Category Archives: Business

“42 Rules of Product Management” Book Notes

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Here are my big takeaways from this book:

[Rule 5] Learning to say “no” to customers – this is perhaps the one takeaway I’ve heard time and time again from PMs. Understanding your customers is paramount, but that doesn’t mean every detail and request from them is appropriate for your product. This is much easier said than done, but I think the most important skill in the practice.

[Rule 16] Get out of the office – this rule is to get a better understanding of the customer viewpoint, but I think it is probably one of the most misunderstood…amongst your colleagues. For all other roles on a team in an Agile setting, staying in the office is typically a rough indicator of commitment, work output, and availability. It may not always be clear why you are spending time outside the office, especially if you are unreachable. As a PM, it’s important to stay available as a PM outside of the office because the team is relying on you.

[Rule 35] Act like a child – the book describes the core of this rule as someone who continuously asks, “why,” such as in the common “five whys” exercise. I think this rule could further extend to physically getting a child in front of your product. One of the best user feedback sessions I’ve ever had was when testing an iOS app that I developed with my young cousin when he was about 8-10 years old. I asked him to perform an action on the mobile app’s map screen, and watching him use the wrong buttons told me that I needed to simplify the UI and remove unnecessary features.

Conclusion: 42 Rules of Product Management is a good reference to pick up from time to time as a PM. It’s a bit light on examples but can give you a good exercise or two when you really need it.

Click here for 42 Rules of Product Management on the publisher’s website.

Investing Experiment Wrap-Up

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After a year of ten novice investors, ten accounts, and $10,000, we have some RESULTS. Market indexes such as the S&P 500, Dow Jones Industrial Average, and the Nasdaq Composite each outpaced the return on investment for the group as a whole. Once the twelve months had passed, the group lost 4.95% of the original $10,000, and most indexes only lost about 1%-1.5% over the same time period.
overview
As you can see, one participant did exceptionally well. Bryan’s boost from February through June was primarily from a well-timed purchased of AMD stock. Another participant did exceptionally poorly, jumping from one losing position to another. As you can see from the graph, most did not break even.
As the organizer of the experiment, I was able to see and track all trades. Now that it’s complete, the following investing fundamentals are now proven once again:
  • Cutting Losses: Never watch an investment of yours continue to drop with the hope that it will bounce back. Once you’ve lost 15%-20%, it is almost certainly time to cut your loss and sell. According to Warren Buffet and Benjamin Graham, cutting your losses is the most important investing concept.
  • Acting on Impulse – The stock market – and most investors – are driven by impulses and short term market news. Taking 24 hours or more before placing a trade will help to alleviate speculative purchases. Many participants changed their minds from one stock to another in a matter of hours.
  • Beating the Market – Only one of the experiment’s participants managed to beat the market, and he did so by buying a risky stock that fluctuates wildly. Especially for novice investors, index funds are your friend. They will keep pace with the market. Why? Because that’s exactly what they are designed to do!

One opportunity that the experiment uncovered was in text trading. Given the convenience of trading through me, a majority of participants opted to text their trades via SMS. I don’t think many major brokerages support this functionality at this time, so text trading may be an unmet need in the investing market.

Hacking the Amtrak Points System to Travel on the Cheap

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*** UPDATE: Amtrak has changed their rewards program from a flat cost to a sliding scale, somewhat proportional to the dollar cost. The good news is, if you book in advance, you can find cheap points fares. See more here: https://www.amtrakguestrewards.com/ ***

If you ride Amtrak more than once per year, I promise you want to read this whole thing. However, the time you will spend clicking, waiting, and transferring points is considerable, so get ready to do a bit of work.

via Wikipedia Creative Commons

 

Amtrak’s Fare Pricing System

Let’s start with some basics, using regular economy-class travel from New York City to Baltimore as an example. The one-way cost between Baltimore and New York City will be around $50 when booked two or more weeks in advance. As is the norm in the travel industry, the cost increases as you approach the travel date. Booking that one-way fare on the same day you plan to travel will be anywhere from $107-$172 (or even more). Let’s take a closer look at Amtrak’s rewards program and their partner relationships to see how we can avoid paying so much (or anything at all) for that expensive fare.

