The Bustle of Marketplace Startups

Whether it’s the increased connectivity the internet provides us, an increasing impatience amongst consumers, or a strong desire to do away with older business and industry models, there’s no denying- or stopping- the rise of marketplace startups. Like the best startups, they aren’t focused on creating a need,but rather alerting consumers by bringing a solution to a problem or need they didn’t know they realized. Several decades ago, who would’ve challenged giant corporate models? Sure, some dreamers or entrepreneurs may have envisioned a world in which buyers and sellers were connected in seamless fashion that was free of the  complications that a conventional setting was bound to have. But it hasn’t been until recently that we don’t think twice about ordering a meal via Grubhub or forgoing the struggle to hail a taxi by ordering an Uber or Lyft.

Forbes Contributor Drew Hendricks recognizes this, going so far as to claim that marketplace companies are doing away with entire industries. By this he means that marketplace business, by connecting buyers and sellers, are able to reach consumer bases in fashions that traditional industries could hope to do. A great example of this is Airbnb. It seems that there are two camps among travelers: those who like to stay in hotels, and those who greatly prefer to live the life of locals by staying with a friend, relative, or other amiable connection. However, most people don’t have a network of folks wherever they travel, and so hotels- with all their limitations and fees- win by default. However, Airbnb comes along, offering those who don’t prefer the hotel experience with the option of staying in someone’s room (or entire home or apartment) at fair prices. Though it has had it’s share of controversy, it’s plain to see that Airbnb, a marketplace business, tapped into an eager consumer niche that hotels will be hard-pressed to regain.

And it’s not just consumers who are enjoying marketplace businesses- investors are swarming too.  The upside for investors is not only that these startups are not only easily scalable, but because they connect existing buyers and sellers, they are relatively asset and overhead light.

Hendricks takes a look at some of these startups, and takes an in-depth look at how they’re revolutionizing their respective industries.

Homejoy: A startup that aims to bring professional cleaning services to renters or homeowners who would normally not hire a cleaning service, Homejoy has developed an intuitive platform and user-friendly platform for finding someone to professionally clean your home. The big upside to this business is that it eliminates the old process of screening and hiring a single cleaning professional, and they work around your schedule. Even though they are connecting industry-certified cleaners, all new hires with the company undergo an extensive, hands-on professional cleaning training program, allowing everyone from customer support to engineering the ability to step in if extra hands are needed. They are also able to charge much less than traditional cleaning agencies.

Traction: This is more of a reverse from the traditional marketplace business model, but it provides the same kind of customer-professional relationship. Basically it allows brands and advertisers to outsource their marketing departments. This takes a huge load off of them, cost-wise. Traction provides access to an extensive network of experienced and knowledgeable media buyers, bloggers, and content and social media marketers and managers. This kind of diversity allows for a wide range of options when it comes to campaign implementation. So far, they’ve got some big players, such as Sony and CBS, already on board for these services.

Instacart logo

Instacart is one such startup; it delivers groceries on demand.

Instacart: Devoted to solving the needs of the the on demand grocery buyer. Though it operates in a handful of cities, they are expanding and hope to increase the number of urban areas they service by about 36 percent by the end of next year. While many grocery suppliers and supermarkets such as Walmart, Costco, and Giant have home delivery services, Instacart gives consumers a leg up by allowing them to select combinations of goods that may otherwise be unattainable. Simply put, shopping at Walmart means that you’re out of luck if they don’t have a particular food or good you want. Instacart takes the order and connects the consumer to a shopper who does that shopping for you, even if it means visits from several stores.

There’s one similarity running between all of these startups : on-demand services. It will be interesting to see how traditional businesses keep pace, or if they will change their model altogether. Are these marketplace business startups taking off because of consumer impatience or consumer realization of inefficiencies tied into traditional structures? Share your thoughts below!

