Groupon: The Fastest Growing Company Ever…But Will It Be The Fastest Declining Ever?

I have had some interesting discussions with a few friends recently on whether Groupon is “for real” or not. One friend is building an online startup on the side and has connections to the Palo Alto world. The other works in finance and is more well versed in looking into companies’ financial reports. Both are smart but disagree completely on whether the success of Groupon is sustainable. Listening to both sides of the argument, I would say that I fall somewhere in the middle. I think that the fate of Groupon rests within the hands of the leadership of the company.

There is a very well written article in Businessweek that details the rise of Groupon and where it is going. The article, found here, sheds some interesting insight into the company and may have you formulating your own take on the fate of the growing online deal-of-the-day startup.

Mason is the 30-year-old chief executive officer of the digital couponing comet known as Groupon, the Google-spurning, Super Bowl-flopping startup that sends deal-of-the-day e-mails to more than 70 million subscribers around the world. He's wearing a heavy winter coat, a lime-green track jacket embroidered with the Groupon logo, sneakers, and garish red Christmas socks. ("Only clean socks I could find," he says.) Holding his iPhone before him like a tricorder, he logs into the new service, called Groupon Now, and shows off two simple buttons that have the potential not only to transform humankind's lunchtime habits but also to alter the topography of the multibillion-dollar market for local commerce.

The two buttons: "I'm Hungry" and "I'm Bored."

It's only 11 a.m. Mason clicks the "hungry" button, and his phone transmits its location to Groupon's servers and then displays a list of deals from nearby restaurants. Across a bridge spanning the Chicago River, the Asian fusion restaurant Thalia Spice is testing Groupon Now by offering $20 worth of food for $12. A block to the north, an eatery named @ Spot Café is dangling a $10 coupon for $6. Each restaurant has specified that its discount is good only during select hours on that particular day, when a few of their tables would otherwise be empty.

The simple expose detailed above is what CEO Andrew Mason is banking on as the future of Groupon. The vote is out on whether retailers will be on board with a more ‘permanent deal’. In fact the verdict is still unclear on whether retailers are completely satisfied with Groupon’s daily deal approach. Groupon repeatedly advertises a significant return rate for vendors but the media loves to highlight disgruntled users who claim to have lost significant amounts of money through the Groupon imposed deep discounts. What is clear is that there are still plenty of local businesses willing to give Groupon a whirl which should fuel company growth into the future whether it be through traditional daily deals or the new Groupon Now deals.

As I read the article a few things jumped out at me:

1. Easily Replicated Business Model – This is the primary point of contention in the polarized argument between my friends. Anyone can create a daily deal business model and many have. With the flood of players coming into the market, how long will Groupon be able to maintain their incredible growth? More specifically, what if an online player with significant influence (i.e. Facebook, Google) unleashes a similar service? I think that Groupon’s ability to maintain their position as the dominant player in the market segment will hinge on their ability to stay ahead of the competition with regard to where the segment is headed. Is Groupon Now the first step in warding off the competition? Only time will tell.

There were a few things that were discussed in article that I did like about how the company views itself and its challenges ahead. "We had this realization probably a year into launching Groupon that this was highly copy-able," says Lefkofsky. Adds Mason: "We have always been thinking about how to solve these fundamental problems of our model. We have known since very early on that some form of real-time deal optimization is where this had to go." First and foremost, I like that they are aware of the reality facing their business model. Obviously it is much easier to combat your weaknesses and seek new opportunities when you are actually aware of the challenges you face. Mason also made some interesting comments regarding his company idols. "The company I admire most is Netflix," he says, referring to the movie-streaming company that purposefully disrupted its original DVD-by-mail business. "They have figured out a way to be successful and cannibalize their core business. Nothing is more romantic to me." Not only does Mason not mind revolutionizing their business model, he seems to see it as a sign that a company is truly successful. This tells me that they at least have the right mindset for success. Execution is another thing entirely, but one has to look no further than Netflix or Google to see how a business can grow, shift, and change to capitalize on new markets that in many cases have yet to be created. I see the success of Groupon hinging on their ability to do the same.

