Definition of Entrepreneur

I'm a firm believer that what the world needs now is a new entrepreneurial class, and particularly in these great western states where properties/resources are relatively cheap and out-of-work talent is plentiful.  If the debt markets thaw, or more young and knowledgeable individuals figure out a way to escape the debt trap that keeps them tied to their 9-5 jobs (and build the necessary savings to sustain several months or years without income), then there's never been a better time in recent decades to pursue this dream.

But what is an entrepreneur?  Ironically, I was asked this question on a recent online job application, where I offered the following definition in 150 words or less:

An entrepreneur is someone driven so strongly to create a successful business that they will risk the security of a traditional career to pursue that dream.  An entrepreneur values mistakes as the greatest learning opportunities, but only with an understanding that the difficult process leads to successful execution of the business plan, economic freedom, and hopefully great financial and experiential wealth.

It was a somewhat hurried response, primarily because this wasn't a job that I'm dying to get (I even offered a somewhat ego-driven and tepid response when asked why I would want to work for the company, because I'm not sure that I do, and recession be damned, I don't believe that talented people should sell themselves out at the first site of an opportunity).  But I felt comfortable enough to throw it out there as a mostly fitting definition and a great discussion starter.  What do you think an entrepreneur is?

Hotel Deals to Rise, Thanks to Lender Transactions

Here's a great article that I think will ring true in 2010.  And yes, I joined a crowd once in grumbling/booing at Mr. Reay's gloomy predictions for years of hardship to come in the hotel market.  Of course, it was not the news anyone wanted hear (even if we believed it), and I recognized that Mr. Reay was taking too much pleasure in accepting the new "gloom and doom" spokesperson role for the industry.  But the fact that others have been so slow to recognize and address the problems that led to so many distressed hotels and so few transactions means that Atlas Hospitality has rightfully earned its spot as the top-quoted group in trade articles about how stale the market had become.  So without further ado....

Advice to Homeowners: Walk Away

Regarding "strategic mortgage defaults:" Yes Yes Yes! These are a good solution to a big problem (and yes, I live in an area where we would see significant short-term repercussions, but that's okay). Here's a comment that I recently posted to a Motley Fool article, which featured outspoken UA professor Brent White (http://bit.ly/cazvPT):

As a college student, I spent multiple semesters compiling research on the economic value of bankruptcy. Most notably, the research pointed to the fact that allowing a financial reset button to investors has almost always helped spur future economic growth. In fact, it is usually the risk-takers who most help the market grow, and then it is the risk takers who most often require a bailout of sorts when hard times hit the economy.

Combine this with the knowledge that commercial investors are almost universally
considered unwise if they fail to renegotiate or default on expensive loans (and often have default clauses in their contracts to accommodate such decisions). Like those commercial loans, a home loan is a collateralized debt instrument -- and some states, like Arizona, wisely protect homeowners from undue recourse after the collateral has been converted to the lender's ownership. This means no risk to one's credit score for turning over the keys to a money trap. [Ummm, I think I covered this elsewhere, but please disregard my comment that there is no risk to your credit score.  That's not what I meant to write.]

So blame the banks. When they put forth 80-100% of the values that their misguided appraisers projected on bad investments, they made much poorer decisions than the homeowners who submitted the remainder. So from an both an economic and ethical perspective, why should we insist that there be a false moral obligation on the part of the downtrodden homeowner to help the bank that refuses to renegotiate a bad loan.

Read more of Professor White's argument about "efficient breach" and non-deficiency in last weekend's local paper: http://bit.ly/9CIHoK.

Follow-Up: I recently posted the following to azcentral's brief opinion piece on this subject (http://bit.ly/cEX05W), which I think helps to illuminate the many facets of this debate and my views on the subject.  And, by the way, the story's comments are some of the most intellectually stimulating that I have yet seen on azcentral.com.