Amtrak Guest Rewards Points

Amtrak points are better than gold to book fares. No matter when you make your reservation, the number of points required is the same. Our NYC to Baltimore economy seat costs 4000 points regardless of whether it is booked 4 weeks or 4 hours in advance. Therefore, 4000 points can be worth $50, and can also be worth $172. Points can be earned from riding the train, completing various promotions with Amtrak partners, purchasing points directly with cash, and transferred from other travel miles and credit card points programs. Clearly, there are plenty of ways to earn Amtrak points – we need to find the best ways to obtain lots of them.

Points from Riding: You earn 2 points per every $1 spent on Amtrak travel. When you ride business class or first class, you earn more points.
Points from Cash: You can buy 500 points from Amtrak for $13.75 (I assume they adjust this price every year or so with the rate of inflation). Since you need 4000 points to book a one-way trip in the Northeast, you’ll need to spend $110 to buy 4000 points outright. That’s a steep price to pay for most destinations, but it also brings up an important point – if you are looking at any Northeast fare more than $110, buy the 4000 points outright to book the ticket! Why pay $172 in cash for a seat that you can book using 4000 points purchased for $110?
Points from Promotions: Several simple marketing offers will earn you more Amtrak Guest Rewards Points. Most of these require that you spend money on something, such as a hotels, flights, or department store goods. Some don’t. One promotion for Metlife can be completed annually and earns you 500 Amtrak Points for simply calling to get a car insurance quote. The updated list of these promotions can be found on the Amtrak Guest Rewards website under “Earn.”
Points from Transfers: Many hotel, airline, car rental, and credit card loyalty programs will allow you to transfer points from one program to another. Based on some quick math, the transfer rate is very good between these programs. For example, transferring 4000 Chase Ultimate Rewards points – equal to $40 in cashback from Chase – to 4000 Amtrak Guest Rewards Points is an incredible advantage to Amtrak travelers. Remember, those Chase points can be used to book Amtrak fares worth hundreds of dollars after the conversion. Also, those points from Chase accrue from you using your card regularly at no cost to you, so after you transfer them to Amtrak, you’d be riding Amtrak for free!

Summary and Closing Notes

  • For any Northeast fare that costs more than $110, buy 4000 Amtrak points for $110 and book the fare using those points.
  • Many transfers, conversions, and redemptions with Amtrak points take 4-6 weeks to process, so be sure to allow adequate time for the points to show up in your account.
  • In order to change a reservation made with points, you need to cancel the booking, and then re-book with the points again. There is no ‘modifying’ the reservations made with points.
  • Amtrak Guest Rewards Program’s customer service is AWESOME. The service level is better in my humble opinion than that of many Fortune 500 companies. They are available 7 days a week from 5am-midnight Eastern Time (GMT+4/5): 1-800-307-5000.

This article was written in July 2014 and may not account for changes in Amtrak’s policies or Guest Rewards Program. Please feel free to ask any questions in the comments and I will try to answer as best I can.

Pinnacle Engineering – Ignite Baltimore 14 Conference

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At heart I’m an engineer. One of my favorite ways to screen suck on the internet is to review the biggest buildings, bridges, ships, and planes. For Ignite Baltimore 14, I pitched a presentation about gigantic, “Megatall” skyscrapers – how they are built, the challenges preventing their construction, and which Megatalls stand as the tallest in the world today.

Pinnacle Engineering began by describing our current golden age of engineering. As of 2014, eight out of the top ten tallest buildings in the world were each built within the last ten years. There are many companies and plans vying for a chance to join these ranks, but a long list of factors prevent more skyscrapers from breaking ground. Skyscrapers must withstand natural disasters like hurricanes, earthquakes, and floods, and even non-natural disasters like terrorism. Those engineering challenges, combined with the local laws, zoning regulations, and cost, are part of a long list of reasons why skyscrapers are not more common. 

The United States pioneered this engineering era with the Empire State Building in New York City. The Empire State Building stood as the world’s tallest building for ~40 years, and was the first building in the world with over 100 floors. Present day, much of the Megatall building construction occurs in the Middle East and Asia.

