Oddbean

A Millennial Small Business [micro]Strategy MicroStrategy has out preformed massively. Michael Saylor saw something no one else saw and had the gumption to take action on it. He then went a step further and open-sourced his play book. The asymmetry of his strategy comes from the overvaluation his companies stock resulting from the fiat-industrial-complexes over production of currency seeking yield. He has been able to use this to take on low-interest debt which he has plowed into Bitcoin, the best preforming asset in the history of the world. As Bitcoin goes up, so does the value of the company he manages which results in more debt being offered to him which will be used to buy more Bitcoin. This cycle should continue until Bitcoin stops going up in price (“it’s going up forever, Laura”) or every public company in the world adopts the strategy and the competition floods the island Michael is currently standing atop alone. Because of Bitcoins increasing scarcity, his early lead will be forever cemented in history. In the coming decades, MicroStrategy is likely to become one of the biggest tech companies in the world and Michael Saylor one of the wealthiest people ever to live. What makes Michael the perfect person to execute this strategy is his mastery of public market financing. If I were put in charge of a public company and tried to accomplish the same thing, the odds of me recking things are nearly 100%. I don’t know the difference between a convertible bond and a hangman’s noose so I figure it’s best I don’t play with either. I run small businesses. The most sophisticated debt instruments I have ever used are an unsecured line of credit and a credit card. When I was twenty-one with no formal education, I went to work for a small-business owner as his first sales rep. His instructions were, “buy low, sell high and figure out the rest”. That’s pretty much what I have been doing ever since except that four years ago I took the huge step of going into business for myself. What I love about what I do is the entrepreneurs I get to meet along the way. These are people who built a product, developed a brand took it to market and have been operating their company profitably for decades. They are small business people. Like me, they aren’t sophisticated and they only banker they know is at their local branch. Mostly, they are Boomers in their late 60’s or early 70’s. They don’t hold Bitcoin. Many of them are looking to retire, but don’t have much of a plan for it. They have poured their lives into the businesses and in some cases, there is no heir apparent to take over. I’m guessing my experience is not unique. Maybe you know someone in that position too. I submit that over the next decade, trillions of dollars’ worth of small business value is going to change hands and as Millennial Bitcoiners, we are perfectly positioned to take the torch. I have been researching this with one particular acquisition target in mind. Inspired by Michael Saylor, I want to opensource my thinking and strategy around this potential acquisition. I have no delusions that my contribution is anything like the scale of his, but hopefully by putting this out in public I can help other people acquire profitable small businesses. Even better, if this gets attention, other business people in the Bitcoin space might help me avoid obvious pitfalls so I can navigate this successfully….call it crowdsourced mentorship. So, the strategy looks like this: Use Small Business Administration business acquisition 7 (a) loans to buy profitable cash-flowing companies run by Boomers. Put in the Proof Of Work to learn your new business and add value where you can. Structure your businesses in a way that profits are taken first and operating expenses are paid from what is left over. For a great description of the mechanics of this, check out the book: Profit First - Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz. His insight is to set up five distinct checking accounts at one bank and two “off-limits” accounts at another bank. This sounds complicated at first, but it works on the same principal as “dieting at the grocery store”. You won’t eat what is not in your fridge and you won’t spend what is not in your Operating Account. Put the money where it’s supposed to go so you won’t be tempted to let expenses balloon. Money comes into the Income Account and then is dispersed in the following order at the first bank: Profit Account, Owners Salary, Tax, Operating Expense. The Tax and Profit accounts are then linked to a second “off limits” bank to make it that much harder to access them and reduce the risk that you will “borrow” against yourself. I am proposing that instead of a second bank for your “Profit Account” you use a secure self-custody set up and dump that money right into Bitcoin. Then go about your business delighting customers, reducing costs, innovating new channels to market or adding complimentary product offerings. Don’t even think about the Bitcoin account. Use a secure Multi-Sig or Multi-Institutional custody model and let it ride. Every time you make a deposit, move a predetermined percent into your Bitcoin profit account. Running a business is challenging and rewarding and in no time, you will look up from your laptop and realize it’s been two full halvings since you started the strategy. The Bitcoin in your profit account is now worth more than you paid for the business and can be used to pay it off the SBA. Or if you’re enjoying yourself, use a small percent of your increased purchasing power to buy more businesses. Afterall, this is how the generational shift in value will take place. The Boomers need an exit and want someone who will take their businesses seriously. They may not understand Bitcoin, but business people understand Proof Of Work and the pride you develop by living your life on a hard-money-standard. Their customers want the same great products they have been buying forever and will be reenergized with enthusiasm for the brand when they see the energy a young entrepreneur brings to the business. The only looser here is the bank who issued the government backed SBA loan. The rate of interest over the years of the loan will be fixed and will likely be far less than actual inflation over that same period. But don’t you worry about them….they didn’t put in any Proof of Work to issue that loan. Their cost of goods sold is nearly the same as their reserve ratio which is likely +/- zero. This is a much less sophisticated version of what @saylor is doing. It’s short the dollar long hard money and productive assets. It doesn’t use leverage or get fancy. To quote @ODELL all you have to do is stay humble and stack sats. I would love feedback. Let me know what you think….have I missed anything obvious. Would you like me to expand on any parts of this in more detail?