2. A Battle Against Creative Destruction – The term creative destruction, which was popularized by economist Joseph Schumpeter in the 1950’s, is defined as a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." As companies grow they become more bureaucratic, less flexible, and typically less innovative. These growing rigid organizations are destroyed by smaller, more innovative companies who either revolutionize the marketplace they are in or simply create a new one rendering the old way of doing business obsolete. Every company faces these growing challenges. However one would assume that as the ‘fastest growing company in the world,’ Groupon should expect to face these challenges sooner than an organization with a more traditional growth pattern.

There are a few examples within the article that indicate that Groupon, despite its extremely rapid growth, seems to be operating in a similar manner to its early startup days.

Groupon occupies parts of six floors in the former headquarters of Montgomery Ward, the erstwhile catalog retailer and department-store chain that along with another Chicago merchandiser, Sears Roebuck, defined retail during much of the 19th and 20th centuries. Aaron Montgomery Ward might not recognize much of the building he put up in 1908. Groupon employees are jammed in practically elbow to elbow. Doodles and cartoons festoon walls and whiteboards. Shelves are strewn with cartons of bagels and coffee. Adding to the flavor, blue yoga balls, which the company gave to every employee at an all-hands meeting in December, clutter the office and sometimes substitute for desk chairs. A conference room on the sixth floor, the "war room," is the launch pad for Groupon Now. A whiteboard is covered with giant maps of the initial target cities, with tallies of the number of merchants who have signed up in each Zip Code. The company plans to go wide with the service in early April.

Detailing corporate strategy on the walls. Doodles throughout the office. A war room with maps targeting launch cities. People packed together. So what you ask? I think those simple descriptions speak volumes on how the company is currently operating. When you are outlining corporate strategy in brainstorming sessions versus creating bureaucratic point papers and fancy presentations you are doing something right. The idea is what is valuable, not the process to present it. For a company that has grown that much and has had that much capital infusion (i.e. additional vested interests), I think it is pretty cool that they have still managed to operate in that fashion. Perhaps they are taking a page from the Facebook playbook, a company where CEO Mark Zuckerberg is said to sit office-less amongst fellow employees and where conference rooms are nothing but glass rooms without shades.

3. Purposeful And Incremental Strategy Improvement – It is quite clear that from the beginnings of Groupon the leadership has been looking ahead to the next step. When you hear company leadership say things like “We have known since very early on that some form of real-time deal optimization is where this had to go,” you see that they are not just riding the daily deal train mindlessly hoping to cash in. Turning down Google’s estimated $6B buyout dispelled cash in motives as well. In the tech sector I think it is all the more important to continually balance knowing where you want to go and capitalizing on changes that may not even be visible yet.

Mason referenced Netflix in the article and it got me thinking about what they have done. I have known about Netflix forever. They were a consistent case study in disruptive markets throughout college. Their DVD mailing model changed the industry. I haven’t joined Netflix yet but I have been thinking about doing it lately. When I went to the website the other day I was amazed that their DVD mailing model is hardly even traceable on the site. Everything is about streaming media now. Their model has changed entirely. With changes in technology and social trends Netflix has incrementally changed direction over the years, evidently without me fully realizing it. If they had offered the strategy shift in one massive roll out it probably wouldn’t have worked out so well. Yet by having a rough strategy in mind and by reacting to world changes over time they have been able to emerge as the market leader in monetizing streaming online media. Mason undoubtedly sees the parallels to his industry and it looks as though they are trying to do the same.

I would love to see the argument on whether Groupon is the next big thing or next big bust continue in the comments section.

Strategy, Afghanistan and Obama's Speech

I am going to list a few words and I want you to read them as fast as you can and tell me what they have in common. Afghanistan, Obama, Speech, Pakistan, Bush, War, 30,000 Troops, Timeline. Besides dominating the headlines alongside Tiger Woods, these words represent key elements of one of our country's great challenges; The Afghanistan Conflict. Not only is the situation complicated, it is extremely polarizing. A fact that the media and political pundits exploit and exaggerate at all costs, much to the detriment of our nation's unity and any political progress on the topic at large. That is why I love reading Andrew Sullivan. He has his views but tries to express them based purely on the facts as he sees them. There is minimal exaggeration and a common recognition of the opposing view, even if he strongly disagrees. If I had to boil it down I would say he is grounded in reality, not theatrics. Here is the post he wrote regarding President Obama's speech on our nation's way forward in Afghanistan as well as some excerpts and comments below.