  • As of 2014, the tallest building in the world is the Burj Khalifa in Dubai. Reaching over a half-mile into the sky with over 160 floors, you can tell from the design that the benefactors were clearly aiming for the “world’s tallest” title.
  • The Makkah Royal Clock Tower Hotel in the holy Saudi city of Mecca is the tallest hotel in the world with 120 floors. It overlooks the Kaaba – the black cube building that Muslims all over the world face when praying.
  • One World Trade Center was completed in 2013, and stands at a symbolic 1776 ft. It is one of seven skyscrapers in the new World Trade Center complex. Two and Three WTC are planned to be built within the next few years, along with the 9/11 memorial/museum and new transportation hub.
  • In Taiwan, the Megatall Taipei 101 held the title of the world’s tallest from 2004-2010, but now it has dropped all the way to the 5th tallest in the world, which gives a sense of how golden this golden age of Pinnacle Engineering is. The Taipei 101 incorporates traditional Asian design elements, and features a 728 ton steel mass dampener between the 87th and 92nd floors. The dampener, suspended on a pendulum, acts as a counterweight during earthquakes.

Another engineering technology that is gaining popularity is prefabrication. Similar to building a Jenga or Lego tower, prefabricated buildings complete each building component offsite, and then ship the pieces to the building’s location for assembly. Prefabrication has shortened the amount of time it takes to build from months to just days. A prefabrication example I touched on in the talk was a 30-story hotel in China built in just 15 days. You can watch a time-lapse of the hotel’s construction on YouTube here.

Baltimore also has some significant skyscraper development on the horizon. Baltimore city approved a controversial billion-dollar Harbor Point development project between the Harbor East and Fells Point areas of the city. The tallest building will reach a height of 350 ft, and the complex will feature the new headquarters of Exelon Corporation, the same company that recently acquired Constellation Energy and BGE (Baltimore Gas & Electric). I closed the presentation with a mind-blowing comparison of Shanghai’s skyline in 1990 and its skyline in 2010. As you can see below, the change is incredible.

Shanghai-1990-vs-2010

 

Wikipedia is an absolutely great reference for well-organized, up-to-date skyscraper information. Check out the list of the tallest buildings in the world on Wikipedia here. Click the video below to view the presentation on YouTube. 

Yahoo! CEO Mayer’s Four Pronged Strategy for Success

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Acquisitions and Strategy

The age old expression “you have to spend money to make money” drove Yahoo (YHOO) and CEO Marissa Mayer to acquire Tumblr for $1.1 Billion. Yahoo already owns several social-media focused business units like Flickr, GeoCities, Koprol, Snip.it, and Bix. Buying Tumblr caught the most headlines, but Yahoo also acquired eight other companies in the second quarter: Summly, Astrid, Milewise, Loki Studios, Go Poll Go, PlayerScale, Rondee, and Ghostbird Software. The Tumblr acquisition adds a massive blogging platform to accompany the successfully rebooted Flickr photo service. Tumblr focuses on blogging in the purest form – simple paragraphs and heavy use of media, with a nod to extensive community commentary. A quarter-million new blogs are created every day, and each creates more internet real estate for Yahoo’s display advertisements. Mayer’s strategy is to focus Yahoo on four key areas: Search, Mobile, Display, and Video. The advertising market in these segments looks to be held by Google (GOOG) and Facebook (FB). If Yahoo is to continue to exceed financial expectations in CEO Marissa Mayer’s four areas of focus, success hinges on driving searches and advertisements with user-generated content.

Earnings and Revenue

Yahoo continued to buyback shares as part of the $5 Billion buyback program announced last year. On the Q2 2013 earnings call, CFO Ken Goldman announced that $1.9 Billion in shares remain to be repurchased. With less common stock shares outstanding YHOOepsperelatedin the market, buybacks will drive earnings per share (EPS) higher and the price-to-earnings ratio (P/E) lower. A positive EPS and low P/E are both fundamental indicators of a healthy, profitable company. Yahoo’s relatively low P/E of 7.91 is not uncommon for similar companies [see graphic, right].

To help pay for the share buyback and all of Yahoo’s acquisitions, the company sold $846 million of their preferred shares of the Alibaba Group, the Chinese E-Commerce giant. With new companies being acquired at an increasing rate and a $1.9 Billion left to buyback, Yahoo is burning through cash. Between the end of Q1 2013 and the end of Q2 2013, the company’s cash stockpile decreased by $600 million. $4.8 Billion in cash remains on their balance sheet after Q2 2013 though, so Yahoo is not at risk to dip into the red anytime soon.

