Author: Helping Families Flourish

Financial Planning is a relatively new profession. I learned of it myself for the first time in 1989. I returned to the classroom to study accounting, economics, and finance. I also enrolled in a two-year course in Financial Planning with The College for Financial Planning in Denver, Colorado. Upon completion of that course, I began my career in the financial services industry in 1991. In 1995, I was awarded the CFP® designation by the Certified Financial Planner Board of Standards. At Family Wealth Management, L.L.C., our policies and processes are consistent with the standards established by that board. My purpose has always been to build a financial services practice that enhances the lives of everyone it touches, and that will be doing so one hundred years from now. In the twenty years that have elapsed since I was introduced to the financial planning profession, I have worked with literally hundreds of families. I like to think I’ve made a difference. We at Family Wealth Management, L.L.C. sincerely look forward to working with you and your family, too. (Mike holds FINRA Series 6, 7, 63, 65, and 24 registrations* and is licensed in Kansas for Life, Health, and Variable Insurance Products)

Middle Class PPACA Taxes

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing July/August 2012

 In a landmark decision announced on June 29, 2012, the 2010 Patient Protection and Affordable Care Act (PPACA) was declared by the U.S. Supreme Court to be “constitutional”.  With this precedent, it’s hard for me to imagine any Act of Congress that couldn’t clear the bar of constitutionality; but that’s a topic for another time.  The purpose of this article is to begin to outline the costs to middle-class taxpayers of the PPACA.

First, there is the penalty—correction, the surtax—on not buying “qualifying” health insurance.  Starting in 2014 the surtax for one adult is the greater of 1% of adjusted gross income (AGI) or $95.  That minimum climbs to 2.5% of AGI or $695 in 2016. After 2016, the minimum is indexed to inflation.

Then, there is the “medicine cabinet tax”, which took effect on January 1, 2011 and prevents Americans from using their pre-tax Health Savings Accounts (HSA), Flexible Spending Accounts (FSA), and Health Reimbursement Accounts (HRA)  to purchase non-prescription, over-the-counter medicine (except insulin).

Third—and this one may come as a great surprise and disappointment to many supporters of PPACA who have “special needs” children—the new law imposes a cap of $2,500 on contributions to FSA’s.  (Currently, there is no cap.) There are thousands, if not millions, of middle-class families who now use FSA’s to pay for special needs education and treatment with pretax dollars; think Autism, for example.  The new limit takes effect in less than six months, on January 1, 2013. 

Fourth, for those who itemize their tax deductions, the threshold for allowable medical deductions is raised from 7.5% of AGI to 10% of AGI.

Fifth, beginning on January 1, 2011 under PPACA, premature, non-medical withdrawals from an HSA’s are penalized at 20%.  As you probably know, the penalty for premature withdrawals from annuities, IRA’s, 401k’s and other qualified retirement plans is 10%.

Sixth, effective July 1, 2010, Americans using indoor tanning salons have paid a 10% excise tax.

Finally, no good deed goes unpunished:  Starting in 2018, PPACA imposes a 40% excise tax on “Cadillac” health insurance plans.  A “Cadillac” plan is defined as a plan with $10,500 annual premiums for single taxpayers and $27,500 for families.  There are higher thresholds for early retirees and for those in high-risk professions.  Did you really believe that you would be able to keep the insurance you have now?

Each of these seven taxes could apply to any taxpayer, including the non-rich whoearn less than the ballyhooed family income threshold of $250,000 per year.  

But, let’s keep things in perspective.  As citizens and investors, the greatest mistake we can make is to extrapolate current events into the unforeseeable future.  Well more than half of all adult Americans are opposed to many—though not all—of the provisions of PPACA; and yet, it’s unquestionably true that our current system of paying for healthcare is broken.  As my tone surely reveals, I believe PPACA should be totally repealed and replaced; but even if that doesn’t happen, I believe the public will demand some significant changes.  

