New Inc Blog Post by Kaplan Institute Exec Director Howard Tullman

3 Ways to Make Your Business Recession Proof

Because there's one on the way. It's just a matter of how soon that political inanity or the market's volatility will start us downhill. For startups, the traditional rules won't apply.

I'm almost 100% cash and feeling pretty good about it. Whatever you happen to believe about equities appreciating over the long haul, the first half of 2019 is going to be a bumpy ride at best. The days of an explosive and expansive tech sector-- the FAANG stocks that have run the market to such incredible heights-- aren't likely to be seen again for some time. I'm seeing months of volatility ahead, which is going to be great for traders but won't do much for consumer confidence or any sense of stability, especially in a time of insane political instability.

Other than Microsoft, which I expect to continue to creep slowly and steadily upstream, I can't see a single one of the other FAANG-class companies (however you count them and whoever you choose to include) that isn't facing product, market, regulatory or serious competitive issues. These issues are far more likely to drive distractions and detours than any new initiatives or sustained and profitable growth. And, as the politicians gear up for the next election cycle, it's hard to imagine any lower-hanging fruit for the media-sick morons to pick on than the big guys in the tech sector. Unlike the NRA and the big pharma folks--they've long known how to buy off and hold off the pols-- the techies are political babes in the woods. Easy pickings.

So, I'm not looking for much in the way of good news any time soon and frankly, an Uber IPO or an Airbnb buyout isn't gonna really set the markets on fire either. Relative to their crazy and over-inflated private valuations, I'm betting that a public offering in this environment for almost any of these unicorns is going to look like a down round if you actually know the internal investment numbers and prior valuations. And that's before giving any effect to embedded repricing ratchets and other downward pricing protections that were undoubtedly built into these deals. In my general review of these deals, the entrepreneurs were almost entirely focused on keeping ridiculous levels of voting and board control. And, because everyone told them that the sky was the limit in terms of stock prices, they paid very little attention to the prospect and consequences of any decline in the price of their internal shares. They were smart, but not smart enough.

These bad vibes make me pessimistic about the funding future for startups and early-stage growth businesses-- especially those that are still chasing profitability. So my advice is very simple:  get your business ready for the recession. It's coming and it's no longer really a question of "if" but rather "when" and "how bad."  Now's the time to start trimming your sails and re-setting your course for at least a year. In a market and a time as crazy as today, there are far fewer penalties to waiting and hunkering down than you would typically incur. Doubling down on your commitments and speeding up expansion activities when everyone lacks visibility makes no sense. Don't be doing things (especially deals) just to keep busy. Busy-ness is a lot different than taking care of business. Random and reckless activity for activity's sake is a poor antidote for whatever actual anxiety you may be experiencing.

Here are a few suggestions about what needs to be done. But first, I want to modify a few of my own prior pronouncements. Not because they're wrong in the long run, but because they're not right for right now. So, think "yes, but" rather than "yes, and" for a while.

1. Market share expansion occurs mainly in tough times.

Yes, it's definitely easier to grow your piece of the pie when the competition is down-and-out, and you're blessed with a recently-acquired war chest (at the moment) and some pricing flexibility, which lets you take advantage of the situation and make some very attractive offers to clients and customers. Or maybe, because the channels are less crowded and there's less demand, you're able to secure better deals or placements or exposure (or even long-term partnerships) that wouldn't be available to you in happier and healthier, but also more competitive times. These are definitely tantalizing prospects. But cutting your prices to grab customers will almost surely come back to bite you down the line; and there's no guarantee that, if things continue to slow down and get worse, that you may also be looking at some tough times and choices. So, you have my permission to be penny-wise for a while.

2. Don't try to do something cheaply that you shouldn't do at all. 

Yes, I've always been a very strong advocate of avoiding anything that amounts to "putting lipstick on a pig" or "steak sauce on a hot dog." It's usually smarter to just say "No" to these temptations to try to get by with less than your best but, here again, there are always going to be exceptions to the rule. Right now, my motto for your business--whether it's dollars for development, money for marketing, a new ad and branding campaign, or growing the team--is pretty simple. "Go for good for now, great can wait."  Just because you've grown and even if you've got some bucks in the bank, take a breath and a moment to remember the old days when the only options were limited to guerilla, down-and-dirty, and get things done with smarts rather than simply more shekels. Try to get back to those days and those times.