YHOOsurpriseFurther fundamental analysis suggests that Yahoo is still an attractive investment even after the stock has gained over 60% in the past year. The Beta of just 0.83 shows that the stock is less volatile than the rest of the market. A low beta is ideal for a long position in the stock, since the share price is less likely to have sweeping changes and fluctuations, potentially giving investors more time to contemplate a change in position. The PEG ratio average for Yahoo’s industry is 2.97%, while the entire S&P stands at 1.98%. The PEG ratio – the P/E divided by the expected growth rate – is 1.28% for Yahoo, showing that Yahoo is less expensive compared to the rest of the market. Quarterly earnings reports are a huge perception of performance and health, and Yahoo’s Q2 results continued the company’s earnings beat.

CEO Marissa Mayer’s Strategies are Working

 

The revolving door of candidates at Yahoo’s CEO position for the past few years left the company misguided and lacking a vision. Mayer’s leadership has energized Yahoo’s employees and given the company a firm direction. With the Tumblr blogging platform now a part of Yahoo, Mayer is looking to solidify Yahoo’s business in mobile and display, as she mentioned in the Q2 earnings call. Aside from turning Yahoo’s financials around, Mayer has changed the culture at Yahoo immensely. Since Mayer started at Yahoo in July 2012:

YHOO1yr

  • The stock price has gained over 50%
  • Falling revenue ($7.5 Billion in 2008 to $5.5 Billion in 2012) has stopped falling
  • Employee attrition has decreased 59% year over year
  • 12% of new hires are Old Employees returning

In one of the most clever business moves in recent memory, Mayer decreed that employees would no longer be able to work remotely from offices due to widespread reports of an unproductive remote workforce. Any employee who cannot adhere to this policy “should quit.” Without the morale impact of a layoff, Mayer effectively trimmed resource costs and increased efficiency. I doubt that this move was a layoff in disguise, but the result of better teams and cutting costs is very similar.

With a clear business strategy in four key areas, a competent leader who is reshaping the culture, and rising earnings results, don’t be surprised if Yahoo’s stock continues to rise.

Rally Corp’s Recent IPO and Outlook

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Rally Corporation (RALY) is a company based in Boulder, Colorado, and just had a very successful IPO in April. The offering price enjoyed a nice 30% bump on the day of the IPO, making any institutional investor who grabbed pre-IPO shares pretty happy. Rally develops software as a service tools for organizations that use the popular Agile Development Methodology. Agile is a methodology for teams to plan work into short “iterations” of a few weeks. This contrasts the traditional Waterfall methodology, where project requirements are defined and then developed over many months or years. Rally Corp is brand new to the public market, so the stock price doesn’t have much history for us to refer to, but we can look at the fundamentals to set the stage for our analysis. Rally is a tiny company with a Market Cap of just over 400 million, and has been burning through cash at a widening rate over the past four quarters, while increasing revenue at the same time. Founded in 2001, Rally has never been profitable, even with a strong upward trend in revenues and an upward trend in margins since 2009. Those encouraging trends may point to untapped potential and future returns. Let’s breakdown the software market, economic factors, and the company’s leadership before we make any conclusions.

Economic factors benefit Rally immensely. The Technology sector – the primary user group of Rally’s products – still enjoys unemployment around 5%, well under the national average. A healthy tech sector that shows no signs of slowing means more users, demand, and growth. Unlike the automotive industry, which is tied closely to overall economic health, Rally’s products are not cyclically tied to sweeping changes in the economy. Like other software services, adopting Rally’s core product can be a subject of great debate in a workplace, purely for the fact that software adoption is difficult to change quickly, and because software developers can be very opinionated. Just as a company can take forever to shut down a legacy system, a long time is needed to migrate away from Rally, especially in slow moving, monolithic companies that Rally is increasingly providing services to. For investors however, this ensures that Rally’s revenue stream will remain consistent and protected, thanks to the slow-to-change clients and the still booming tech sector.