I think this strategy is doomed. But then I think any strategy that does not pledge to colonize Afghanistan, pour trillions of dollars into it and stay for a century is doomed. So why do I end up this morning feeling rather similar to my colleague, Jim Fallows, who simply sighs: 'Well, I hope he's right"?

Here's why. The sanest option - leave now - would leave allies high and dry, prompt domestic cries of surrender, demoralize the military, break a clear campaign pledge, and signal to Pakistan that the Taliban is their problem now. Everything but the latter are worth avoiding.

This war is already eight years' old and will soon have lasted longer than Vietnam. Its rationale today is very different than what it was in 2001 - 2002. Al Qaeda is based in Pakistan, not Afghanistan. The US, thanks to Bush and the recession, is bankrupt and facing a long and brutal period of high unemployment and soon huge cuts in entitlements or big tax hikes.

Our enemy already knows that the US cannot sustain neo-imperial control of a vast inhospitable country on the other side of the planet for more than a decade. And if the US were to do so, it would be becoming the imperial power the neocons and the Islamists truly want. What Obama was saying last night is that he is determined to return America to normal, to unplug this vast attempt at global control in Muslim countries that Bush and Cheney unleashed. He is trying to unwind the empire, not expand it.

How best to unwind the empire? By giving McChrystal what he wants and giving him a couple of years to deliver tangible results. If McChrystal delivers, fantastic. I will do a ritual self-flagellation and bow down to the man with no body-fat and a close relationship with 33 Kagans of various generations and genders. If McChrystal does his best and we still get nowhere, Obama will have demonstrated - not argued, demonstrated - that withdrawal is the least worst option.

I possess many of the same feelings as Andrew Sullivan. One area where I digress from his view is with regards to strategy. I have read/heard many comments whether or not people agree with sending more troops. But one thing I have not heard addressed is that lack of detail regarding a new, or as I have said numerous times, the creation of a strategy to end our involvement in this war on a grand scale. I did like increased emphasis on Pakistan's involvement and responsibility as well as the actual mobilization of troops to combat the Taliban. Both are good signs in my view. However the lack of a legitimate and capable government coupled with a fuzzy strategy at best have me worried. One thing I will say is that the military leaders and members did not choose to go to Afghanistan. It is not their place to question the decisions of our elected officials when they are lawful orders. So our military leaders are requesting the troops and resources they feel are necessary to do the job they are told to do. In general I feel that we should listen to leaders on the ground, I would just feel a lot more comfortable if the strategy was so clearly defined that the average person on the street could give a brief overview of what it is. I worry because there are many military members who could not provide a brief overview of our strategy let alone the average American.

Boeing Internship: Thoughts and Lessons Learned

The posts have been a bit light for me the last week or so because I was in Mesa Arizona doing an internship at Boeing. Not only has it been difficult to carve out time to write, but the Internet connection at the hotel was $9.99 for a 24 hour period! Ouch. As part of my lean journey within the Air Force, I have been lucky enough to attend the University of Tennessee and now to do an education with industry program with Boeing. Besides the amazing weather in Arizona it was an incredible opportunity to embed myself within a major defense contractor and see how they are implementing and benefiting from lean within their organization. It proved even more valuable than I originally thought because learned a lot about how they run their business and what the other side of the fence in the acquisition world is like so to speak. Since I am behind the desk in the Air Force purchasing large weapon systems and systems support it was great to see how the company brings the government requirements to fruition. But beyond the lessons that just apply to lean or government acquisition are the lessons apply to more broad topics. Great experience that will be one I remember and use forever. Here are a few things I took away from my time spent in Mesa as well as some cool pictures.

1. Internships/Education Within Industry Is Extremely Valuable - I have written about benchmarking before here on BadskiBlog. Every time I partake in these pseudo field trips I am amazed at the nuggets of knowledge I pull from the experience. They teach us in kindergarten that getting outside your element is valuable, but as we grow older we seem to forget that lesson. The military as a whole is especially resistant to learning from outside organizations. Its a culture that believes that what we do is unique and so different that lessons cannot be gleaned from other industries. This outlook builds complacency and stymies creativity. At Boeing I have learned that we share very similar challenges and often come to similar solutions. With regard to implementing lean within the culture of the organization Boeing struggles from the same resistance from naysayers. Boeing struggles with bureaucracy. They struggle with bridging the communication gap between leadership and lower level workers. Some times it takes looking in someone elses kitchen to be able to see how your organization really is. When you see their issues and challenges you can look back to your organization and begin to see how they may affect you as well. Luckily you can do the same with successes. Nothing is ever directly transferable to your organization from another, but you can take winning ideas from one organization and morph them into a success within your organization.