Cleaning Up Insurance

Ali Diab had a problem. After an emergency, life-saving medical procedure, he was slapped with an absolutely insane medical bill before learning that his insurance provider would not cover it. Before you jump to any conclusions, Diab was financially well-off, and so having a low-coverage plan was not at all the bigger issue. Instead, he blamed the insurance company’s lack of transparency and poorly worded clauses and plans. In fact, during recovery, he got over sixty pages of explanatory material detailing the costs and benefits. The insurance company told Diab his surgery was experimental; that he should have been more responsible, and sat down with the surgical team to discuss the procedure before checking if it could be covered. Diab was understandably upset, and set of to change the way companies deal with insurance, so that these situations could be further avoided.

Vanbreda building

Insurance Company Vanbreda’s building. Health insurance is traditionally complicated and needlessly expensive. Ali Diab is hoping to change that.

No matter what your stance on healthcare is, it’s no secret at this point that many times hospitals will inflate the costs of even the most routine procedures or simple tools, since they know that the patient’s insurance will cover those higher costs. Unless, like in Diab’s case, where insurance didn’t, and left the patient with an astronomically high- not to mention unexpected- medical bill.

Ali Diab wasn’t trying to change the practices specific to the hospital- that’s next to impossible. Instead, he decided he would create an app to allow employers to serve as the insurers. He teamed up with his buddy, Rajaie Batniji who is a physician of internal medicine at Stanford, and launched a new startup called Collective Health. The biggest difference between Collective Health and traditional insurance providers is that the former allows employers to pay for employees health insurance out of pocket. Now, each employee still pays the insurance premium, but none of that money gets passed onto insurance companies’ overhead costs. The employer pools all of that collect money to pay for procedures, and they even get to choose which procedures are covered.

Granted, this isn’t a radically new idea. Many larger companies are already self insured, but smaller ones tend not to be. This isn’t because management doesn’t believe it a good idea, but because the process of establishing a new insurance system can be quite daunting. Collective Health is targeting these businesses, trying to reduce the cumbersome administrative burden that comes with such a change by introducing an easy to use platform.

How it works:

  • Employers pay $50/employee to use the service
  • They then design a plan, using simple tools.
  • Coverage rates are set for hospital visits and preventative care
  • Procedures can also be covered on a case by case basis

On top of all this control, Collective Health will provide businesses with their own actuaries to help employers figure out not only how much the actual costs will be, but how much (if any), they should pass on to employees. And remember Diab’s 60 pages? He hopes other employees can avoid that by getting clear and concise explanations of their coverage. But the biggest benefit from this model is that self employed business have their employees health in their best interest. It has to- after all, the employees are need to keep the company running smoothly. Traditional insurance agencies are a bit impersonal. Whether or not Mr. or Mrs. Doe shows up for work, does not directly impact the efficiency with which they do their own work.

The Most Important Piece in the Startup Picture

What do you believe to be the most important factor in a startup? The vision? The leadership? The investors? The product itself?

Maybe it’s none of these things.

Writing for TechCrunch, Ron Miller argues that the most important part of a startup is none of these things. While undeniably important, it’s crucial that any fledgling entrepreneurial business focuses on the employees. It should go without saying that without a solid backbone, the company can fail. All too often an investor may be overly focused on the vision, ahead of the founder or founding team. But it can be argued that getting a company off the ground is the (relatively). A good enough idea, and sure, there shouldn’t be a problem attracting investors.

But what happens when that vision begins to grow and the company begins to expand? Most obviously, the central founding network needs to hire employees to keep the machine running. However, in a startup, management faces a unique goal. Unlike employees entering a well established business with a tested training program, clearly defined goals, metrics for employee success, and specialized departments, a startup essentially has to figure these components out as it goes along. This isn’t necessarily a bad thing, but it is something that can’t be created on the fly. With a startup, immediate goals are constantly changing as it is looking to define and optimize it’s business model. An ever changing target is not an excuse for ill defined objectives; if anything it is a fact that management has to adapt to, constantly adjusting their company and employee expectations as often as necessary.