@animadvert4: The harm is already being done on a massive scale, through unfortunate and often unavoidable mortgage defaults.  Good luck effectively pointing the finger at all the borrowers "causing" your diminished home value; better yet, good luck identifying a legitimate baseline appraisal for your home in an established neighborhood, where many homes sold for less than today's prices in not too distant memory. [Note: This commenter alleged that purposeful defaults constituted tort damage to neighboring homeowners.  While this is a compelling concept, it is a failing argument on many levels, certainly including the suggestion of recourse that I strongly doubt to be applicable in any practical sense.]

Another important note: Financial institutions constituted the single largest moneyed political lobby for the ten years that precipitated our burst real estate bubble (and this transcended political lines, although spending tended to favor Republicans who were in power).  This spending effected policy like Bush's poorly conceived home ownership plan as well as his misguided policy on student loans, Congress's bankruptcy "reform," and several other [policies] designed to increase the fees collected by banks in recent years.

Not only should the banks carry greater blame for this crisis than individual borrowers, but they should be credited with failing to understand the greater ramifications of their greed.  Or maybe a better question would be whether they did in fact misjudge the outcomes of this cycle.  While most of the large banks guaranteed themselves a federal backstop for their errors, they have also strategically built up a foundation for a very profitable recovery.

Why aren't we more concerned about the fact that the American public is guilted into taking the least advantageous path to financial salvation, when we regularly expect that more savvy corporate interests will do otherwise?  I'm quite grateful for provisions like the "efficient breach" law, which I consider tantamount to bankruptcy protection in its ability to provide efficient recovery for failed investors in a down economy.  While one could argue the potential that people will unjustly take advantage of such "clean slate" provisions like bankruptcy, research has consistently proven that this is not the case.  Instead, for every wave of debt forgiveness among individuals (like personal bankruptcy), there have been greater than proportionate increases in overall wealth, i.e. economic recovery. [While I can't readily cite sources, there is plenty of evidence that defends this position.  If not for a crashed hard drive a few years back, I'd be able to draw from sources used in my previously mentioned academic paper.  But if you so wish, I think you can find it in the UA library.]

Our economic system has historically seen the greatest benefit from rewarding risk takers, for they are the ones who most contribute to economic growth.  So why now are we seeing such a reversal of sentiment, now that our economy could most use such relief?

When Will This All Turn Around?

The pundits are all over the place, but it seems that there is some sort of optimistic consensus that the economy will start to look better by sometime next year. Kiplinger's has an index for such a prediction: http://kiplinger.com/businessresource/recovery. And while I think this is a great traditional (and thus conservative) tool for monitoring lagging indicators, I'd argue for a newer approach. Otherwise, we are completely discounting the fact that we may find a truly transformative path toward economic recovery.

I'm more interested in reevaluating our methodology in looking for leading indicators than measuring our lagging ones, in order to better reflect changing values. There was a great article on fool.com about the historical performance of large cap stocks (http://www.fool.com/retirement/general/2009/06/23/its-already-worse-than-the-depression.aspx). On the one hand, the article's observation begs the question of a bottom in the market--even though I predict another year of poor lagging results--but it also raises the possibility of a new kind of growth.

What if we the entrepreneurial class decide to overturn traditional economics by bringing forth an era of immense economic growth coupled with deleveraging. Not only do I believe that we need this for the long term, I also think it's possible with a short-term focus on old school yankee ingenuity. And I think that Gen X is uniquely capable to take on such an ambitious goal. What choice do we really have? More on this later.... including a tie-in to why this should especially concern those of us in the western U.S.

The Truth About Changing Hotel Revenue Models

Here's a great story from Michael Schindler, themed "Things I’d Prefer Not to Hear Anymore." In it, he discusses the whining that is all too prolific in our industry right now. Following is a reprint of my comment on his blog:

I feel the same way as Michael about our industry's currently sorry state. To his final point in this story about being a cheerleader, I would take his comments a little further to the acerbic side by saying "shut up and work through the tough times." Our industry is reeling right now from an era of all talk and cheap money. This meant that no one had to do much in the last few years aside from managing their time to process all the business transactions. Now, deals are tough to come by--as they should be in an efficient market (where efficiency is tied to parity on upward and downward forces in the economy). We should each focus on succeeding rather than pegging the date that the market makes it okay to do so again. That means working with what we've got.