3. You can't save your way to success.

Yes, but saving a few bucks right now may be your path to staying in the game. In a startup, the only sin you can never rebound from is running out of cash. Because then they send you home. So, it's never worth the risk of cutting things too close or not making sure you've got enough for Plans B and C if it comes to that. 

Right now, I'd say that the exact things you want to be doing are pretty clear:

a. Conserve your cash

b. Shorten the length of your commitments

c. Stick with the team you have instead of making a bunch of additional bets on unproven players. Don't let your mouth or your ego write checks that you can't cash or cover.

In the end, it all comes down to money. Money doesn't really care who makes it. Money is always there; it's just the pockets that change. And money does talk. You just want to be sure that it doesn't say, "Goodbye."

KAPLAN EXEC DIRECTOR HOWARD TULLMAN KEYNOTE AT 43rd Annual Automotive News World Congress

43rd Annual Automotive News World Congress

Held between January 15th and 17th, the 43rd Annual Automotive News World Congress held at the Detroit Marriott is an important event held alongside the NAIAS.

Bringing together industry experts and enthusiasts, this year’s Automotive News World Congress will feature:

·         Mary Barra, Chairman and Chief Executive Officer, General Motors Company

·         Jim Farley, Executive Vice President and President, Global Markets, Ford Motor Company

·         Roger Penske, Founder and Chairman, Penske Corporation

·         Jim Lentz, Chief Executive Officer, Toyota Motor North America, Senior Managing Officer, Toyota Motor Corporation

Howard A. Tullman, Executive Director of the Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship at the Illinois Institute of Technology is scheduled to deliver a keynote speech entitled, “Tech Trends Driving Innovation.”

A noted entrepreneur and futurist, Howard Tullman will offer a unique perspective on the converging opportunities presented by recent technological advancements and innovations.

Kaplan Institute Welcomes Betsy Ziegler - CEO of 1871

Executives' Club Talk

Kaplan Institute Welcomes Amy Dordek

Kaplan Institute Welcomes Justin Jackola

Kaplan Institute Welcomes Eddie Tao

Cook County Board President Toni Preckwinkle Meets with Tech Leaders

Mayor Emanuel Speaking at ChicagoNEXT

Tech Scenes with Chris Gladwin

Kaplan Institute Exec Director Howard Tullman Appears on Bootstrapping in America

New INC Blog: Information Overload? We're Just Beginning

Information Overload? We're Just Beginning

The data stream that became a river that became an ocean is drowning us in dreck. How are you going to separate signal from noise? Better yet, how are your customers going to do it?

By Howard Tullman

Executive director, Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship, Illinois Institute of Technology

@tullman

We keep hearing new statistics about the accelerating rate at which new information-; content of all kinds-; is being created both by humans and machines. The latter is accelerating at an exponentially greater pace, one that has been driven by machines exchanging data with other machines. There’s no end in sight to this growth, and absolutely no slowdown is even imaginable at this point. One of the most interesting challenges for the next few years will be “throughput” - how will we keep the enormous flow of data from the machines, and zillions of sensors, from clogging or breaking the whole Internet?

And, if the non-stop output from the machines isn’t bad enough, the explosive growth of big, slow and clunky videos on the web continues to increase congestion, impose constraints and raise complex questions about prejudicial pricing, inequitable throttling and other anti-competitive and anti-consumer conduct by the gatekeepers. 

Companies like Xaptum, one of the first Internet of Things startups at 1871, the Chicago-based tech incubator I ran for many years, have been addressing the machine volume concern for some time.  Xaptum is talking specifically about a separate edge pathway or an entirely new network devoted exclusively to M2M transactions. But today, no one has any good ideas about what to do with the equally problematic video situation. Because, in all fairness, no one expected that, virtually overnight, everyone in the world would become not only a consumer of video, but a creator as well.

The current statistics are interesting and demonstrate that, while we are clicking on more and more videos, we’re watching fewer and fewer of them from start to finish. This has all kinds of implications for the ill-advised advertisers who are largely paying for the privilege of showing their stuff to no one who matters or cares. Our patience these days is non-existent, and our attention spans continue to shrink.

I haven’t looked up the most recent estimates on this phenomenon, but the basic premise is that we’ve created more information (I’m reluctant refer to this unmanageable and overwhelming mass of media as “knowledge”) in the last whatever than mankind has created since the beginning of time.