a selfish standpoint the trip was a great experience as well. The trip shrunk the sea for me. When you are in your own little routine and day to day life you think that there is so much out there and that other organizations are so different. The trip helped me to realize that people are people everywhere. Whether in Boeing, the Air Force, or on a pro sports team the dynamics of social interactions are the same everywhere. The trip helped to take Corporate America off a pedestal for me. Its similar to the grass is always greener on the other side mentality. You see how messed up your own organization is some times and you get to thinking that other organizations are heads and tails above you. The truth is they probably aren't. My old coach used to always say "when you win you are never as good as you thought you were, and when you lose you are probably better than you thought you were." Its easy to get frustrated with your own struggles and begin to think that the other team, in this case Corporate America, is utopia. It's not. I think it was healthy for me to see that and it helps to ingrain within me that I can and will be successful in any organization if I put in the effort and passion. Bottom line: get out of your comfort zone and experience new things. There are always lessons to be learned.

2. You Can't Optimize A Part At The Expense Of The Whole - Basically this means that you can't try and improve one area of the business and expect it to boost results for the business as a whole. Our organizations are often broken up functionally, regionally, or a million other ways. Although it may help with chains of communication or with allocating resources it often creates a stovepipe mentality where people are only concerned with their narrow view of the overall business. We all fall into this trap. However, optimizing one area will not necessarily benefit the business as a whole, in fact it often harms other functions and the company's bottom line. If your doctor tells you that you need to start working out to lose weight and all you do is bicep curls would you necessarily say you are healthier? A systemic approach must be used to truly improve an organization.

3. What Gets Measured Gets Done - Leaders can use this to their advantage, but often the metrics within a company are not aligned with the strategy. People will work hard and in a way that exploits the metrics that are being used to measure them. There is nothing wrong with this, in fact when you look at providing for your livelihood and your family you would expect nothing less. With a lean strategy the customer should always be the focus. What are your customers expectations and how are you meeting them? Is there a gap in your satisfaction of customer requirements? If so, that is where your efforts should be focused. However, what often happens is the company or organization measures things that do not matter to the customer at all. In turn, employees work to those metrics instead of satisfying the customer.

An example at Boeing, and at manufacturing plants across the world I am sure, is the productivity measures of individual employees. There are time standards for parts and how fast they complete the parts as compared to those standards is how the craftsmen are measured. Does the customer care how fast Joe Metalworker finishes part X? You might find yourself saying well yeah kind of. From a lean perspective that is a tell tale sign the answer is no. The customer, who in this case is the Army, wants an affordable, capable, and available helicopter. They don't care how fast Joe makes part X of the helicopter. They want the entire copter when they need it, they want it to work, and they want it for a fair and reasonable price. You might be thinking that if the chopper doesn't have part X then it can't fly. That is true. But what if there are twenty part X's in the warehouse? What if the only reason you can't get a helicopter out faster and cheaper is due to the availability of part Y? Then you are pumping out extra part X's because Joe Metalworker is measured on his productivity rate, even if making more of those parts is costing the company thousands of dollars in inventory. Multiply examples like that across the company and you can see very quickly how much what you are measuring can negatively affect your overall business strategy.

4. Real Leaders Think Big - Real leaders don't think big in the sense that they can cure world hunger. They think big in that they see all the pieces of the puzzle and how they are interconnected and interrelated. Great leaders drive that large vision scope down to the lowest level and inculcate it into the culture and lifeblood of the organization. They constantly asking "does this benefit the company as a whole or more importantly the customer." As I have preached before the two are inextricably linked. Much of the value of my Boeing experience was shadowing the lowest shop floor workers and feeling their struggles and delving into their daily realities and how they affect the company culture, and then shadowing upper management and seeing their struggles to take a strategy and actually have it come to fruition throughout the lowest levels of the company. Great leaders bridge the gap between creating a vision in the boardroom and having the average worker actually live it.

