I'm Ryan Waggoner, web architect,
entrepreneur, dork. I build things.

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iPhone vs. Retirement

09.02.10 Posted in Finances, Personal, Posts, Technology by Ryan W.

I got my iPhone in summer of 2008, and I’ve really enjoyed it over the last two years. However, it’s beginning to show its age, so I’ve been considering getting the new iPhone 4. But then I started really thinking about the total cost. The new iPhone 4 is $299, plus the voice and data plans that you have to get as well. If my wife and I both get the phone, that’s an initial outlay of about $700 (with taxes), and then we’ll spend at least $150 / month for voice and data plans (if we go with the cheapest option). As a result, for a 2-year contract, we’ve just spent at least $4300. And for what? So I can check my email when I’m hanging out with friends? So my clients can bug me when I’m out for a run? Hey, I love looking up some obscure trivia while in line at the bank as much as the next guy, but when I step back and really examine the situation, I’m entirely unconvinced that it’s worth the money. It seems like the digital equivalent of fast food: slightly enjoyable in the moment, but ultimately unsatisfying and very unhealthy.

The situation gets really ugly when you consider that you could invest all that money saved. We still need cell phones, but we’d just get prepaid phones and use Skype for calls in the office, which could easily cut our monthly bill from $150 / month down to $50 / month. If we invested that $700 we saved by not buying the phones, and then saved an extra $100 / month at an inflation-adjusted return of 8% over the next 40 years, we’d end up with $366,000 (even after you adjust for inflation). I’m not sure there’s any Tetris clone or Wikipedia entry that’s worth that much to me. This is especially true when I consider that I too often use the phone as a means to escape my current reality, which is detrimental to my desire to be more present, purposeful, and engaged.

Now, you can break just about anything down like this. Enjoying that cup of coffee? Well just think of how much you could have if you never drank coffee again and invested the money instead!! Some financial authors advocate just this, though I think the more salient point is that you should think carefully about what’s really important to you, and look at the true cost of ownership before you flush hundreds of thousands down the toilet without even realizing it.

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Magento Ecommerce: Impressions

09.01.10 Posted in Development, Entrepreneurship, Posts, Reviews, Technology by Ryan W.

I’ve been working with Magento Ecommerce lately, an ecommerce platform that is becoming more popular, and I thought I’d share a few random impressions in case someone else out there is considering using it. Here they are:

1. Magento is much better than most of the alternatives.

The popular PHP open-source competitors are OSCommerce, ZenCart, QuickCart, and X-Cart. There are others, but these are the ones I see most often. I haven’t used QuickCart and X-Cart much, but I’ve worked on multiple sites with the first two, and they’re all universally terrible. It’s hard for me to imagine a piece of software more poorly designed than OSCommerce is. There are no “modules”: plugins are “installed” by following directions in a text file to hack the application core. Stuff like: “open cart.php, find line 37, which should look something like this, and paste this in after it.” This means that after you install a few plugins, you can never upgrade the core, and you’ll have more and more issues installing future plugins, because the core code won’t look like those text instructions expect it to. Truly awful. If you designed OSCommerce, you should be ashamed of yourself.

By contrast, Magento is pretty clean, follows a standard, uses object-oriented design patterns, and is completely modular.

2. Magento still is pretty terrible.

The main issue I have with Magento is the documentation. Specifically, that there isn’t any. It’s an incredibly powerful ecommerce platform, built around an extensible architecture that developers can extend, and the docs would all fit on a few sheets of paper. It’s very, very frustrating, and even more so because the business model of the company who produced Magento apparently is to sell subscriptions to the “Enterprise Edition” at $12,000 a year, so they have little incentive to create good docs to help developers avoid the need for their expensive services.

