Thursday, February 26, 2015

Your Personal Moat

Bodiam Castle, a 14th-century castle near Robertsbridge in East Sussex, England
Bodiam Castle, a 14th-century castle near Robertsbridge in East Sussex, England

Last week we explored the ways that businesses can build an economic moat to provide protection from competition. I believe that it is also possible to build a personal moat that provides a buffer against the challenges we face individually.

Some of the key elements of a personal moat include:
  • Knowledge - Information is power. If you have knowledge and understanding of important concepts in a field that is in demand, you can use that knowledge to navigate through the channels of change.
  • Skills - Skills represent your ability to harness knowledge to accomplish specific goals. People who can get things done are always in demand.
  • Creativity - Creativity is the ability to synthesize ideas from multiple sources into a new idea or a new solution to a problem. 
  • Relationships - It's not just who you know. It's how you have treated them and how they feel toward you. Treat everyone you meet with respect and kindness.
  • Resiliency - We all have difficult days, even difficult years or decades. But the only hope of success is to keep pushing forward with new attempts and new strategies to succeed. In the darkest days of World War II, Winston Churchill told the world "If you are going through hell, keep on going!"
With the rate of change accelerating rapidly, the value of a personal moat grows everyday.

What are you doing to enhance your moat?

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Thursday, February 19, 2015

Build Yourself a Moat


Image of Baddesley Clinton from Museo8bits
The moated manor house of Baddesley Clinton in Warwickshire, England
In the ancient and medieval periods, cities and castles were often built with moats to protect them from outside enemies.  These deep trenches were built next to the outer walls and often filled with water to make it more difficult to reach and breach the walls.

The metaphor of moat building is often applied to business. In 1999, Warren Buffet pointed out that “The key to investing is . . . determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”  Those moats protect the company from excessive competition and allow them to provide above market rates of return.

In their 2014 book, Why Moats Matter, Heather Brilliant and Elizabeth Collins identify five major sources of competitive advantage or economic moat:
  • Intangible Assets include brands, patents or licenses that limit the ability of other companies to compete against you.
  • Cost advantages allow you to provide your products or services at a lower cost than your competitors.
  • Switching costs are the inconveniences or expenses a customer will incur to move from your company to a competitor. 
  • Network effects cause the value to of your products or services to expand as more people use them.
  • Efficient scale is a situation where a market has a size limitation that discourages competition.
Why Moats Matter book coverAs business people, we need to find ways to build these types of moats around our businesses.  As investors, we need to seek out and buy companies that have strong and increasing competitive moats already in place.

What type of moat are you building?

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Thursday, February 12, 2015

Electron Beam Melting is Hot

Custom Cranio-Maxillofacial implant
Custom Cranio-Maxillofacial implant
The Swedish Arcam AB, which produces 3D printers that use Electron Beam Melting, does not get much news coverage in the United States. However, the company's 2014 financial results show that it is one of the most interesting success stories in the 3D printing space.

Net sales for 2014 grew 70% over 2013 to $40* million while net income increased 57% to $6.8* million. The number of machines shipped grew from 25 to 35 and the order volume increased from 27 to 42. With five new orders in January, the Arcam is starting the year with a nice backlog.
Low Pressure Turbine blade in γ-titanium aluminide.
 Courtesy of Avio Aero.
Low Pressure Turbine blade in γ-titanium aluminide.

Courtesy of Avio Aero.

Arcam's machines use a powerful electron beam to selectively melt powdered metals, primarily Titanium and Cobalt. The most import applications are orthopedic implants and aerospace components.

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*Amounts converted from Swedish Kroner using Google Finance.

Thursday, February 5, 2015

The Benefits of Going Nowhere

Kansas City Union Station
Kansas City Union Station
Last weekend we visited the Union Station in Kansas City which is one of the most beautiful and impressive examples of Beaux-Arts architecture in the state of Missouri. When it was built in 1914 by a consortium of 12 western railroads, it was the second largest train station in the United States. Between the end of the Civil War and the construction of Union Station, those railroads had linked together all of the important cities west of the Mississippi river.