This is not the first time Congress and a “visionary” President have overreached in their efforts to solve a real problem and/or to advance a political philosophy that’s contrary to what most Americans believe.  I don’t know how this PPACA thing will work out, but I hope—indeed, I’m confident—that however it turns out, the ever-resourceful American family will be able to adapt and prosper.  Ditto, America’s great businesses.  mh

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Sources for this article include:

http://finance.yahoo.com and http://atr.org  (Americans for Tax Reform)

I’ll Retire When . . .

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing July/August 2012

I’m often asked, “When do you plan to retire?”  My gut reaction to that question is, “Why would I want to do that?”  But, you deserve a better answer.

So, when I look in the mirror every morning, I see white hair, where black hair once flourished.  I see wrinkles and age spots, and scar tissue, too.  Linda says my backside looks like my dad’s—I don’t think that’s a compliment.  I suppose these things should bother me, but they don’t. 

When I look in the mirror every morning, I have a yellow bird on my shoulder.  We sing together while I shave.  We shower together, and we share breakfast, too.  My grandchildren are sure that I’ve gone over the top.  I say that I’m at peace with myself and with the world.  Why wouldn’t I sing?

I feel the same way about my work.  When I arrive at the office, I’m working with and for people who have entrusted me with their life’s savings; yet when times are tough for them, they call to ask how I’m doing.  The next time you’re sick, call your doctor, thank him, and ask how he’s doing.  You’ll feel better, and you will probably have made his day.  So, I sing at work—albeit silently to protect the innocent.

I’ve just finished reading Turning Pro,* by Steven Pressfield (best-selling author of The War of Art and The Legend of Bagger Vance).  Before turning pro as a writer, Steven worked at a number of jobs, including fruit-picker and dish-washer, but  most notably and happily as an over the road truck driver.  I can relate: I liked building things with concrete and steel, but I never believed that was what I was put on earth to do.  I turned pro in the financial advice business in March of 1989, two years before anyone would hire me.  When it comes to retirement, Steven Pressfield speaks for me:

The Spartan king Agesilaus was still fighting in armor when he was eighty-two.  Picasso was painting past ninety,…

Once we turn pro, we’re like sharks who have tasted blood, or renunciants who have glimpsed the face of God.  For us, there is no finish line.  No bell ends the bout.  Life is the pursuit.  Life is the hunt.  When our hearts burst…then we’ll go out, and no sooner.

One more thing:  Family Wealth Management will be here for you long after I’m gone.  mh

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* Turning Pro, Steven Pressfield, Black Irish Entertainment, LLC,  2012, p 115.

The Unemployment Question (Part I)

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing July/August 2012

In the June edition of this newsletter I asked, “If things are so good, why is unemployment so stubbornly high?” I promised to give you my answer this month, but in fact, it will take me three months:

Human desires are unlimited.  At least mine seem to be.  I live at a substantially different level today than I did in my youth, or even as I did twenty years ago.  If you look at your own lifestyle today, I’m sure you’ll find things that you can’t live without, that twenty years ago either didn’t exist or you thought you couldn’t afford.

Not only are my desires virtually unlimited, there are very few things I really like to do—or can do—myself.  I’d prefer to hire other people to do them.  I’d like to have a full-time gardener, for example. 

It gets worse.  I’m reasonably satisfied with the things I own now, but if I could afford them, I’d like to have a Rolls Royce and a chauffer to drive it for me, while I read Victor Hugo novels and sip fine French wines.

I once saw a beautiful teakwood sailboat with two diesel back-up engines.  Sea-worthy, to say the least.  Linda created a beautiful watercolor painting of it that now hangs in her home office.  That boat would be really cool to own—if the price was right. 

The only thing that prevents me from owning and doing these things is the price of the labor involved.  If people would work for free, or almost free, I’d have all these things and more; virtually all my desires could be fulfilled.  I could even (someday) fly to the moon on one of Richard Branson’s space ships. Weightlessness—I could handle that, I think.