5. Labor Is Cheap - Everyone focuses on labor. Every day in any newspaper across the country you can read about company X and how they are laying off X number of workers. Labor should be the last to go. Plain and simple. Those who get lean realize it is a growth strategy (see my post here). What happens when you grow and you are thin on bodies? You cannot meet or more importantly exceed customer demand; it is only a matter of time until you are dead. Boeing nailed this point home for me and I will never forget it. We were doing some time and motion studies at Boeing, which are pretty brutal. They basically time a worker on how long it takes to do a given process and how much motion in the form of walking, set up, etc. they are doing per job. Then you take the data you collected and you see how you can lean out some of the process, or reorganize the workplace to speed up the time it takes to do X process. Most of the sexy tools in lean are used to focus on processes that involve people (labor), because they are the most visible and you can interact with the people and get feedback. But that is not where your money is. At Boeing we found a way to speed up some part making processes through workplace reorganization. But does that savings necessarily translate into a monetary savings or better yet increased throughput of the product as a whole? No. Not necessarily. In this case a production manager who was performing roughly three job descriptions was forced to batch parts to be delivered over to the paint shop. He did so, because he didn't have time to deliver the parts as they were produced. He would always deliver them at the end of the day. So even if we cut time off the part making process the parts would sit until the end of the day to be delivered anyways. See number 2 above! Well what should Boeing do instead? Studies have shown that industry averages of costs are typically broken down as follows:

Overhead Costs - 34%-36%
Material Costs - 60%
Labor - 4%-6%

Material makes up the majority of the costs. This is especially true in a giant defense contractor like Boeing. So why would you waste your time trying to get Joe Metalworker to go faster when you can focus on inventory which is your largest cost. What is more enlightening is tying the concepts to actual numbers. Here are some of the rough numbers we ran at Boeing. We said that the burn rate for an employee on the shop floor is roughly $200/hr. That includes their salary, benefits, cost to operate the plant/employee, etc. There were 10 employees working 8 hrs/day. This means the company spends roughly $16K on this backshop's labor for a given day. Lets say we lean their process and get a 10% reduction in cost. We would be roughly saving $1,600 per day. We focused on one of the 271 parts that are made in the backshop and found numerous bottlenecks, broken processes, and lack of visibility as to how many parts were in the system. The cost to the company was roughly $4000 per piece. We found 20 pieces within their process (WIP), which equates to about $80K in inventory costs. If we leaned that process and made a 10% reduction in inventory on that one part along we would save $8,000. That is half a day's labor for every employee in the shop! Not to mention that Boeing sells the part to the government for $9,500 which brings the inventory cost up closer to $200K. You can see that this strategy applied to all the parts made in that back shop would dwarf any improvement effort geared towards labor, or more importantly and layoff strategy you could implement. Labor is cheap!

6. Just Because Something Is Simple Doesn't Mean Its Easy - Concepts are easy. Implementation is difficult. Creating/changing a culture is extremely difficult.

The Death Of Buy And Hold....Only Idiots, Salesmen, and/or Idiot Salesmen Need Apply

I read a very good post on My Money Blog the other day regarding the death of the buy and hold strategy. You can see the article complete with spreadsheets and graphs here. This is a must read for beginning investors.

A regular reader Don sent me a post entitled Long Term Buy And Hold Is Still Bad Advice. Okay, fine, everyone and their mom has been telling me this recently. But I read it, and it was such a bad analysis that I had to rebut it here. I think Mish writes a lot of useful and thought-provoking stuff on his popular blog, but he really missed a big error here.

The sky is falling! Oh wait, there’s a little fine print.

TC is ignoring dividends

Let’s bold that. The analysis and data above completely ignores the dividend return of the S&P 500. This is like buying an investment property and ignoring the rent payments coming in. What? There are checks coming in every month from the tenants? Nah, let’s not cash those.

The post goes into a lot more depth and explanation but the example above is one that you will likely hear again in one form or another. I have been hearing that the buy and hold strategy is a poor strategy a lot lately as well. I think it is an idiotic argument at best, especially for the everyday average Joe investor. Even if our traditional view of the market has changed or is now ‘wrong’, taxes and the fees associated with the markets have not changed. If you consistently buy and sell, fees and taxes will eat you alive. Unless you either have the skill (questionable at best) or through blind statistical luck end up being a rock star fund manager/investor it is nearly impossible to overcome taxes and fees over time let alone beat a low cost index fund. If you want to take those odds be my guest, just send a copy of your W-2 to me as to remind me what not to do while your at it. The way I see it, I have no choice but to be a buy and hold investor. I have accepted that I cannot time the market, I cant predict the future and I don’t have increased skill or access to information. The only logical thing for me to do is to control what I can control, like how much I invest and into what asset allocation I put that money into, and to keep on trucking. Anybody who tells you differently is either selling you something, is dumb, or unfortunately is both selling you something and dumb.