3. If you can, use Shopify.

Ecommerce is a fairly complicated area and the software generally reflects that. So if you can avoid reinventing the wheel, you should. You can do this via using open source platforms like Magento, but you’ll still spend a pretty penny on design and development talent. Another way to go if you need something a little less flexible are hosted ecommerce offerings like Yahoo Stores or Shopify. From what I’ve seen of Shopify, they offer an incredible value for people just getting started in ecommerce (and even some pretty big stores) for a very reasonable price. And you still have the option of customizing things to a great degree. However, there will be those times when you just need more control than hosted solutions offer. And when those times come, I can honestly say that Magento is a great solution. Just be prepared to pull your hair out for a few weeks (or months) while you learn your way around.

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If Mr. Smith went to Washington today, what would happen?

08.31.10 Posted in Politics, Posts by Ryan W.

My dad and I had an interesting conversation last night about how an individual can have a positive effect in a system where systemic corruption is present, without succumbing to the pressure to compromise. We got on this topic because we were talking about Congress, which seems from the outside to be an incredibly brutal and corrupt cesspool of political backstabbing, wheeling and dealing, and protecting special interests to the exclusion of the citizenry. But the question is: are they all just corrupt people who decided to become Congresspeople, or does the institution of Congress incentivize well-meaning people to turn into backroom-dealing criminals? If you’re the “Mr. Smith goes to Washington”-type, how do you possibly get anything done? Congress seems a hard place for idealists. It’s all about quid pro quo, who has the purse strings, who has the dirt, who has the power. Politics in the worst way possible. It’s amazing that anything gets done.

Regardless of how it started, it seems the natural progression of such a system of power where some corruption takes hold is that honest folks don’t want anything to do with it. So the people it ends up attracting are the ones who are attracted to the power and the corruption, which only makes the problem worse. Incidentally, I think a lot of the same things are true about any position of power. The police are a stellar example. As a police department deals with criminals all day long, they gradually start to adopt a subconscious belief that all citizens are criminals on some level, and an “us-vs-them” mentality begins to set in. They overstep their bounds, they violate people’s rights, and then they try to cover it up. The worse things get, the more they attract the kinds of people who want that sort of authoritarian power for the wrong reasons, and things just continue to spiral down. And just like with Congress, you can have checks and balances, but corruption is a difficult thing to have a systemic check against, because by definition it’s a usurping of the system.

So there’s the question of how you deal with this on a societal level, but also just the personal level. Power is not inherently bad, and what do you do if you’re an honest citizen with good intentions who wants to represent your fellow Americans as a Congressperson? You’re desperately needed, but how will you actually accomplish anything when you get there? The entire system forces you to choose to either compromise and play the game, or get nothing done. How does an honest individual avoid this conundrum?

The only real answer I have for the politics question is to cultivate influence outside of the realm of politics that can still be expended within the political sphere. Money is the best example of this, though fame might work equally well. Mayor Bloomberg seems an excellent example of this; with a personal net worth of > $10 billion, he has the money to avoid fundraising and ass-kissing (for money) completely. Is this the ideal scenario? Not in the slightest; it’s disconcerting to think that maybe we live in a world where you have to be either rich, unethical, or ineffectual (though you can certainly be all three). But maybe that’s the world we live in, and if it is, denial won’t get us any closer to change.

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On death

08.30.10 Posted in Faith, Inspiration, Misc, Posts by Ryan W.

There was recently this really good article on Hacker News about the regrets of the dying. The author had the privilege of working in palliative care for years, working closely with patients during the last weeks or months of their lives. The five regrets he talks about are really interesting, but it’s the first two that caught my eye:

  • I wish I had lived a life true to myself, instead of the one others expected of me
  • I wish I hadn’t worked so hard

They’re both pretty common death-bed refrains, but it’s the combination that caught my eye. The thing about working too hard has always bugged me, because it seems to subtly imply that work isn’t as important as other things in life, like friends, family, etc. But is that always true? Isn’t purpose the most important thing in life? And can’t you find that through your work? Would they have regretted working so hard if the work had been part of the life they wanted? I completely understand the sentiment of wishing you hadn’t worked so hard, but only if that work was part of the life others expected of you.

Will we hear this same regret about working too hard from Steve Jobs, Richard Branson, your local pediatrician, your local inner-city youth counselor, and anyone else who works hard at the thing they were born to do?

I hope not.

