Saturday Cup of Joe: a lending and tech(ish) newsletter

Friends & Colleagues,

SCOJ90. A new week in Detroit. We are blessed to have a lot going on. Our friends are expecting a child at any moment and we’re on call. Not only are we excited for the new addition but we’re taking care of their 2-year-old when they rush off to the hospital. Another friend, like a brother to me, had a daughter on Friday. The celebration of new life and family and all the things.

The kid and her best friend attended the Auto Show this week. My daughter checked the Auto Show off her Detroit list before I did.

On the work front, I have several deliverables that all require significant writing over the next 3–4 days. So this week’s Cup of Joe is a good warmup for a weekend of writing. If you are reading this and I owe you a deliverable, fear not, it will be in your inbox on Monday morning.

And so it goes.

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The Detroit Riverfront at sunset.

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This from Ainsley Harris at FastCompany: “Roughly $400 million of the $3.7 billion raised by Initial Coin Offerings (ICOs) has been stolen, Ernst & Young concludes in a new report. We were shocked by the quality of some of the white papers, we see clear coding errors and we see conflicts of interest between the companies issuing tokens and the community of token holders,” one of the report authors told Reuters.”

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One of my favorite podcasts right now is The Moment with Brian Koppelman. He interviewed Seth Godin this week. Seth made a pretty amazing point about how distorted our production has become. Work product has been so watered down by “specs” or by how much it takes to produce that we’ve lost everything that makes a product or service valuable. For instance, I bet you did not know that the original definition of quality is how well a product “meets specifications.”

Somewhere along the line, we’ve adjusted quality to mean our highest and best production. It doesn’t. What’s more, Seth and Brian go on to talk about how the small imperfections and the small ways you interact with a product, work of art or design to make it your own is what makes those things special. That emotional connection cannot be faked. The Japanese call it wabi sabi. Wabi sabi is the belief that beauty can be found in imperfection. I never had a name for it, but for me, I’ve always thought of this concept as “being human.” Even though we’re really talking about human items or things humans interact with, the bottom line is a slight defect or repair or wonkiness is reflected in each of us as much as it is in the things we make. Finding joy in our differences, in our preferences and in our quirks is the whole idea. And now I have a phrase for it — wabi sabi.

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Technology will threaten traditional brokerages and real estate agents. (I don’t have an Inman subscription, but including this link for those who do.)

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Included this week:

· Of Interest — The “new” CFPB

· Power of storytelling — 2 real estate startups in the news

· Valuable Lesson — Discipline of luxury is a good model

· For your consideration — Expected value improves decision-making

· NextBelt — Pittsburgh struggles with Amazon’s Top 20

· Quirky Story — Can brain trauma create genius?

· Today’s Thought & the Quote

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Gratiot Avenue, Detroit, MI, USA.

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Of Interest: The future law school class on the creation and existence of the Consumer Financial Protection Bureau (CFPB) added another bit of required reading this week. Acting Director Mulvaney wrote an internal memo that miraculously found its way to the op-ed pages of The Wall Street Journal. In the memo, Mulvaney paints a picture of a fair Bureau guided by shrewd observation of the entire market. I read it three times and found it hard to believe its simple explanation of how balanced enforcement and rule-making will be. Sir Thomas More and Lady Justice and all that. Mulvaney writes, “The CFPB has a new mission: We will exercise, with humility, and prudence, the almost unparalleled power Congress has bestowed on us to enforce the law faithfully in furtherance of our mandate. But we go no further.” Yet, I can’t deny I’m an idealist at heart. Mulvaney makes a compelling case for responsible regulation. So do you believe him? His prior comments as Congressman make it tough to believe his new found restraint and thoughtfulness. To his point in the memo, giving the Director massive power one day might mean another Director has that same power the next. I guess the question is whether he’ll use that power and influence to the opposite effect.

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Power of storytelling: Two interesting homeownership startups made news this week. OpenDoor and Divvy accepted funding and hit the market, respectively. OpenDoor works on a business model that assumes some people would rather sell their home fast, say in three days, than get the absolute highest price. So in six states including California, Arizona, and North Carolina, OpenDoor will buy your home for approximately 15% below the (otherwise) expected price. When I researched one property on OpenDoor in Scottsdale, a condo listed for $240,000 had been purchased a few weeks earlier for $225,000. In that case, it was only 6%.

Of course, the $240K value is the complete unknown at the time OpenDoor makes the offer. There’s no way to really know what you would have gotten. Though, apparently, it tends to be anywhere from 6% to 15%. But the point is, after the real estate agent’s commission and the time, effort, and energy of getting a house prepped and showing it, 15% isn’t sounding too bad. Other than corporate relocation (which is getting more and more rare as telework, remote work, and general flexibility in transitioning between companies gets more common) it is hard to imagine who the ideal client is for OpenDoor. At the same time, this is not the first example of a model built on the cost of convenience. It will be one to watch.

Another article hit the trade publications focusing on the lower end of the homeownership credit spectrum. Divvy partners with the buyer to select and purchase a home. The buyer/resident lives in the home and pays a monthly payment to Divvy. Part of the monthly payment is directed toward ownership equity in the home. Rent-to-own. The technology platform flows from application through to property management, giving Divvy an interesting definition of end-to-end. One of the founders of Paypal and now CEO at Affirm, Max Levchin, says, “Real estate is an industry plagued by manual processes.” Yup. Sounds about right.