The necessity of articulating a vision is way easier said than done, says Uwe Horstmann of Germany-based early stage investment firm Project A Ventures. In fact, it’s so crucial and difficult that Horstmann identifies it as a core quality founders need to receive their investment blessing. Part of why it’s so difficult is that is essentially an exercise in empathy. In a business environment, some may believe that empathy and business should not always mix. However, Horstmann says it’s key that employees and peripheral team members get involved. Too often, the inner workings of a company or it’s long term game plan are pools of knowledge limited only to the cofounders. But keeping this information from employees can lead them to feel isolated. Not only that, but it can lead to a sense of listlessness, and a question may arise, “what exactly am I working for?” On the flip side, sharing that information could be key to energizing your budding team and getting them pumped about the work they’re doing.

But it’s not only a matter of keeping employees in the loop. It’s also about hiring the right people. And it’s not necessarily a matter of skill, it’s also a matter of personality and mental flexibility. There may not be clearly defined departments when a startup first starts to hire new employees. As such, the early success of the company is tantamount to hiring workers who are not too specialized, because they may be needed to hop around the company. This goes hand in hand with the idea of the moving target. One day, they may have to be involved with more creative or developmental activities. The next may see a need to tie up some loose ends on the administrative side. Too much rigidity in an employee could be a hinderance when a startup has an “all hands on deck” mentality. As far as division of labor goes, there may simply not be enough people at the start to have someone responsible for a sole task or duty.

At the end of the day, Tim Wegner, co founder at Project A-back Minodes, says that it’s ok for there to be some internal division amongst the founders. Just make sure that whatever you decide on, it is shared with the employees, so that everyone has the same mentality going forward.

Urban Compass

Are you familiar with the frustrating home hunting experience that Craigslist is so well known to provide? A simple search for apartments in a major city is sure to yield several results that are far from desirable: spam posts, duplicates, listings that are obviously too good to be true, and those that are advertised as being “no fee”, but in fact including a broker fee or other additional expense. However, we can’t quit craigslist because it’s just so weirdly convenient. Face it, the database is huge, and all you have to do is select your city, and type in several keywords identifying neighborhood, size, and price limit. We’ve come to a point where we kind of take a loss by being so willing to sift through the gunk to find the real estate gold. Of course, there are other options out there, like Zillow or Naked Apartments which are much more streamlined and easier to navigate, but are still essentially a middleman. Services like this simply aggregate housing posts from other sources and package it in a pleasing way.

Craigslist Duplicates

Craigslist can be full of annoying spam and duplicate posts.

The best startups are ones that don’t necessarily invent something new, but are the ones that reinvent solutions to tackle everyday problems by exposing problems that we never realized were that dire to begin with. The problem? Apartment hunting, obviously. The app providing a reinvented approach? Urban Compass. A slick website with and even sleeker mobile app, Wired recently profiled the app, which aiming to redefine the way consumers look for a place to live. The man behind the app is entrepreneur Ori Allon, a computer scientist who has already sold several startups to big companies like Twitter.

Urban Compass approaches real estate by fusing the positive aspect of existing platforms, and then adding a game changer of a twist. You start off by searching for a home using the same criteria as you would for, say, Craigslist. The aggregated results are then presented in a manner reminiscent of Trulia or Zillow. But instead of outside brokers using these platforms to reach potential customers, Urban Compass uses their own brokerage team. This controls two key aspects of the business. For one, it keeps listings and activity consistent.  By using one in-house brokerage firm, the standards and practices are uniform. Also, it is a way for the company to keep tabs on their brokers’ performance. After the interaction, users are encouraged to rate their experience. Consistently negative reviews and bad reports can lead to an investigation and the agents removal from the brokerage network.

Allon compares his business model to that of Apple. As a vertically integrated company, Apple oversees all aspects of its product output- from design, to hardware, to operating systems, to cloud computing systems- in order to make sure everything is seamlessly integrated. Urban Compass strives to achieve the same model in a real estate market by controlling the platform, listing requirements (again, no spam!), and brokerage team, in order to give the user an optimally seamless experience. Urban compass is also meant to be an easy experience for brokers, who are encouraged to frequently update the site to ensure relevant listings.