But, even if I had unlimited wealth and/or people would work for nothing, I could still find many more things that need to be done than I could find people to do them.  I think that’s true for most people and most businesses, too.  Especially, businesses. 

The point—to this point in my answer—is that there is always plenty of work to do, so a lack of work to do can never be the cause of unemployment.  The cause of unemployment must be something else.  But what?

The first and most obvious answer is that people sometimes voluntarily quit their jobs, and they may experience a delay before taking a new job.

That kind of unemployment is voluntary, and is perhaps the most common type of unemployment.  Similarly, people retire from working altogether, but we usually don’t call that “unemployment”; we call it “retirement”.

The most common type of involuntary unemployment is that caused by minimum wage legislation.  When I was about twelve years old, my dad “hired” me to “whip” weeds around sand piles and stacks of cinder blocks.  At twenty-five cents an hour, I could earn two dollars a day1, and he didn’t have to pay his truck drivers to cut weeds.  Delivering lumber, sand, and cinder blocks was worth more to him than weed-cutting.  Anyway, at twelve years of age, he wasn’t about to put me behind the wheel of a fully-loaded REO Speedwagon. 

Was he taking advantage of me?  The correct answer, of course, is, “Who cares?”  I had my two bucks – a lot of money for a twelve year old kid.  I had to pick up nasty cups and cans at the Yankee Dollar Drive Inn for seven days to make that much money.  But, that weed-cutting job – even with the latest string trimmer technology – couldn’t exist today; nor could the Yankee Dollar parking lot job; even allowing for child labor laws.  Minimum wage legislation explains why teenage unemployment now hovers around 25% nationally; and even more sadly, for black inner-city teens it’s much higher, 39.3%2.

Minimum wage legislation also helps to explain self-service gas stations.  Attendants—even teen-age attendants—can’t compete on price. Some people blame technology and our fast-paced lifestyles for the loss of these and other personal service jobs; but the real culprit is minimum wage legislation, which makes technological solutions comparatively more affordable than unskilled or low-skilled human labor.  Who – but for the vast cost differences – would not rather be greeted by a smiling service station attendant than by a dirty LED screen? 

I know some people won’t work for $2 a day—or even $7.25 an hour, the current minimum wage in Kansas—but some will, and in the process they’ll develop habits and skills that can help propel them toward higher paying jobs. (Did I mention that my girls paid for their college degrees by working in Dairy Queens and truck stops.)  I have to ask:  What are the values of personal independence, self-confidence, and pride worth?   mh

(To be continued next month.)

1    In the late 1920’s, my dad performed the same work for his father (my grandfather) at seventy-five cents per day. 

Social Security Online

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing June 2012

Social Security statements are now sent out only annually to workers age 60 and older.  On May 1, 2012, Michael J. Astrue, Commissioner of Social Security, announced that an online version of the Social Security Statement is now available. 

“Our new online Social Security Statement is simple, easy-to-use and provides people with estimates they can use to plan for their retirement,” Commissioner Astrue said. “The online Statement also provides estimates for disability and survivors benefits, making the Statement an important financial planning tool.  People should get in the habit of checking their online Statement each year, around their birthday, for example.”

In addition to helping with financial planning, the online Statement also provides workers a convenient way to determine whether their earnings are accurately posted to their Social Security records.  This feature is important because Social Security benefits are based on average earnings over a person’s lifetime. If the earnings information is not accurate, the person may not receive all the benefits to which he or she is entitled.  The online Statement also provides the opportunity to save or print the personalized Statement for financial planning discussions with family or a financial planner.*

To view your social security statement online, you must first create an account at:

 

http://www.socialsecurity.gov/mystatement/. 

 When you arrive at this website, click on the Sign In or Create An Account button.  On the next screen, click  Create An Account.  After agreeing to the Terms of Service, click the Next button.  You will now need to enter your personal information; your name, social security number, date of birth, home address, and primary telephone number.  When you’re finished, click Next.  The next screen will ask you some questions to confirm your identity.  These questions are derived from information found at Experian (the credit bureau) and may contain questions about loans outstanding or insurance you have purchased.  Then click Next again.  You will be asked to create a username and password, and to enter your email address.  You will also need to complete some security questions, so you can still get to your account if you forget your password.  Click Next. 