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When to drop out of school

08.27.10 Posted in Education, Entrepreneurship, Posts, Technology by Ryan W.

When I was an undergrad, I was fascinated by the fact that so many wealthy people had either dropped out of college or skipped it altogether, and subsequently built amazing technology companies. This list includes Bill Gates, Michael Dell, Steve Jobs, Mark Zuckerberg, and many, many others. I wondered if there was perhaps some link between dropping out of school and success in technology. However, looking back now, I think I was confusing correlation with causation. These people weren’t uber-successful because they dropped out; they dropped out because they had started something that was growing so fiercely that it took up all their time.

So if you’re about to go to college or you’re in college and you’re thinking that maybe you should skip it because so many other successful folks did, take a second look. If you don’t have that something that pretty much forces you to drop out, I wouldn’t do it. If you feel like you’re torn and you’re not sure what to do, don’t quit. You should only quit if you literally just can’t keep going because you’ve started something on the side and it’s blowing up so fast that you can’t keep your head above water. And even then, you should try and leave the doors open to return in a year or two if things don’t work out.

Oh, and if you’re entrepreneurially-inclined, do seriously consider starting something in college. You probably will never have as easy a launching pad and such a plethora of potential co-founders. It could go nowhere (but you’ll learn something), it could pay for books and beers, or it could be the start of the story you’ll tell someday about how you dropped out of Harvard to run your fledgling company that’s now worth billions. You really have very little to lose.

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Dream with your hands

08.27.10 Posted in Entrepreneurship, Future, Goals, Inspiration, Personal, Posts by Ryan W.

I wrote a post yesterday about how I would invest $1m into multifamily real estate. The post got a big reaction from Hacker News, and it’s been fascinating to see the way people think. A lot of the comments raised really good points, but what I saw most of all from those who disagreed was a generally unwillingness to take risk. I bought my first piece of real estate when I was 22. I screwed it all up. I’ve bought more since then, and made more mistakes. But I don’t regret doing it for a second. I regret making bad choices, sure. But I’ve learned something, and more importantly, I’ve done something.

Dreaming with your mind alone gets you nowhere. Today is my 28th birthday, and for too many of those years, I’ve lived in a fantasy-land, dreaming of what I’ll do Someday. I make a lot of plans. I consider myself a person of great passion and vision. But after 28 years, that hasn’t taken me nearly as far as I thought it would. If you had asked me at 18 where I would be at 28, I would have probably been outwardly modest, but I thought I’d be running the world by now. So what happened? Somewhere along the way, I got really caught up in the idea of accomplishment. It become more about the end goal, the destination. I lost sight of the importance of the journey, of living well, of being a good man, a good husband. I thought those were byproducts of the destination, just more accomplishments along the way. But I’m starting to realize that they’re really the whole point. That life is more about the inputs, the journey, and who you are than it is about what you accomplish. And it’s really difficult to change who you are from inside your comfort zone.

Birthdays are usually full of angst for me. But this birthday has been different, somehow. It’s been a really good year so far. There have been disappointments and setbacks, but something is different. If I had to put my finger on just one thing, I’d say that I feel better about who I am than I ever have. I’m proud of my dreams for the future. But mostly, I’m proud of the fact that my dreams have escaped the prison of my mind, that I’m risking something, that I’m working harder than ever on building a foundation of character and discipline.

Aristotle said: “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” I’d put the emphasis in that quote on the word “do”. You can’t reach for the stars with your mind. You can’t play it safe and hope that someday things will magically change. Ultimately, you have to step out, take risks, do the work, do something.

So don’t stop dreaming. Dream, and dream big, but dream with your hands.

Note: the title of this post comes from a similar phrase in this recent Corvette ad . I was surprised when I googled it and found absolutely no results, as I think it’s a perfect and succinct way of expressing a complex thought.

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How to retire at 30 on $1 million

08.25.10 Posted in Entrepreneurship, Finances, Posts, Real Estate by Ryan W.

There was recently this really amazing article by Tony Wright and ensuing discussion on Hacker News about founders of startups who think they’re going to retire at 30 after taking home $4.3mm or so. The gist of the article was that with $4.3mm, you can’t expect to live indefinitely on an inflation-adjusted salary of $200k / yr without working. This is nonsense, as we’ll see in a minute.