But Allon’s vision is greater than just getting an urban hopeful into a great apartment. He wants the experience to follow the user into the neighborhood they eventually call home. Right now, the app will tell users how far commutes to popular locations are, or to which public transportation stations they are closest. Eventually, he wants to release a marketplace app akin to Groupon, that will allow the neighborhoods new residents to get the full local experience, with coupons and offerings to explore local businesses in the place they would call home. It’s a pretty ingenious idea- anyone who moves to a new area is looking for new entertainment venues, grocery stores, and laundromats, so why not connect business owners and residents?

Allon has yet to disclose revenue for the company, but has said that growth is impressive. The company, with a $365 million valuation, raised $25 million early last fall, and just raised another $40 million late July. These funds will be used to expand the product, taking it beyond New York, where it is currently available.

Acorns: Investing in the Smartphone Era

Let’s be honest, investing your money can be an insanely daunting task for the newcomer. And no, I’m not talking about investments like buying a house, car, or even a shiny new Apple product. For the moment, “investment” will be referring to investments in the stock market. And even if investing in the stock market didn’t prove difficult, there’s still the lingering issue that so many Americans don’t save their money. CNN has previously reported that 76% of Americans are living a paycheck to paycheck lifestyle, and only 28% of Americans have emergency or rainy day funds. So what’s going wrong? Surely it’s not the case that these folk don’t want to save. In the case of young people, at least, so many believe they just can’t do it. Imagine it- out on your own for the first time, student loans to pay off, maybe you have your first car note, then of course their other necessities like food, insurance payments, and other bills.

But really, saving is not impossible. If only there was an app to make things easier, you would want to hop on it, right? Turns out there this.

Introducing… Acorns. Just as squirrels are able to pilfer away acorns they find to last them through the winters, this new app allows the user to invest their spare change in a diverse portfolio, constructed by a team who includes a Nobel Laureate in Economics- Harry Markowitz. Though still in beta and being slowly released to users to registered for a spot on an impressively long waiting list, the concept is astounding. After you link your funding accounts and credit or debit cards, the app keeps track of every time you use that piece of plastic. After a purchase, the app rounds up the amount paid to the nearest dollar, and gives the user to invest it into the stocks of the portfolio. For example, let’s say you use your card to purchase a fast food meal for $4.22. The app rounds up, gives you the difference, and then splits that .88 cents up amongst the stocks in your portfolio. While there is not (yet) an option to choose what stocks you invest in, the portfolios are very diverse, consisting of several real estate, small company, and large company ETFs, as well as corporate and government bonds. And if you’re on the fence about how to invest, no worries. The app gathers information about you, such as long term financial goals, your age, and your income, then recommends at portfolio based on those answers.

So how did this app come about? What’s the story behind it? Mashable took a look at the app, and sat down with  co-founder and COO Jeff Cruttenden. Jeff has been exposed to the financial markets from a young age. His father, Walter Cruttenden did some early work with E-Trade, which as we all know was pretty much responsible for making online investmenting a thing. And another thing, when Jeff was young, his father instructed him to research some companies and pick one to invest in. The company Jeff picked did not turn out so well, but the lessons were still cultivated from an early age.

But when Jeff got to college, he notices a troubling trend. Many of his peers were not saving or investing their money. Again, it’s not because they didn’t want to, but they found the barriers to entry for investment too high. Many couldn’t afford the minimum balance that most brokerage companies required to begin investing. Others were dissuaded by the high commissioner and fees commanded by said brokers. But Cruttenden wanted to change that by doing two things: making investing an intuitive action in the smartphone era, and making the process easier and more affordable. The result was Acorns, which separates itself from it’s competitors by having no minimum balance, a 1% fee, and a $1 monthly service charge. And for those seriously strapped for cash, Acorns offers $5 for new investors. The app has recently raised $5.5 million in Series B funding, bringing total funds to over $8 million. Here’s to stepping into the new age of investment. Keep an eye out for a wider release, but until then, sign up on their site for a chance at a download of the beta.