Congratulations!  You account is now set up and ready to access.  Click on Next to log in for the first time.  You will need to agree to the Terms of Service one more time then click Next.  After entering your username and password, you will be able to view your statement of benefits.  ab

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* Source:  https://www.socialsecurity.gov/pressoffice/pr/ss-online-statement-pr.html

The End of the Euro? Not the End of the World!

by Helping Families Flourish, posted in Flourishing Article

 

Originally published in Flourishing June 2012 

Some months back, I wrote that the Eurocurrency and the European Union could go the way of the Dodo—that is, they could become extinct species.  We  seem to be  getting closer to that virtually inevitable day.   The financial media report on this as a bad thing only, because it may induce cataclysmic (temporary) market disruptions and a wretched (warranted) decline in European living standards.  But, there is more to the story. 

The good news in this “crisis” is—as noted by Nick Murray—that lessons will be learned.   To which I must add—perhaps somewhat less tactfully—the macro lesson of the European debt crisis is that it is the perfectly logical come-uppance of a collectivist/socialist philosophy of government.  As the “Iron Lady” Margaret Thatcher has said, “The problem with socialism is that—sooner or later—you run out of other people’s money.”

Unlike the governments of the European Union—or our own federal government for that matter—American businesses have reduced unproductive spending, paid down debt, and emerged from the recent recession better equipped than ever to produce the goods and services demanded by consumers.  Non-financial U.S. corporations have reduced their debt from 83% of GDP to 77%.  Financial sector debt has declined from 123% of

GDP to 89%.  Similarly, household debt has declined from 98% of GDP to 84%.1   In one simple, but telling, example of cost-cutting, UPS is getting more deliveries from existing resources just by eliminating left turns from its trucking routes.  Just as the business philosopher W. Clement Stone taught us, “Little hinges swing big doors.”

You may have heard that Americans don’t manufacture anymore.  It’s not true.  In 2011, for example, a GE gas–turbine plant in South Carolina built and shipped ninety units to foreign markets, each with a price tag north of $25 million.  Total American exports to China alone exceeded $104 billion in 2011, more than double the $41.2 billion we shipped to them in 2005.  Don’t forget about food; in 2011, the U.S. exported $136 billion in agricultural products.2

But wait!  We’re just getting started with the good news.  The April 21st-27th edition of The Economist featured a 14-page “Special Report: Manufacturing and Innovation” in which it described “a third industrial revolution”.  The report notes that although the U.S. and China are about equal in manufacturing output in dollar terms, the U.S. achieves its production with 10% of the workforce required in China.  So, as wages continue to rise in China and other developing countries, America’s superior technology will make the American worker more competitive than ever.  And, Susan Hockfield of MIT says that American productivity may seem to mean fewer jobs, but jobs created by the huge supply chain needed to support automated American manufacturing will more than make up for fewer feet on the factory floor.  She also reports that there is a growing demand for post-sale support workers; 10-year auto warranties require skilled local technicians, for example.

The “Special Report” also describes digital 3-D printing—an incredible new manufacturing process.  In one example, a factory in Rock Hill, South Carolina is printing parts for consumer products, like electric drills, dashboards for cars, lampshades, and—hang on to your hat—artificial human body parts. The materials that can be printed now include plastics, ceramics, and many metals.  Food can be printed (CornellUniversity researchers are printing cupcakes).  Simple living tissues like skin, muscle, and short stretches of blood vessels can be printed; and someday, whole body parts might be printed, using the patient’s own stem cells as a digital program to circumvent—or at least reduce—the body ‘s natural tendency to reject transplants.

[Go to http://www.businessweek.com and read how “programmable matter” may create devices that can “evolve” by changing their own physical structure, morphing, for example, from wrench to antenna to tripod.  Prepare to freak out.]