2018 is likely to be a year of new entrants into real estate from sales to applications to property management and more.

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As seen on Instagram @camerajesus @republictavern.

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Valuable Lessons: If a company or product has strong voice and point of view that defines the brand, changing the brand in a challenging time (or a bull market) will only make the fallout worse. For instance, financial institutions who quickly changed their policies & procedures or products to begin selling mortgages that in any other time would be considered “crazy.” Many later regretted it. On the other hand, luxury brands that did not water down their voice or change their plans coming out of the financial crisis experienced additional success. Robb Report remained true to its core values, according to David Arnold, and marks the consistency even when other brands shifted to “affordable luxury” as the difference maker.

The second valuable lesson, for all of us, from luxury brands is the power of remaining “laser focused” on a “small[er] market” to provide the most specific, most customized “things that they care about.” Michael Dickey, the CEO of Modern Luxury, uses the example “what works in Miami does not work in New York or San Francisco.”

The takeaway for those of running companies or teams within companies is that if you are certain of your voice, your brand, then do not compromise — in either direction — or risk the long term integrity of what you built.

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For your consideration: Expected value. Last week I wrote a good bit about value as it relates to actual, substantive value to other people instead of perceived value or value “on paper.” This week, Farnam Street covered decision-making, specifically improving decision-making by weighing expected value of the outcome against the likelihood of the outcome. To simplify it, expected value is spending a Monday night drinking knowing the next day, Tuesday, will be more difficult. The expected value of the experience Monday outweighs the expected cost of Tuesday. Another example is taking a job for the expected income against the time and effort required.

Instead, “leading thinkers and practitioners” from a variety of industries have determined the “same formula: focus not on the frequency of correctness, but on the magnitude of correctness.”

Another benefit of expected value is avoiding the problem of the sunk costs fallacy. “Many of our decisions are based on non-recoverable past investments of time, money or recourses. These investments are irrelevant; we can’t recover them, so we shouldn’t factor them in new decisions.”

Using expected value isn’t the perfect rubric for personal decision-making where little data exists or measurement is impossible. In terms of professional decisions, however, or business decisions, it can become based on data, probability and repeated interactions with other people or companies. That’s where it is possible to make better decisions using expected gain of being right against the expected cost of being wrong. We’re all gonna be wrong sometimes. The idea is to be right in a big way and when we’re wrong, it should be in the smallest way we could manage.

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Millennial minute: According to a new study, 16% of millennials have saved over $100,000 and over 60% “feel financially secure.” This according to TheOnion.com. Only kidding. This is not to say the entire survey reflected positive sentiment around economic issues. The top stressors for millennials include not saving enough (the other 35%), career planning (24%), not being able to afford a home (20%) and student loans (17%).

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Next Belt: Somewhat interesting story coming out of Pittsburgh surrounding their Amazon HQ2 proposal. City officials sought to keep the contents a secret, either to protect the information in the hopes of an advantage in the second round or because it was impossible to determine the reaction among the city’s taxpayers. Either way, a court found the information and email communications open for release. If anything, it will only make the second round even more competitive for those cities who remain. Pittsburgh is up against some rich incentive packages, including Northern New Jersey’s $7B package and Chicago’s tax and real estate offerings, which have the potential to exceed $100B. Certainly if it’s all about the money, Pittsburgh has an uphill battle that isn’t made easier by sparking local debate about the first proposal.

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Quirky story: Ever since the kid in Rookie of the Year slipped on a ball in his backyard and “tightened” something in his arm making him an immediate, professional pitcher for the Chicago Cubs, I have wondered whether rare injuries can actually improve someone’s ability. The BBC caught my attention along the same lines with an article titled “The Mystery of Why Some People Become Sudden Geniuses.” The article chronicles several recorded examples of men with head injuries who went on to exhibit intense creativity, inventiveness, and ideas.

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Today’s Thought: Those of you that know me, know that I’m a Philadelphia Eagles fan and that my parents are New England Patriots fans. Generally that’s not a problem. Easy to have a favorite team and kinda root for another team in another conference. And yet, the two times the Eagles have reached the Super Bowl in my lifetime, it has been against the Pats. Go figure. Even though I’m rooting my heart out for the Birds next weekend in Super Bowl LII. (Fly Eagles Fly!)

That said, when I watched Tom Brady’s new Facebook video series called Tom versus Time, I couldn’t help but admire his perspective and respect his approach. A true champion. Perhaps the most poignant (or true) part was his admission of what sacrifices it takes to be truly great. Worth the 10–12 minutes or so, but if that’s too long, the first six minutes are prime.

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Quote: “Tell me to what you pay attention and I will tell you who you are.” — Jose Ortega y Gasset

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Dessert Oasis Coffee Roasters, Capital Park, Detroit, MI, USA.

Bonus Content: Self-control might not be a measure of someone’s willpower. Turns out, it might be a misunderstanding of how some people are tempted where others are not. We perceive these people to have more self-control because they can resist fresh-baked cookies or make themselves exercise when in reality, they simply don’t like cookies as much and exercising comes naturally to them. Check out this article for more.

Continued success,

Written by

Thinker, curious leader, once an attorney…always trying to answer well.

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