The article makes the really good point that you should be in the startup game primarily for the love of what you’re doing, not the money. But this is true for almost any endeavor, because the reality of almost anything where you can get rich is that it’s definitely not a sure thing. So if you’re going to spend years of your life slaving away at something without a good chance of a big payoff at the end, you better be enjoying the journey itself or you might get to the end of your life and find that you wasted it on something you hated for nothing.

I can’t deny that the math of the piece is solid, but I really do question the assumption that you should take that money that you made creating value by running a business and invest it in the stock market, where you have zero input or control over the outcome. There are lots of other paths you can take, but I’ll focus on the one that I know best: multifamily real estate.

I know, I know: real estate is such a risky proposition right now! Am I crazy?!? Let me run through the numbers with you, and you can tell me.

Let’s take our hypothetical entrepreneur who just cashed out for $4.3mm and see if we can retire her within a year or two. And to be more conservative, let’s just use $1.3mm of the money for real estate. She can put the rest in stocks, bonds, or Uncle Morgan’s ice cream truck business.

Our goal is to purchase a nice, class B apartment complex in a good market with solid fundamentals. For the sake of this example, let’s use the Dallas market. I jumped on LoopNet.com for a few minutes to look for good prospects, which is also conservative, as the best deals don’t ever make it to LoopNet. You’d be better off retaining an experienced multifamily broker in the market, but this will suit our purposes for now. We’re going to take our $1.3mm and put a 20% down payment on an apartment complex, obtaining financing for the remaining 80%, either through a traditional bank loan, seller financing, or some combination. This will give us the ability to purchase a property valued at around $6.5mm. Let’s be conservative and limit to $6mm, so we can keep some cash in reserves and pay for any deferred maintenance on the property. So a perusal of LoopNet turns up this potential investment:

Asking price is $5.5mm, it looks like a solid class B place, it’s got 151 units, mostly 1 bedrooms, it’s 80% occupied (more on this in a bit), and it was built in 1985, so hopefully it’s not falling apart yet. The effective gross income on the property is $920k / year. Now, obviously this would require a LOT more due diligence, but this is one of several properties like this that I found with a few minutes of searching in one market in the US, so it’s not terribly unlikely to find a similar deal even if the numbers didn’t pan out on this one.

Operating expenses on properties like this vary, but 50% of the gross income is a good rule of thumb. The listing for this property says $500k, so that’s about right. Let’s use $500k as the number for the operating expenses, which includes maintenance, taxes, insurance, management, etc, basically everything except for debt service.

So our hypothetical entrepreneur does her due diligence and decides to buy the property. Let’s assume that she pays the asking price, puts down her $1.2mm (holding $100k in reserve) and gets a 6% loan for the remaining $4.3mm. With a 30 year amortization, that’s an annual debt service of about $310k. Her net pre-tax cashflow is therefore $920k – $500k – $310k = $110k / yr. This represents a cash-on-cash return of just over 9%. So not quite $200k / yr, but we’ve also only invested about 1/4th of our total cash to get that annual cashflow. And there are some other big benefits here as well:

First, our entrepreneur is in control, unlike the stock market. If things change with her property, she can be proactive and adjust her strategy, having a direct impact on the management of the asset.

Second, there are other potential sources of return beyond just the annual cashflow. She’s amortizing the loan every year, building up equity in the property. And there may be appreciation as well, though you don’t want to count on this. Still, it’s a nice bonus if it happens.

Third, real estate is a natural hedge against inflation. The rents can be raised annually to keep pace with inflation. (Bonus: your mortgage payments do not increase annually.)

Fourth, this particular property may offer some attractive options for adding value. The occupancy rate of 80% could be improved, for example. Improving the condition of the property, putting in new management, cutting expenses where possible, raising rents, and getting the property leased up to 95% could easily double the pre-tax cashflow on the property, and seriously increase the overall value.