More down to earth, and perhaps more relevant, is the fact that operating earnings of the S&P 500 companies came in at $98.57 last year, 17% better than 2010, and more than 12% better than the previous high, set in 2006.  That may not seem significant, until you realize that the S&P 500 Index closed out 2011 at 1257.60, still 14% lower than where it was on December 31, 2007 (1466.36).  Operating earnings for 2011 were nearly double the operating earnings at the depth of the recession in 2008 ($49.51), and 75% greater than at the peak of the tech bubble in 2000 ($56.13).  In the last twenty years, operating earnings of the S&P 500 companies have nearly quintupled, while the S&P 500 Index itself has not quite quadrupled.  The consensus estimate for 2012 earnings is $103.06, and for 2013, $112.82.3  It is axiomatic that stock prices track corporate earnings—sometimes anticipating them, sometimes lagging.  So, stay attuned to corporate earnings.

Now, you may fairly ask, “If things are so good, why is unemployment so stubbornly high?”  I’ll leave that question to your imagination and/or analysis; and I’ll give you my answer next month.  For now, I’m merely suggesting that you not look to the future through the lens of chronically dysfunctional government behavior, which has nearly always come-a-cropper; nor to the daily short-attention-span theater of the financial media; but to the long-term performance of America’s and the world’s best managed, most innovative companies.   mh

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http://finance.yahoo.com/news/u-debt-load-falling-fastest-040045522.html

Daniel Gross, http://www.thedailybeast.com/newsweek/

S&P 500 data provided by University of Pennsylvania (Wharton School) Finance Professor Jeremy Siegel at    http://www.jeremysiegel.com/; subscription required.

A Notable June Birthday

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing June 2012. 

Claude Frédéric Bastiat was born on June 29, 1801 inBayonne,France, located on theBay of Biscaycoast. 

Orphaned at the age of nine, Bastiat was raised by his paternal grandfather.  During his teen years  Frédéric worked in his uncle’s export business, and while there, he developed an interest in economics.  When he was twenty-four, his grandfather died, leaving his entire estate to young Frédéric.

Influenced primarily by Adam Smith and Richard Cobden, Frédéric spent his remaining years developing his understanding of economics, and he became famous in his own right as a brilliant economic essayist.  His most popular work was his satirical “Candlemakers’ Petition”, in which he mockingly called for the government to outlaw open windows and the Sun; published as part of the larger Economic Sophisms, published in 1845. 

In his most important work, The Law, published in 1850, Bastiat asserted (like our Founders before him)  that the sole purpose of government is to defend and protect the right of an individual to life, liberty, and property. From this definition, he concluded that the law cannot defend these things if it promotes socialist and interventionist policies; they are diametrically opposed to individual liberty.  In this way, he wrote, the law is turned against the very things it is supposed to defend.  

One hundred and sixty-two years later, we are about to find out whether and/or to what degree the U.S. Supreme Court agrees with Bastiat, when it hands down its decision on the Patient Protection and Affordable Care Act (Obamacare) later this month. 

Wouldn’t it be a delicious coincidence if a decision to throw out that Act were announced on Bastiat’s birthday?  I think so, anyway.   mh

A Notable Spring Birthday

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing April/May 2012. 

Friedrich August von Hayek was born in Vienna, Austria on May 8, 1899.  A prolific author, he made fundamental contributions in political theory, psychology, and economics. In his book Commanding Heights (1998), Daniel Yergin called Friedrich Hayek the “preeminent” economist of the last half of the twentieth century.

The major problem for any economy, Hayek argued, is how people’s actions are coordinated. He noticed, as Adam Smith had, that in a free market, the spontaneous price system did a remarkable job of coordinating people’s actions, even though that coordination was not part of anyone’s intent.

By “spontaneous” Hayek did not mean that prices were unplanned; rather, he meant that they are planned by each independent economic actor, based on his own unique circumstances, rather than by a central planning authority.  In other words, the current state of the market was not designed by anyone, but evolved slowly as the result of voluntary human interactions.