Health X

Public Helath Logo

Health X has been launched by Public Health England to promote healthy lifestyles

Public health. It’s a sector that we can all agree is exceedingly important in a world that has become increasingly sedentary, but somehow continues to fall by the wayside. Governments are wrestling with the question of how to encourage populations to become more active and engage in healthier lifestyles. It’s win-win, too. People live longer and better, and the state has less of a burden from public health costs. Here in the United States, for instance, First Lady Michelle Obama launched “Let’s Move!”, a program aimed to combat the woes of childhood obesity. But the US isn’t the only nation taking steps towards embracing a more active lifestyle. Across the Atlantic, the UK Department of Health is teaming up with startups, capitalizing on human behavior by using a classic economic tool: incentive. People respond to incentives.

According to this article by TechCrunch, the UK government has raised a call to arms for the fight of positive public health, rallying startups with a health and fitness bent. The competition, known as Health X, promises the winner state-sponsored support and business development from funds of Public Health England (PHE), a division of the UK department of Health. Health X was announced on during a conference on Friday, and submissions will be accepted throughout the month of July up until August. A finalists round will begin August 1, and the winner will be announced later that month. In December, the winning products will begin to receive promotion on a number of websites, including that of the National Health Service. Such promotion will run onwards throughout 2015. In addition to this heavy promotion, the top startups will have access to a heavy marketing database of several million registered citizens who have expressed a desire to lead more active lifestyles. Seed capital will be made available to the startups. Ultimately, Health X is promoting healthy living, and stimulating the national economy by targeting existing startups in an early stage of development. It is also a proactive move by the PHE to embrace a more digital prerogative, and they hope this collaboration with startups is the final push to get British citizens to become more active.

Dan Metcalfe, PHE’s Director of Planning and Product Development, has acknowledge that the government has a trove of amazing resources for startups (such as that marketing database and the seed capital), but the best way to capitalize on it is to enter into collaboration with some of the sharpest minds involved with health-oriented startups.

The conference included presentations by two startups. The first was Sleepio, an app that aims to combat insomnia via cognitive behavioral therapy sessions, using a virtual assistant. The second was TicTrac, which is focused on digital visualization and analytics. It collects different health metrics, and contextualizes that data to build a dashboard view of the users lifestyle, so they will know where’s there’s success and room for improvement.

That’s the beauty of it all. The fact that there can be this mutually beneficial collaboration between the government and the entrepreneurial tech/startup world can prove a model example in the future. This is also pushing innovators at these startups to engage in creative solutions for public health problems- the goal here is to design and create a product that will prove accessible for anyone. It’s no secret that socioeconomic gaps are correlated with health. Coming up with a product that can be made available to people across that spectrum will be the biggest challenge these startups face; they need to avoid creating something that borders on exclusive. The CEO of PHE addressed this, saying that people with less choices still have choices nonetheless, so it is paramount to reach them in a meaningful manner. Simplicity is key here because this is not a project designed to appeal to a niche health community, but to anyone pursuing a healthier lifestyle.

Learning From Startup Failure

For as long as many of us can remember, we’ve been told by parents and authority figures alike that it’s important for us to learn from our failures. Understandably, it’s not at all an easy thing to do- it requires a solid level of introspection and an even greater level of humility. For one thing, you’re essentially journeying back in time. But while most of us probably like to jog backwards for a bit to recapture the memories of personal glory, it can seem counterintuitive or even embarrassing to make that trip to dwell on the memories of personal defeat. But as Malcolm X once said, “Every defeat… contains its own seed, its own lesson on how to improve your performance the next time.”

While concentrating and learning from our past mistakes for the sake of self improvement can be challenging enough as it is, yet another crucial step towards self improvement would be to examine the mistakes of others. They can be just as valuable. And there’s no better time to analyze these mistakes and extract their lessons when you find yourself in a volatile entrepreneurial landscape. Writing for Entrepreneur, John Boitnott urges us to consider the lessons we can glean from the mistakes of four ultimately failed startups. Now, we can’t dismiss the fact that there are so many startups being born at any given time. So many, that ultimately three quarters of them fail. While some folks may see that 75% as a turn off from pursuing their startup goals, others see it as a goldmine for lessons on what not to do. In the article, Boitnott cites Cassandra Phillips, founder of Falicon. Phillips tells the reader that many times a startup’s founder will proceed with good friends who lack the required skills for long-term success, or select an executive group filled with business acumen but little chemistry. So what are some of these startups and the lessons they leave for us? For starters we have…