Finally, we should take tax benefits into account. You’re allowed to write off a portion of the value of the property (excluding the value of the land) each year as depreciation. And thanks to this write-off, it’s very likely that this property would show a paper loss for the first few years, which means our intrepid entrepreneur would pay zero income taxes on that cashflow. Zip, zilch, nada. No federal income tax, no state income tax, no FICA, nothing.

Is this an easy or risk-free investment? No, it’s really not. You’ll need to learn a lot about real estate before you head down this road. Buying an apartment complex like this is buying a business, and you should treat it accordingly. But you should also learn a lot about the stock market before you head down that road. If you turn your money over to some wealth manager and have no idea what they’re doing with it, you’re putting yourself in a bad position. And it’s definitely true that real estate is a lot more work than just pulling up etrade.com and buying some shares. But then, that’s the difference between growing your net worth from $4m to $400m, or running out of money at 50. In the end, which approach is really riskier?

Update: if I could recommend just one book on the type of investing I’m describing above, it would be this one: The Complete Guide to Buying and Selling Apartment Buildings

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General Aviation FAQ

08.24.10 Posted in Aviation, Personal, Posts by Ryan W.

I’ve been working on my pilot’s license and naturally, a lot of people have questions. Here are some of the ones I’ve received from friends:

Q. Isn’t flying a small plane dangerous?

A. It depends almost entirely on the pilot. The majority of small aircraft crashes are due to pilot error, mostly flying into bad weather. Aviation is a pretty unforgiving hobby, and if you don’t take it seriously, it can kill you. I take safety very seriously, and always try to examine my attitudes to ensure I’m being realistic about my limitations. There’s an old saying that there are old pilots and bold pilots, but no old, bold pilots.

All that said, it’s probably roughly equivalent to riding a motorcycle. The difference is that, unlike a motorcycle where you’re at the mercy of the other drivers on the road, you control most of the risks in a small airplane. You can read more here.

Q. How long does it take to get your license?

A. It varies from person to person; the legal requirement is 40 hours of instruction, but the average is probably closer to 60-80 hours. I’m a little over 50 hours right now and I hope to finish in the next couple months, below 80 hours. That said, I took a 3-year hiatus in the middle of my lessons, so that set me back. Most people could do it in 50-60 hours if they were disciplined.

Q. Is it expensive?

A. Yes.

Q. What if the engine stops?

A. All airplanes (even jumbo jets) can glide with no power. The trainer aircraft that we fly can usually glide about 10 feet horizontally for every 1 foot of altitude they lose. This means that if you lose an engine at 5000 feet, you theoretically about 50,000 feet of horizontal distance before you have to land, or almost 10 miles. Various factors can reduce this distance somewhat, but you generally won’t plummet straight out of the sky. We spend a significant portion of the training learning how to avoid engine failure, and when it does happen, how to troubleshoot the problem and attempt a restart. If the engine won’t restart, then we find a place to land and put it down.

Take comfort though: engine failures are relatively rare. Many pilots will fly thousands of hours over the course of their lifetime and never experience one.

Q. How fast does the plane go?

A. The planes we fly during training generally cruise right around 100 knots, or about 115 mph. Once you get more experience (and money), you can start looking at higher-performance planes that may cruise at twice that speed, or more.

Q. Are you going to buy a plane?

A. Not for awhile. Airplanes suffer from being both expensive to purchase and expensive to maintain. They have high fixed costs, including insurance, hangar space, annual inspections, etc, so unless you fly more than a couple hundred hours a year, it often makes more sense to just rent a plane when you need one.

Q. Why do you do it?

A. I have no idea :) Seriously, flying a small airplane around is terribly impractical. They make for pretty lousy transportation compared with commercial aviation (slower, less reliable, and much more expensive) and they definitely introduce some risk into your life, no matter how safe a pilot you are. The only thing I can say is that I love the feeling and freedom of flying, and tend to view it more as a challenge and a source of entertainment. If you haven’t been up in a small plane, I encourage you to try it; there’s nothing quite like it.

Post any questions that you have in the comments, and I’ll do my best to answer them.