Toyota Throughput

Although Toyota has not been immune to the global slowdown this article illustrates why they will continue to outperform GM. In my last post about GM I talked about how cost cutting can only get you so far. What happens to you when you are cutting costs as your strategy and global demand actually rises? Well that is exactly what just happened to Toyota, and I guarantee that they will be able to meet demand based on their strategy of increasing throughput and not just cutting costs and laying people off.

Toyota Motor Corp. got 180,000 orders for the new Prius hybrid in Japan in just a month, far surpassing its target of 10,000 vehicles in monthly sales, the automaker said Friday.

Lessons In Lean - Lean Is A Growth Strategy

I am currently attending the University of Tennessee's Center of Executive Education to obtain my Air Force Smart Operations for the 21st Century (AFSO 21) level II certification which is the equivalent of a Lean Six Sigma Black Belt. The course is two weeks long and although I have only been in the class for a few days it has been a great experience.

Although I have been involved in lean for a few years now, I had an a-ha moment today which is the point of the class I guess. The topic today was surrounding Theory of Constraints and Lean and how they are utilized as a growth strategy. It might sound anticlimactic but its actually a very important concept that many people don't seem to grasp. Most people view lean as cutting positions or reducing resources. Or doing more with less type mentality. I had a mentor that referred to that as 'fake' lean.

The instructor divided business strategies into two realities. He said that there are cost cutting strategies and there are throughput strategies. Cost cutting strategies never beat a throughput strategy in the long term. Cost cutting can often provide short term 'results' for a balance sheet, but running through the various mathematical scenarios and second and third order consequences they cannot be a viable strategy. This is not to say that cutting costs is a bad practice; it is merely an extremely ineffective strategy. A throughput strategy seeks to decrease the time from the customer order to cash in hand. By decreasing this time you are in essence freeing up space for additional capacity. When you are providing a product or service at a faster speed, not only are you beating your competition you are able to charge a premium for it. This avoids the price war dilemma and allows you to grow existing market share or even grow the overall pie of market share by creating new markets and exploiting new opportunities.

Intuitively we all know this. "If you aren't growing you're dying" is a quote that many people cite. Yet when it comes to business many leaders and executives lie to themselves and believe that a cost cutting strategy is viable for the long term. Lean is a growth strategy, and the only successful strategy is a growth strategy.

Money Tips - What is your strategy?!?

I read a lot of business articles and business books, watch a lot of CNBC, and listen to audio books to learn as much as I can about the world of business and finance. One thing that I think all these forms of media have in common is that they all advertise a one size fits all approach to personal finance. I understand that part of it is about branding your book or show or whatever, but I think it really intimidates and confuses a lot of people. Especially the people who aren't truly passionate about reading and those who do not consistently study the subject of money. I think a huge part of the problem is the lack of focus on personal finance and money in our education system, but that is a debate for another day. In an effort to continue to provide all that I have learned and to discuss what I continue to learn, I am looking to make Money Tips a fairly common post on my blog.

Well I have already established that we are constantly bombarded with different books and articles with flavor of the week "get rich" approaches, all claiming that they have the only way to successfully achieve your financial goals. I have friends who are as interested, if not more so, in the topic of finance than I am and we get confused, frustrated, and overwhelmed with all the different advice. However, it seems to me the underlying question on most people's minds is "what should I be doing right now?" My advice to the already overwhelming mass of information out there is....it depends.

It depends might sound like an answer built for Washington, but I can truly say that I think this might be the most beneficial concept I have grasped in my quest for knowledge surrounding finance. Are we to assume that a 60 year old about to retire should follow the same strategy as a 20 something young professional just starting out? I think not. My advice is simple. 1.Know where you are. 2. Know where you want to go. When you tackle these two critical pieces of financial introspection you will be well on your way to rejecting the thousands of end all be all financial freedom formulas. Most importantly, you will be able to answer the simple but important question "What is your strategy?"