Rally is the market leader in agile development software. The twelve year old company has an impressive customer list, with more than 1/3 of Fortune 100 companies as clients according to their S-1 filing. An important trend to consider that will continue to support Rally’s income is that more and more companies are adopting the agile development methods that Rally is designed to complement. The increased effectiveness of Agile shown by numerous studies has turned thousands of CEOs in all industries to lead their organizations to adopt Agile. With more organizations operating in the Agile framework,  Rally’s customer base continues to expand.

Regarding profitability, Rally has tried to expand its product line horizontally, by offering another SaaS product called Rally Portfolio Manager that plugs into the existing suite, but at an additional cost. I attended the company’s RallyON conference in 2012 before the company went public, immediately after the launch of Rally Portfolio Manager. Both users and employees admitted that the product was lacking in features at the time. While the Rally Portfolio Manager is the logical next step for the company, at this time I wouldn’t expect it to quickly start adding to the bottom line. I’m extremely familiar with Rally’s core product, and must admit that nothing is stopping another company from offering a similar product for a lower price – or worse – for free. The barrier to entry in the big business market is too great for a small start-up though, and such a competitor wouldn’t be able to pop-up overnight and immediately steal all of Rally’s Fortune 100 clients. From an investor perspective, due to the high visibility of the B2B software industry, any competing company will be seen and analyzed by Wall Street analysts well in time to make any trades.

The leadership at Rally Corp is exactly what an investor would like to see at a recently IPO’ed start-up. CEO Timothy Miller has been with Rally for the past ten years, continuing his career in technology. Ryan Martens, the Founder and CTO, has prior start-up experience and extensive experience in application development. CFO Jim Lejeal has founded and managed several companies, and has the most experience of the bunch in regard to publicly traded companies. These leaders are well-positioned to guide the company to customer growth and financial success.

Exelon Greenifies their Power Portfolio

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Utilities have always sparked my interest due to their extremely low volatility. Exelon (EXC) for example, has a Beta of just 0.53, making it fluctuate only half as much as the market. The recovery from the crash in 2008 hasn’t been so kind to Exelon and other utilities as it has been to other industries. Since 2007 the industry a whole has been down an alarming 27%, leading some columnists and publications to remain bearish on the energy sector. However, with Exelon’s recent purchase of Constellation energy and their management of the acquired assets, I believe the current price of $37 to be undervalued.

In 2011, Exelon Corp agreed to merge with Constellation energy – another energy provider based in the northeast. The merger instantly made Exelon America’s largest utility, and added a number of new plants to their portfolio. On Monday, Exelon agreed to sell its stake in 5 California power plants gained from the acquisition to the Japanese IHI corporation for an undisclosed sum. On the surface this looks like it would provide a boost to Q3 earnings, but let’s jump into the details a little further. Out of the five power plants, two were coal-based and three were bio-mass. The combined capacity of all five plants is 70 Megawatts, which is enough to power around 50,000 California homes. However, compared to the 17,000+ MW capacity of their 19 Nuclear power plants, the sale to IHI corporation is a drop in Exelon’s bucket. The sale will of course add more revenue, which at this point has not been quantified.

On August 9th, Exelon sold three coal power plants in Maryland to for $400m. Another sale of assets acquired by Constellation – But let’s dig deeper. Selling coal plants will not only increase Exelon’s cash on hand, but greens their portfolio of power generating plants. Why is this important? States can sue utilities for increased emissions level from their plants. The majority of US power comes from coal plants, but even clean coal is considered quite dirty by environmental groups. Dirty power pollutants have seen tightening regulations in recent years. Under the Clean Air Act, all coal plants must comply with tough new emissions standards by 2014. Exelon wins in two ways with this sale – $400m in the company and investor pockets and less revenue lost down the road to EPA compliance measures.

For the fiscal year 2012, Exelon projects that they will earn between $2.55 and $2.85 per share. Analysts expect the company to reach $2.75 EPS. As with many utilities, a big portion of investor gains from taking a stake come from the dividend paid and not just fluctuations in the stock price. Exelon’s dividend is yield is a healthy 5.61%, greater than 89% of it’s electric utility peers. The company has a long history of consistent dividends which shows no signs of slowing. With Exelon realizing the gains of plant sales in Q3 and a strategy focused on green energy, expect their stock to outperform the market.

Full disclosure: I currently have a stake in Exelon Corporation. I do not plan sell shares or buy any additional shares in the next 72 hours.