Gowalla: Remember this location-based social media platform? According to USAToday, by 2010, the network had about 600,000 users. Not too bad. But Gowalla is a case study in what happens when you rush your service or development, and wind up competing against well-established giants. Before long, rival location-based social network Foursquare stole the show, and that was only the first of many issues that plagued Gowalla. The platform left much to be desired in terms of user-friendliness. Most importantly, it was ultimately a mobile experience before smartphones had technologically advanced enough to accommodate the features and experience that Gowalla promised to deliver in the first place. As the company grew, it removed features, leaving customers unhappy. So what happened to it? After raising an astonishing $8.3 million in a venture capital funding round, it was acquired by Facebook for $3 million and shut down three months later. Lesson: It may be best to wait until technology catches up with your vision, and acquisition does not mean you can rest easy. A startup must continue to push for excellence in service and experience.

Pay By Touch: Pay by Touch was a payment service that relied on a user’s fingerprint to process payments. Sounds cool enough. And the company was backed by many investors, and raised hundred of millions of dollars. So where did they wind up going wrong? For one, much to investors chagrin, they spent much of their capital buying up competition instead of enhancing their own service, and at one point, they couldn’t pay their own employees. Add this problem to the fact that the founder was mired in a swamp of fraud allegations. More damning however, may have been the fact that no one really needed a touch payment service. Plastic still works well, and many banks offer benefits like points, cash back, or travel miles for using it (something Pay by Touch could not do). There is a dual lesson here: 1) Do not squander the fortune you raise during successful funding rounds; focus on your own product, and 2) Make sure the product you offer is a product people actually need. Just because something is cool or chic does not mean people won’t dismiss it as a novelty. Phillips tells us that many startups create products that address nearly non-existent problems. If credit cards weren’t already a thing, maybe Pay By Touch could have gotten somewhere. logo is a classic case in biting off more than you can chew.

RealNames Corporation: Remember Keywords? The regular words that, when typed into a browser’s address bar, would redirect to a top-level domain? Well, RealNames was big on that. It wasn’t a terrible idea to allow Internet Explorer users to use keywords to lead them to a site. They raised around $130 million, but death-knell sounded in 2002, when search engines really took off. See, Microsoft ultimately decided to redirect the flow of keywords into their MSN search engine, thus rendering the service RealNames provided obsolete. The lesson startups can take away here is a bit finer, but present nonetheless: RealNames relied on a product from Microsoft (Internet Explorer), for it’s success. Once Microsoft decided to make a decision that was felt best for the company, RealNames was left in the dust. When you’re getting your startup off the ground, don’t yoke it’s survival to the decisions of an independent company. Classic case study in (spectacular) failure from the dot-com bubble of the late 1990s. The founders of Pets rushed into internet speculation, believing they were investing in a market that could not possibly fail. They spent a fortune on marketing, including buying up pricey and coveted air-time during the Superbowl. But what we consider common knowledge today was passed over then: pet care products falls into an incredibly niche market (seriously, could you imagine a pet company buying an advertising slot during this year’s World Cup?), and shipping costs can get pricey. had to stay above water by offering a continuous stream of discounts, and eventually went under completely. Phillips reminds us that failed because they pretended serious problems didn’t exist, and they wouldn’t ask for assistance when they needed it most. Sometimes, it’s best to just be real with yourself.


Saving Moments with… Google+?

A recent post from Wired sheds some light on a new feature for the underused Google+. “Stories”,which is used in conjunction with Google+ Photos, attempts to correct the massively obvious issues surrounding the large number of photos taken, as well as the ever increasing storage capacity for these photos. See, remember the disposable camera? The tool for the amateurish photographer who didn’t want to shell out the cash for a higher-end camera or lessons for improvement of technique? Recall that even in the hands of an amateur, the disposable camera was a device for capturing one’s favorite moments. The fact that the film could be taken to a neighborhood pharmacy and developed was huge for two reasons. First up is a bit of a practical reason- for most of the population, it got the pictures off of the film and into their hands. Second was the fact that, many times, these developed pictures could be assembled into a physical photo album and shown to family and friends.