My first Money Tip post is a perfect start to discover where you are financially. Check out my first post and go to Mint.com to see where you are at. Create a budget that will allow you to successfully start saving/investing your some of your income. The second step of where you want to go can be addressed by a simple exercise. Write down your financial goals! There are plenty of ways to do this. For example 5, 10, and 25 year goals or short and long term goals. Whatever approach you use is less important that the fact that you actually write them down and refer to them. This keeps your actions focused on your goals and begins building your own strategy.

So now you know where you are and where you want to go...now what? Here are some important components that you should consider for your strategy as well as some lessons learned from my own tribulations and triumphs through the personal finance journey.

Strategy Components

1. Save. Even if you start at 1% just start saving something. Choices include savings accounts, money markets etc. If you are struggling with this read The Richest Man in Babylon which is on my Bookjetty list on the side of my blog. The classic book clearly illustrates a concept often lost in today's world of business and politics. You must save more than you spend. In fact, the book goes as far as to declare that if you save just 10% of income you will be wealthy, period, dot, DO IT!

2. IRA's (Traditional vs Roth), 401K's, retirement planning in general is the foundation of your investment portfolio. Its hard to invest now for something so far down the road. Just do it! You can't rewind life and with the power of compounding interest every day you wait is opportunity lost. If your employer matches then max out your 401k to the extent they match. This is free money and there is no excuse for not taking it. If you are employed by Uncle Sugar like myself then you are not so fortunate. My next advice would be to max your Roth IRA. Although your contribution is after tax (taxed on the way in), any earnings you build will be tax free upon retirement (tax free on the way out). My little rule is if you are young choose Roth as time is on your side. If you are older and/or you need to reduce your tax burden now then the traditional may be a better move. Once again it all depends.

3. Passively managed index and mutual funds. These allow you to mindlessly invest with historically higher gains than money markets or savings accounts and lower expenses than actively managed funds. Read A Random Walk Down Wall Street or the Intelligent Investor if you are wanting to have a broker actively manage your money, especially if you aren't wealthy. I personally haven't made any money in this realm for the 6-7 years I have been investing. In fact I am pretty sure that over the life of my portfolio I have lost money (this is now becoming easier to track with Mint.com). Am I bitter? A little. No not really. I have learned a lot and my strategy is a long term purview. Remember that losses are only true losses when you cash out. I am still accumulating shares that in theory will continue to rise in value over time.

4. Real estate. I find that the business and finance community constantly downplays the benefits and hypes the risks of real estate. Do you think that it has something to do with the fact that brokers, analysts, financial planners etc. don't make any commission off of real estate (except REITS). However, the more I read the more I am vectoring in this direction. Between tax benefits, access to capital (OPM), and the general tangibility and control of the asset I really don't think anything else comes close. Like I said though it all depends and this post is about determining your strategy. So get reading and get learning and find out what is your favorite vehicle.

Obviously this list is not totally inclusive and to be honest it is beyond general. However, I intend to dissect individual topics as my Money Tips posts continue. Here are a few additional motivational tidbits to help get you on your way:

1. Read. Read everything you can. Even if you don't fully understand or agree, learn something from everything you read. These are your tools to start building your own strategy.
2. Learn from every action you make. Put on your learning goggles and never take them off. You are only bettering yourself in everything you do.
3. Error on the side of action. Don't time the market. There is never a bad time to invest only the wrong approach at the wrong time.
4. Don't compare yourself to anyone else. Only compare yourself against your own goals.
5. Don't lie to yourself. People often do this when saving. They say they need something when it is not a need....it is a want. Your personal discipline is key to your success.
6. Become rich. To me, rich is a mindset. If you are saving more than you are spending you are in essence rich. From that point on there are only varying degrees of rich. If you couple this with a learning mindset you will achieve what you set out to achieve. Be rich.
7. Have fun. Make saving fun. Make investing fun. If you win and make money, great that is fun. If you lose some money (as I have done a lot of since the day I started investing) great, what did you learn, because learning is fun.
8. Keep perspective. In the long run we all end up exactly where we are supposed to be and only you can take responsibility for that. We all have good luck and bad but in the long run you are exactly where you have earned to be. Think long term, work hard, and react positively to any external event and you will be happy and be where you deserve to be.