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Why free online education won’t replace traditional college anytime soon

08.23.10 Posted in Education, Future, Inspiration, Posts, Technology by Ryan W.

Bill Gates recently said the best college education could soon be available online and for free. And it does seem like we’re getting close to that ideal, doesn’t it? More and more brand-name schools are offering classes online. At the same time, you have this trend of schools putting a lot of their lectures, class assignments, and other course materials online for free. iTunes U has thousands of these courses, including ones from schools like MIT, Stanford, and Harvard. After looking at all this, the dream of free, online education does start to seem tantalizingly close, doesn’t it? Perhaps we can replace a costly and education for the chosen few with laptops and Starbucks cards, throwing the gates of prosperity and knowledge wide open for anyone who cares to partake.

It’s a nice ideal, and one that perhaps we should aim for, but here’s why it won’t happen for awhile:

1. The technology that’s widely in use just isn’t there yet. Many of MIT’s OpenCourseWare courses have only notes, no video, and the ones that have video often lack resolution to be able to read the notes on the board. Also, has anyone ever used Blackboard? It’s horrible. Unfortunately, Blackboard is basically a patent troll company wrapped in the guise of an online education software company, and their patent portfolio hangs like a dark cloud over this space, crushing a lot of potential innovations.

2. Not everyone has the tenacity to sit through four years of college classes and really learn something. Even fewer have the dedication to do it on their own, remotely, with no human interaction other than a webcam to guide them.

3. Schools such as MIT serve as a filter and a credibility indicator. They have great professors, of course, but anyone can obtain the raw knowledge they teach. What’s harder to obtain on your own is the stamp of approval that you’ve learned the material. Anyone who went to a top school will tell you that having it on their resume makes a difference in getting a response from a hiring manager. Many people look at such a resume and think: “MIT…must be pretty smart.” That’s the power of a credibility indicator at work.

4. The people that are needed to make such a huge shift happen are 1) parents, 2) government (for incentives), 3) existing institutions of higher learning, 4) employers (to hire these graduates). Aside from the organizational incentives for these groups, which also are not favorable to such a shift, the people who make up each of these groups are likely to have degrees that are granted using the current model, and thus none are likely to want to undermine their own education choices. What’s the incentive for them to break with status quo?

5. School isn’t just about what you learn…the best schools serve as a kind of bridging ground between childhood and adulthood. Perhaps there are better ways to accomplish this, but some kind of “GED for higher education” hardly seems to be a good solution. I’d rather hire employees who are smart and dedicated than knowledgeable. Most of what they need to know can be taught, but character and raw intelligence can’t be, or at least not easily. Getting good enough grades in high school to get into a great school and then doing well in that school indicate both mental aptitude and the perseverance that I want in people who work for me.

Let me be clear: I absolutely love iTunes U, OpenCourseWare, and all of the other really innovative online education options that we have at our fingertips. I’m just skeptical that they serve the same purpose as college, and even if they do, that our society has the willpower and foresight to be able to replace the college industry so easily. What are your thoughts?

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They let me fly an airplane? Seriously?

08.20.10 Posted in Aviation, Inspiration, Personal, Posts by Ryan W.

Yesterday, I decided to take a quick break from work and go flying. I haven’t been up flying solo since my initial student solo last month, because my club requires a solo phase check with a different instructor before you can solo again. I passed my phase check recently, so I was itching to get up there by myself and practice some things that I’d learned. The weather yesterday was great, so I booked a plane, drove down to the airport, and went flying.

It’s a very bizarre feeling, to be up there completely on your own. The last time I soloed, my instructor was standing right there watching me, and I just did three normal loops around the pattern. Now it’s different; it’s up to me to decide if it’s safe. I have to decide where to go and what to practice, and if something goes wrong, it’s completely on my shoulders. I take it very seriously, and being a safe pilot is my top priority. I love flying, but I love life more. That said, a little well-managed risk is worth the incredible sense of accomplishment and freedom you feel when you lift off by yourself (truly by yourself) for the first time.

I think I’ll go again tomorrow :)

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