With an increasingly connected world came more sophisticated social networks, and cameras… pretty much everywhere. It’s incredibly easy to take a photo now, but for many of us, what do we do with them? Let them rest on our phones? Maybe we upload it to some photo editing software, but really, unless we put it on a network like Facebook, it can oftentimes just remain stored safely away in a folder.

This organizational issue/question is exactly what “Stories” attempts to fix. It’s a pretty solid feature that automatically organizes your photos into albums. Google describes it as a product that “thinks of photos as photos [and not files]”. Stories groups related photos that were taken in moments that fall out of the general context of your life (if you somehow haven’t figured it out, Google is really good at figuring your habits). It’s pretty fascinating to see the way in which it paints a visual narrative without much (if any) of your input. Stories can accurately identify the location of pictures even if you didn’t label them, by using a combination of geotags and a mobile device’s location history. It also employs an algorithm that identifies the most popular subjects of photographs- like tourists attractions such as the Brooklyn Bridge or the pyramids of Machu Picchu. Think of it as a process similar to how Google allows you to reverse image search, to see where else that image resides on the web.

There are a few flaws that are inherent to completely automating a process with this, but it’s definitely still something to check out.

Till next time!

The Pitfalls of Cognitive Bias

Over at the Mad Fientist, there was a recent discussion on the pitfalls of cognitive bias, framing, and and anchoring. While the entry starts out as something that would be reminiscent of a lecture out of an Intro to Psych course, it winds up being fairly applicable to the economics of our financial decisions. And this makes pretty solid sense. After all, the best way to better ourselves is to know ourselves. And knowing ourselves includes knowing all of our faults, including the ones that are hardwired into our brains.

I won’t get too far into the initial example here, but what’s important is that the Mad Fientist plucks a well-known study to illustrate cognitive bias. The study presents two similar scenarios, asking the subject to make a decision for each one. Each scenario has two options for the decision, but one scenario is framed in a way that the subject is forced to focus on gains, while the other is framed to that the subject naturally considers the losses. So, while the options are framed differently, the two sets are fundamentally the same in that they yield the same outcome.

Image of the Brain
The brain can be both an ally and a foil

Despite this disguised sameness, the respondents were inconsistent in their decided solutions. Even though the expected gains (or losses) were .consistent across all outcomes, those participating in the study would choose one outcome for the first scenario and a different one for the second. While it may seem silly that we can display these inconsistencies, the experiment reveals just how much framing has to do with our decision making processes. Ultimately, it illustrates that if problems are presented as resulting in inevitable losses, we tend to be more risk-seeking. On the other hand, if it is presented in a way that focuses on gains, we try to protect them by becoming risk averse. The bottom line is that we hold onto these cognitive biases even if it’s the same problem, just framed different ways.

The Mad Fientist urges us to apply this knowledge to your financial decisions, especially when it comes to investing. The argument is that while our brains may be great for setting up a plan, they are terrible at actually executing them- largely in part to the cognitive biases earlier reviewed. In order to combat this, we should remove ourselves from the investing process. Some suggestions include investing in a total stock market index fund, to prevent circular decisions over what to invest in. We can also start an automatic investment plan. It’s just what it sounds like- it automatically invests money into a fund, so we don’t get too caught up over “the right time”.

Share your thoughts below!

from Bare Naked Assets, by Tory Reiss
via Tory Reiss Official Site

tory reiss searching for the next digital enterprise

The Greatest Invention for Financial Freedom? How the Internet Creates Everyday Entrepreneurs, by Tory Reiss

The Greatest Invention for Financial

Freedom, by Tory Reiss 

The internet has forever changed the way we connect. Personal and business connections are made every day, and messages have the ability to reach every part of the globe. But what some people don’t realize is the extent to which the internet has freed up the way we use and grow our money as well.