However these calculations are made, it’s abundantly clear that this isn’t especially good news for anyone and, in most instances, no one would even be tempted to describe this glut of infojunk as a source of pride or any cause for celebration. In fact, to call this flood of facts, factoids and fake news a mixed blessing is an understatement of a magnitude comparable to those old Vietnam-era military reports where we were assured that “to save the town, it became necessary to destroy it.”

It’s getting harder and harder every day to effectively connect to anyone as our attention becomes an even scarcer and a more precious commodity in our lives than our time, which is increasingly and wastefully consumed by slogging our way through all this stuff. If I’m not listening to what you’re trying to say, you’re just wasting your breath.

And keep in mind that this is a two-sided problem, where the pain is shared by both the companies and the customer/consumers. It’s an enormous problem for each of us as individuals and an equally sizable and critical problem for every business as well. If we can’t figure out how to manage the overwhelming influx, to filter and focus the flow, and to create some tools to help infuse some meaning and value into the mess, the emergent digital communication channels will soon resemble all the crappy ad and coupon packages that we immediately discard on Sundays. Or all the 3^rd class mail and catalogs that never even make it into the house. 

And “meaning” in this context includes an appreciation of the context in which all this new material is being created. Today the context of most communications is more critical to successful reach, reaction and response than the content of the materials themselves. (See https://www.inc.com/howard-tullman/to-sell-more-your-marketing-must-embrace-smart-reach.html.)

In the same way, “metrics” don’t mean anything when there’s no one on the other end of the line. We continue to hear more and more reports about problems with the actual impact of online ads. Re-targeting ads are being shown to recent purchasers, which makes little or no sense. Targeting has become so narrow that the overall opportunity is in fact shrinking, not expanding. Ads are being counted and accumulated when it’s obvious that they aren’t being seen by human beings or visible at all.

If you can’t find me or efficiently reach me with your message, all of the money you’re spending on expensive online media is going down the drain and all the slick and detailed reporting you’re receiving isn’t worth the paper it’s written on. Too little signal and too much noise.

Kaplan Institute Welcomes Tony Wilkins

New Blog Post on Options Trading

PERSPIRATION PRINCIPLE 299

EVEN IF YOUR MONEY’S IN YOUR MATTRESS, YOU’RE STILL IN THE MARKET

Sitting on the Sidelines is as Much a Choice as Going All-In

I have spent most of the last year (doing two live morning shows a week) on the web having a couple of actual experts and seasoned veterans, Tom Sosnoff and Tony Battista from tastytrade ( https://www.tastytrade.com/tt/ ) trying to teach me how to trade options. We started my adventure with an account of $250,000 and ended the year (spoiler alert) with pretty much the exact same amount – give or take $500 – even after the December debacle.

If the mostly rotten month of December wouldn’t have tossed the markets (and especially the tech stocks) off a cliff and screwed things up, I would have ended the year ahead by about $8000 to $10,000 which – considering that I never really had more than about $50,000 at risk at any given time – would have been a pretty impressive outcome for a complete novice. But it was not to be. Of course, if the Queen has a couple of different chromosomes; she’d be the King. So, who am I to complain?

And let me be clear, my results were just that – mine – because we wanted to see not just what the guys could “teach” me, but what I could actually learn. So, the choices I made, and the stock selections were all based on my preferences, prejudices, urges, guesses and gut feelings. And, notwithstanding their clear advice that, by and large over time, betting on the direction of the market or on the up-or-down movement of a specific stock was a losing proposition, I generally did exactly that – betting based on my ideas and beliefs regarding the merits of the specific underlying businesses and assuming that their stock prices would reflect what I thought was likely to be their actual operating performance. Think of this as the struggle of hope (mine) against history (theirs) and you’ll have a pretty good idea of what went on. And, just to make things worse, I never let my complete lack of actual experience get in the way in the least or reduce the fervent intensity of my opinions. Sometimes wrong, but never in doubt.  

But I have to say that overall it was a great experience. Experience – in case you don’t know – is what you get when you don’t get what you want. Or, as they used to say about Wall Street in general, they take your money and their experience and turn it into their money and your experience. So, I’m grateful to have broken even and to have learned a few things that I think are worth sharing.

            And, even more importantly, thanks to Tony B, I realized, maybe for the first time, that even if your money’s safely stuffed in your mattress at home, you’re still in the market – whether you like it or not – whether you know it or not – and whether you want to be or not. Because no one really has a choice today including the mattress stuffers. If you’re not playing, you’re paying one way or the other. But I’ll get back to that.