One cause of unemployment, he said, was increases in the money supply by the central bank. Such increases, he argued in Prices and Production (1931), would drive down interest rates, making credit artificially cheap. Businessmen and consumers would then make capital investments and long-range purchases that they would not have made if they had understood that they were getting a distorted price signal from a manipulated credit market.

Hayek died in 1992, but his theories, gleaned from events of the 1920s and 1930s, have proved prescient in the bursting of the Tech Bubble and the Housing Bubble. mh

Fishing for the Truth

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing April/May 2012.

It’s been said that a fish is unaware of the water in which he lives.  Similarly, many Americans have no awareness of the nature or institutions of capitalism, which make modern life the miracle it has become.  Ignoring pandemic corruption in government, and thanks to swarming political demagogues, abetted by a similarly corrupt and swarming mainstream media, many people see only instances of corruption on Wall Street and conclude that capitalism itself is corrupt.

This brings up an interesting question:  Why do even the avowed anti-capitalists rely so thoroughly on the products and institutions of capitalism?  They do it, because – as a fish lives in water – they have no choice.  Capitalism and its institutions are how human beings deal with each other spontaneously, naturally, rationally, and harmoniously.  The alternative, as history testifies – and much of Europe shows currently – is not some other viable and lasting system, but mob violence and the virtual collapse of all economic activity. 

Capitalism is the system used by anyone who wants to get things done through peaceful and voluntary cooperation with others.  Even where it has to work outside of the law, capitalism still finds some kind of traction.  Indeed, this underground capitalism, the global black market, has grown into a vast $10 trillion shadow superpower1.  We’re not talking drug dealers and human traffickers here, but networks of peaceful entrepreneurs quietly trading everything from sand and shovels to haircuts and hosiery. 

This underground capitalism is one of the world’s largest employers.  Nearly two billion people are working in jobs that are neither registered nor regulated2. They are usually paid in cash and they are frequently avoiding income taxes.  At best, this is a primitive form of capitalism, and the inexhaustible Peruvian economist Hernando de Soto3 has repeatedly shown that this is the price paid by corrupt and over-regulated economies for ignoring the virtues of free markets and the institutions of capitalism, including – most notably for de Soto – property rights and the institution of bank lending, which those rights engender.

However, we’re talking about America, the world’s most sophisticated economy.  So, suppose an American entrepreneur begins by borrowing against his savings or other valuable and legally titled assets at his local community bank; and that as his business grows, he decides to incorporate and sell shares in his business to investors.  If growth continues, he might then expand further by seeking foreign direct investment in his business in the form of additional loans that would allow him to manufacture and sell his products in countries like China and India, or Chile, Brazil and Argentina –even Europe.  But, such erudite investors might not commit to making these loans unless they’re able to limit their liquidity risk by securitizing those loans for potential resale to other investors in secondary markets, or to limit their exposure to default risk with a type of financial insurance known as a credit default swap.  How many business owners do you suppose have the ability to do all this without help?

Exactly!  That brings us back to our local community banker who first helped our “little guy” get started with a loan against his home, or his farm, or his VW microbus. Much later, perhaps, come those guys in expensive suits and ties, who know how to make billion dollar deals over dinner at Del Posto4 in New York.  We may not see it, nor fully understand it, but this is indicative of the cooperative division-of-labor process that can provide us with the miracles of modern life – from  iPods to artificial hips.  It also helps make America the world’s richest, deepest, and most resilient economy5.  [The European Union (EU) is ranked number one in GDP ($15.39 trillion versus $15.04 trillion); but of course, the EU consists of twenty-seven countries.]

Community banks are essential to local prosperity, and most of us recognize that.  But, we must also know that international banking and finance are necessary for First World prosperity and, not coincidentally, for turning New York City into a superlative urban playground, not only for the well-turned-out, but for you and me, too.