This article is going to examine the internet’s close ties to new innovative financial territories, and what we can learn about how technology will continue to forever change how people look at employment, entrepreneurship and their own personal success.


New Digital Real Estate

In the advent of the real estate market rise, many individuals with few ties to the real estate industry were buying up properties, “flipping” houses and investing in land that they planned to develop – accruing a considerable amount of wealth along the way. This trend followed the simple truth that land has been one of the most valuable assets for human beings since the dawn of time.

But since the late 90’s and the invention and spreading of this thing known as the internet, many cyber entrepreneurs have been quietly using this technology to buy their financial freedom. And as we move forward in this new century and millennium, we are only beginning to see the tip of the iceberg of the potential of the internet. So what makes this technology so special and potentially profitable you might ask? Well, let a humble man named Tory Reiss explain it to you.


When Potential Turned to Profit

When the internet was in its infancy, many marveled at its potential for connection. Someone could send you a personal or professional message, and you could access it from anywhere in the world. In terms of information, instead of being limited by finite pages in books, you could type a query into a search engine and examine a near limitless well of resources.

During this initial period, individuals and companies were buying up web addresses that would be sure to pique the interest of millions of people around the world (otherwise known as keyword mining). Similar to buying real estate, these people held on to these URL’s and sold them to businesses that would eventually realize the value of the keywords.

However, after the .com bubble burst, this initial period of buying web addresses had come to an end. But, in its place, came the social network and the blog. And these modes of communication allowed people to express themselves as they never had before. Solitary internet users could now form communities – or “tribes” as Seth Godin would call them – where people with the same interests, anywhere from cooking to travel, could come together and exchange experiences and ideas.

And the depth of connection became so rich that even the marketing field – which was traditionally dominated by corporations – shifted to people trusting each other for product reviews more than they trusted corporations.

And now, in the last few years, people have been learning how to monetize that connection and completely change both their personal finances and the ability to finance their dreams. They have learned how to brand themselves in the internet space, and fulfill a need of the average internet user.


The Many Roads to Financial Freedom

There have been many different technologies that have created new financial avenues. An example of this fact is the website Prosper, which is a P2P lending service that connects people needing to borrow money with people willing to lend money anywhere in the country. This provides an amazing alternative to traditional money-lending services, which require credit checks and various hoops for people looking to borrow.

Similar to the P2P lending alternative, has been the P2P financing revolution. With sites like kickstarter and gofundme, people can receive backing for their personal projects, non-profit work, and large business endeavors without having to step foot in a bank or investing firm.

In addition, what’s remarkable is not only the opportunity for the people who use these services, but for the people who create them. These new internet businesses are quickly turning into extremely profitable ventures, and these companies are constantly looking into ways to continually revolutionize the user’s experience.

But for the person with specialized knowledge but little experience in business or technology, the internet once again comes through with its wealth of information. Someone can learn how to become an “infopreneur,” who spreads information about an industry or craft. In doing so they are able to monetize their knowledge by creating a paid guide or subscription service, and then can run their business from a beach in Antigua (aka the Tory Reiss Dream Office).

On the other hand, for people who are intimidated or uninterested in the prospect of being an infopreneur, the internet has opened up many innovative paths for remote work. Finding work like freelancing is no longer reserved for individuals like Peter Parker. With sites like elance and odesk, people can take on projects from film to writing, and get paid anywhere in the world. They can similarly become store owners and run a merchant site through one of the big auction outlets like Ebay and Amazon.

And once you start earning profits, if the idea of investing sounds useful but potentially overwhelming, there are sites like betterment that handle all of your investments to your specifications.

But even with all of these powerful internet tools, I would bet that this is only the beginning. In this new age, anyone with an idea can find exposure and potential funding. So many internet innovations – from online B2B solutions, to information aggregation, to B2P solutions – have come as a result of people wanting to solve a problem.

That being said, just like the real estate market, the potential of the internet is not limitless. New prospectors are carving out niches and buying digital real estate every day. And just like with the housing market, they are buying their financial freedom – through connection, through information, through innovation.

The question is…will you get in on the action?


- Tory Reiss