what it is today. Far from it. Instead, he…well, let’s let him tell the story.

John worked for an East Coast production studio, which we’ll call “Omega Center”. In 1996, Omega looked to expand to the West Coast, and put John in charge of those operations. The job involved him managing the studio, producing commercials and other pieces, creating original music, hiring and training employees, et al. He’d signed a contract, and, as John put it,

I made the classic employee mistake of not having an attorney look over my “contract”. Because my employer would never do anything to screw me, right?

Of course, John didn’t know this (or even think of it) at the time. Most employees wouldn’t. I get paid every 2 weeks, the checks don’t bounce, why would I worry about my contract? Besides, those things are boilerplate, aren’t they?

When Omega offered me the job, I also had a great offer on the table in Detroit, where I was living at the time. I figured I’d throw caution to the wind and asked for $100,000 a year. They looked at me like I was from Mars but I kept a straight face and offered some story about moving my wife, leaving home, etc. They offered $45,000 + 7% of gross earnings.

Stop. John insisted on a percentage of gross rather than of net. He knew that gross revenue is easy to trace, and that’d he be the one largely responsible for maximizing it. Dollars in are straightforward. Not so for net revenue, which Omega’s accountants could easily lower to a level they found palatable. (“You bought lunch for the clients? Sorry, that counts as a cost of goods sold. We’re deducting it.”)

All I had to do was get the studio’s earnings up around $725,000 and I’d be earning about what I’d asked for. Before I started, West Coast operations grossed $150,000 and were performed via phone and FedEx. With a physical presence, in 5 years I’d raised gross revenues to $1.2 million and hired 2 producers (in addition to myself.)
Did my salary change? Yes. Did it go up? No. The owner never thought I’d do so well, and was angry that he had to pay me 7% of $1.2 million. Never mind that he was earning 93% of an amount he never thought he’d earn. He cut my salary and I began preparing an exit strategy.

Still, John was in a place that most employees would envy. He was “management”, he had 4 people under him (including an office manager), and the people he had to report to were 2500 miles away. It was his to succeed or fail with. Sounds liberating, right?

It should have been, but Omega suffered from myopia; you can’t do it that way, because we’ve never done it that way before. They micromanaged my office and told me I was doing it all wrong. By the way, the home office was retaining only 28% of its clients from one year to the next. Here on the West Coast, we were holding onto 68%.

It’s awesome that he’s petty and/or detailed enough to remember that years later. John was putting in 50 hours a week, and one day reached the point of no return that so many employees do.

I started telling myself the job wasn’t that bad.

Everyone who’s ever done that, raise your hand. Yup, you in the back, too. Higher, where we can see it.

John came to work one morning in 2003, and was greeted by the owner sitting at his (John’s) desk. Owners don’t fly across the country without a reason. And in this case, a severance check.

Omega paid John what the contract stipulated, but reminded him that the contract forbade him from plying his trade. John hired a lawyer to look it over, but

The owner had written it himself. My lawyer literally laughed out loud when she read it.

John had (or had had) a boss who knew nothing about contract law, but other firees aren’t so lucky. If you do insist on working for someone else, never accept a contract that includes terms that can affect you even after they fire you. Better to go hungry until you find an employer who won’t force you to stay unemployed months or years down the road.

So here’s John. Late 30s, wife, mortgage, cats, dogs, pink slip. Being rational, he took his new employment status in stride:

I freaked. Then I let all my friends and clients know what had happened. Then those same friends and clients started calling me directly to book me for their jobs.

He had enough work to see him through in the short term, and fortunately his wife was continuing to make good money. But as John (and not many other people) is frank enough to admit,

She and I were always spenders, not savers. One salary wouldn’t cut it at the time. We were super tight for dollars and had no savings to speak of.

Sometimes you wonder if the boss who’s holding the scimitar over your head knows that you haven’t saved anything. Every person who dispenses financial counsel loves to advocate creating an “emergency fund”, but hardly anyone actually does it.

The standard move at this point is, of course, to apply for jobs at other companies in the industry. That’s just what you do. But like a dog who’s been abused, John was wary. It’s hard to put 100% into your search while thinking, “The same thing might happen again. I need to go it alone.”

I received an offer from each of my prior competitors but I didn’t want to go back to another j-o-b. My former employer had taught me how to not run a business, and I was determined to put those lessons to the test.

You already know how the story turns out, especially if you clicked on John’s company’s link, but it didn’t go down the way you think. Come back Friday for Part II.

**This article is featured in the Baby Boomers Carnival: One Hundred Fourteenth Edition**