Despite the improvident pejoratives hurled by its critics, if modern capitalism didn’t exist, we would simply have to invent it.  My proof is that where it doesn’t exist, people do try to invent it. To truly prosper, a country must make it possible for savings to become capital. That means that we require banking and all of the people and institutions involved in raising, managing, and distributing capital to its highest and most effective uses.

The truth is that capitalism and its institutions of high finance are the water we swim in; and corruption aside, Wall Street’s profits are a small price to pay for our innovative and bountiful civilization.  mh

1 http://www.foreignpolicy.com/articles/2011/10/28/black_market_global_economy

2 ibid

3 The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else,  Hernando de Soto, PhD.  Basic Books, 2000.

4  http://delposto.com/home.htm

5 https://www.cia.gov/library/publications/the-world-factbook/rankorder/

Fred and Pete Go To Market

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing March 2012

I received an unsolicited email recently from the self-described marketing genius, Dan Kennedy.  Dan is a serial entrepreneur and a self-made multimillionaire.  Dan doesn’t have a college degree; in fact, he never attended college.  He inherited nothing from his family, but a strong work ethic.  However, this isn’t about Dan; or not just about Dan.

In his email, Dan tells the story of a seventeen year old kid named Fred, who was scouting for a way to make some money beyond his minimum wage job.  It was 1965, and the minimum wage was about $.75 an hour.  Fred went to see a family friend for advice.  The friend’s name was Pete.

Pete suggested that Fred open a little sandwich shop, and offer food that was less fattening and more healthy than the sandwiches at McDonald’s and other fast food stores.  Pete and Fred formed a partnership, with Pete investing $1,000 and Fred investing his time.  The first store opened in Bridgeport, Connecticut to very limited success.

Fred and Pete were sure they had a good product, so they attributed their limited success to the store’s location, and they opened a second store.  But, the second store also produced mediocre results.  At that point, most people would have given up, but not Fred and Pete.

Fred enjoyed the business so much—and was so confident in his product—that he convinced Pete that they should try a third location, one with more visibility.  And, they agreed that they should spend more money on marketing and advertising.

As you may have guessed, Dan is trying to sell me some marketing ideas, but that’s not really the point of his story.  I’ll get to that in a minute.

First, you need to know that the Fred in this little story is Fred de Luca, and Pete is Dr. Peter Buck.  

The name that they gave their little sandwich shop back in 1965—Subway.

In case you haven’t been counting, there are now more Subway stores (33,749 as of May 2011) than there are McDonald’s. Fred and Pete went to market and became billionaires.  Both are now on the Forbes 400 list of wealthiest Americans.

So here, according to Dan, are the business lessons this story teaches:

Don’t be afraid to collaborate.

Look for ways to do the opposite of what almost everyone else is doing.

Focus relentlessly on your goal.

Don’t let your own lack of money stop you.

There is, I think, one more lesson; and that is that America still offers boundless opportunity to everyone with a well-defined purpose to fulfill.   mh

What Do They Have in Common?

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing March 2012.   

 

Sheldon Adelson

Carl Berg

Stephan Bisciotti

Leon Charney

John Paul DeJoria

Larry Ellison

Alan Gerry

Alec Gores

Harold Hamm

 George Joseph

 Kirk Kerkorian

 Ken Langone

 Ralph Loren

 Carl Lindner, Jr.

 David Murdoch

 Thomas Peterffy

 Howard Schultz

 Kenny Troutt

 Albert Ueltschi

 Oprah Winfrey

They range in age from fifty to ninety-three.  Most, but not all, were born in America.  They are all alive today, and still actively engaged in things that they love to do. 

Some didn’t finish high school. Others dropped out of college.  Only a couple of them have MBA’s.  I’ve listed only twenty, but there are many more.

What do they have in common?

Yes, they are all in the One Percent; but, that’s not the right answer.   The right answer is that every one of these people started from absolutely nothing and made themselves into billionaires.  mh

Source:  http://www.businessweek.com/