So, what did I learn?

1.       If you’re going to play in this pool, you’re can’t be an occasional participant or a part-timer. It’s not a “set it and forget” deal like buying traditional stocks or mutual funds and putting them away for a decade or so in the belief that equities always increase in value over the long run. These markets move rapidly and radically every day and you’ve got to be there to watch and react to the movements pretty much in real time. Thinking that you’ll set aside a couple of hours a week or a morning or two to play these markets like you were going to the race track is about the same as just rolling up your bankroll and setting it on fire. 

2.       These markets are entirely driven by technology. If you don’t have access to the proper tools and trading platforms, you’re so dramatically disadvantaged that you might just as well give up. It’s like bringing a knife to a gunfight. You can get the tools, you can learn the strategies and the technologies, and eventually you can participate in the process, but the very first investment you need to make isn’t in a particular option or underlying stock, it’s in spending the time to learn how to play the game. If you don’t, the rule’s exactly the same as in any poker session. If you don’t know who the patsy is in the game, you’re the patsy.  

3.       If you decide (as I did) that you’re going to generally be “directional” which means thinking that you know which way things are gonna move, and which the experts at tastytrade will tell you is a stupid strategy, then at least be prepared to be patient and stay the course. It takes quite a bit longer for systemic operational improvements or deficiencies to be reflected in the prices of these stocks and, in the meantime, between (a) short-term and often misleading media reports which can move prices the wrong way, and (b) your own worst instincts and adrenaline surges driving you to do something, you can overreact and change your positions for no good reason and to no good end. Doing things is not the same as getting things done. 

4.       On the other hand, there will be times when you’re proven quickly to be dead wrong and then you need to cut your losses and move on. Mistakes are always part of the process and it’s OK to make them, it’s just a really bad idea to stick with them once it’s clear that the baby is ugly. Chasing your losers is a constant temptation, but one that the best and most disciplined traders almost never do.

5.       Size matters. Start small. New players need to stay in their own weight class for a long time because they’re not generally prepared either financially or mentally for the kinds of big swings and serious hits that can happen in an instant if you get too far ahead of yourself or to far out over your skis. Remember that there are pros, sharks and smart machines on the other side of every trade and they make their living every day in this business that you’re just beginning to understand.

I had included another “lesson” when I made my first list which was all about the traditional advice that you give every gambler in any sport – don’t bet or invest anything more than you can afford to lose. Be sure you keep some funds put away and on the sidelines for safety and security. You’ll sleep much better at night and all your family members and relatives will also thank you.

Now I know that no one is ever plans to lose anything, just like no one wants to be happy later, but my initial thought was to suggest that this isn’t a game to be playing with your retirement funds or money you need to live on or for emergencies. And then, I had a conversation with Tony B and he suggested something to me that really changed my mind. He said that we’re all always in the market and that whatever choices you make about where to put your money (or if you decide to keep it all in your own little piggybank) are just shades and variations on market decisions in exactly the same way as any stock purchase or sale might be.

But the big difference today – especially for young entrepreneurs – who are already making big bets on their futures and their own businesses is that standing still – not having a strategy to grow your assets – is actually slipping backwards every day – especially in a period when the interest rates being paid on “secure” savings accounts and even CDs are embarrassingly modest and unlikely to remotely keep up with inflation. So, while you may think you’re being cautious and playing it safe with some of your scarce dollars, you’re actually mortgaging your future and digging yourself into a hole.

The trick is to make those precious few assets that you’ve managed to put aside work harder for you and that’s all about using leverage which is precisely what options provide. A side note: even with my $250,000 account, I couldn’t realistically do much of anything with Amazon or Google because the share prices were so high that to actually buy a bunch of the shares of either stock would have consumed big chunks of my funds in a very short time and given me way too much exposure to far too few underlying stocks. But I could simulate and model the interest that I had in these stocks by using options costing only a fraction of the cost of the actual shares. I could play with the big boys without betting the kind of bucks that made no sense and, if I did it right, as noted above I was looking at annual returns approaching 20% on my money rather than 2% from some savings account along with a free toaster.   

None of this is easy or straightforward, but it’s important to think about when you’re looking at your own financial future. And no one becomes an expert in a year. But if you take the time, learn to trade for yourself, and start small before you scale, you’ll be doing yourself and your family a big favor.