Most of those places were not important cities at the time the railroad arrived. For the most part, railroads like the Atcheson, Topeka and Santa Fe built tracks that initially led to and through empty prairies, mountains and deserts with little opportunity for immediate revenue. The railroad executives and their shareholders were confident that creation of the railroad would bring the settlers who would create the demand for passenger and freight services.

Transcontinental Railroads via FamilySearch.org
Some of the railroad ventures failed, but those that built their routes boldly and backed them up with solid operational practices and a strong customer focus thrived. The Atchison, Topeka and Santa Fe is now part of the Burlington Northern Santa Fe which is the United States' second largest railroad.

Building into nowhere worked in the 19th century and continued to be a successful strategy in the 20th and 21st centuries. Henry Ford famously quipped "If I had asked people what they wanted, they would have said faster horses."  When Apple and IBM created the personal computer, few people had expressed a need for one. When the iPhone launched, how many of us felt a strong need to play music or capture video with our phones?

Providing products and services that people want is essential to maintaining a successful business. But the great breakthroughs come from providing things that people don't know yet that they want. I am reminded of the five year mission of the Starship Enterprise, "to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before."

Where are you going?

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A Ride on the Santa Fe in 1955

Thursday, January 29, 2015

Focus or Diversify?

Crosshair
Life is a series of resource allocation decisions.  Whether in business or personal decisions, we are continually deciding where to focus our time, attention and money so we are most likely to enjoy the best results.

The physicist and game theorist John L. Kelly developed a mathematical formula in 1956 that can be used to guide those decisions.

f = p(b+1)-1
      b

In the Kelly criterion, f represents that fraction of resources that should be allocated to a particular endeavor. The probability of achieving the expected results within the established time period is represented by p. b is the odds or win/loss ratio on the investment.

John L. Kelly Jr.
John L. Kelly Jr.
Application of the Kelly criterion indicates that endeavors where we believe the probability of success is the highest are the places where we should invest the most resources. Determining the probability of success is a judgement call, but one that can be improved greatly by research and knowledge about the particular opportunity.

In general, diversification is a compensation for poor research and indecisiveness.  The highest returns come from a greater focus on fewer things, but the right things.

How are you spending your time, attention and money?

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Thursday, January 22, 2015

Tinkering with Tinkercad

Peter Penguin Designed by Maker Advocate
Peter Penguin for Sharkweek Designed by Maker Advocate
In the 1980s, when Apple introduced the first laser printers and launched the desktop publishing era, we all needed to learn a few basic principles of graphic design. Will 3D printers turns us all into mechanical designers?

If so, Tinkercad is a great place to start. Tinkercad was created by Kai Backman and Mikko Mononen in 2011 to be an easy-to-use online tool for creating 3D designs that are ready to be 3D printed into physical objects. In June of 2013, it became part of Autodesk's 123D family of design products.

Tinkercad Logo
Not only is Tinkercad easy to use, it also includes step-by-step lessons which teach the basics of 3D modeling then move on to more complex modeling techniques. A basic account is free and will have you learning to design in 3D within minutes of your first visit.

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Thursday, January 15, 2015

Add Color to Your 3D Printer

Spectrom 3D Image via Wamungo
Spectrom 3D Image via Wamungo
The inability to change color on the fly is one of the major limitations of most consumer level 3D printers. Last week at CES, Spectrom demonstrated a prototype of their device which can add multi-color printing to any filament based 3D printer.

Spectrom works by adding color dyes to the filament before it enters the 3D printer. By coordinating the timing of the dye changes with the extrusion of the design, the user can change the color of the part in precisely the desired location. The Spectrom device was shown in conjunction with a Robo3D R1 printer and will be available as an upgrade to existing R1 printers.

Although the Spectrom method doesn't provide sufficient control over the color changes to provide continuous tone color printing like the 3D Systems Project 4500, it appears to provide a greater level of color flexibility than any other consumer level printer.

How would you use color in a 3D print?

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