Also, I often wonder why hotels aren't getting more creative in their reaction to the once again dynamic nature of our business. I have made a couple of recent trips to Las Vegas, where I frequently gamble at MGM properties in my spare time (low dollar amounts, I promise). While I regularly receive deals for $49 or $69 room nights, which are far below "acceptable rates," I know that these are offered at huge discounts to their simultaneously advertised rates. Thus, the hotel is using a classic marketing strategy to segment pricing based on overall customer value. Some people are indeed paying $200 per night, while I'm only paying $50; also, I'm making up for my room discount by dining out, attending shows, and gambling. A good marketing analyst is likely tracking these numbers to ensure that their strategy is working.

While this financial model is different from the limited service world where I operate, it's really not too different in its approach to the market. Hotel operators need to leverage their relationships with revenue sources and influencers to look for opportunities for quality promotions. Here in sunny Arizona, for instance, I would consider tapping into the cheap rates at golf courses and other currently struggling businesses to promote stay-and-play packages. Given all of the automated marketing and property management tools available, it doesn't take too much effort to try. And if you fail in one area (or marginally succeed), then simply move on to another idea. Remeber, if you fail to capitalize on such opportunities, I bet that the bigger players (Hotwire, Priceline, etc.) will happily do this with or without you.

In a nutshell....

I think this pretty well describes the world we've been in for the last year or so. Great stuff. The sad part is that when everyone goes through the motions, deals tend to get done. Now things are changing so that you have to put up the money in order to demonstrate the justification for everyone doing the work.

Vegas Is Making a Comeback. Yeah, Baby.

Well...... maybe not so fast. But it's encouraging to know that they get it. Vegas is driven by the leisure travel industry, focusing on gaming, parties, shows, and hospitality in general. This we know.

But what if the travel industry in Sin City were to consider the current state of the economy in its pleas for increased travel. According to this article, they are: http://www.hotelworldnetwork.com/lasvegas. It will be interesting to see how this all shakes out--whether I'll just keep receiving the same "stay two free nights" promotions in my email or perhaps something a little more alluring. The fact remains that the great bulk of weekend business in Las Vegas comes from California and Arizona, and that's because a car-load of wild and crazy guys can get there from either location on little more than a tank of gas.

So if most of the recent travel news is correct, in noting that Americans increasingly see travel as a right rather than a luxury, then Vegas is still potentially a good deal for a short trip in the Southwestern U.S. They just need to tone down the decadence and the bling, and explain to me why I am doing my wallet and psyche a favor by going there rather than elsewhere.

Here are a few less predictable reasons the Las Vegas CVB should recommend that you Angelenos and Phoenicians consider Vegas for your next trip:

• A car load of people is a greener way to travel than by plane (better yet, take the Greyhound or train, or don't and say you did).
• Car trips with friends are a much better way to pass the time if you are jobless and bored.
• You don't have a gambling problem, but how can you ignore the possibility of rescuing your 401(k) in one night.
• Has the economy got you feeling down and out? There's probably not a more distracting place on earth for most adults than Vegas.
• You can finally enjoy some of the city's more exclusive offerings in peace, now that the crowds are smaller.
  

Final note: The sooner this market turns around, the easier it will be to get some of MY PROJECTS off the ground in LV, and they are undoubtedly value oriented. I don't understand why the banks don't get this.

Okay, Final Final Note: I truly don't care much for Vegas, although this blog entry (and perhaps the time of night) has convinced me otherwise. Seriously, when my wife and I go together and catch a nice dinner and show, it's really a fun place. We may have to schedule another trip soon....