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 BLOG >> April 2021

Pruning Decisions [Decision Making
Posted on April 30, 2021 @ 04:55:00 AM by Paul Meagher

In today's blog I want to discuss some similarities between pruning decisions and business decisions, specifically, the distinction between primary and secondary decisions.

The usefulness of the distinction between primary and secondary decisions recently came into view for me when I was pruning some grape vines in a small vineyard I own. When you are pruning grape vines you need to first decide what primary cuts to make. When you are using a cane pruning approach, these are the cuts that reduce the complexity of last year's growth down to two new canes and often some central spurs for next year's canes. Once you make these primary cuts there are alot of secondary cuts that don't have to be made because they are no longer options (the canes were removed). The secondary cuts are those that reduce the overall length of the remaining canes and remove debris from these canes (i.e., tendrils, side branches, skeletons from grape clusters that were not harvested). Once your are done making your primary and secondary cuts, you can wrap your canes to the lowest trellis wire. Here is a video illustrating how I made the primary cuts on a couple of grape vines.

What you will often see in novice pruners is that they will focus on making secondary cuts (removing tendrils, shortening canes) and when they eventually make some primary cuts they may end up cutting out the canes they worked on. This is wasted time and effort. In my imagined instruction manual for novices I would emphasize that some cuts are more important than others and your first cuts are the most important ones. I would call these the primary cuts. Once you make these cuts, then you can focus on making any remaining secondary cuts that are required to finalize the form of the vine.

In business decision making, we may start up a company within a framework of primary decisions which constrain how we go about the day to day secondary decision making involved in running that business. We make primary decisions with some ideas about what we expect to happen and if we find that things are not turning out as planned, we may need to make some new primary decisions about which lines of business to pursue and which ones to drop.

It is easy to get complacent and run a business without questioning the primary decisions that framed how the business would conduct itself. We can easily lose site of the fact that our decisions are mostly secondary decisions within the path we have chosen. If we were to engage in primary decision making again, we might focus on pursuing other paths and the secondary decisions that we previously regarded as important may become irrelevant and time sucking.

When a novice initially tries to prune a vine they may be overwhelmed by the complexity of branching from last years growth. The distinction between primary and secondary cuts is useful in drawing their attention to the fact that certain cuts need to be made first (primary cuts) and once made, determine the other cuts that should be made (secondary cuts). When confronted with the complexity of starting or expanding a business, certain decisions will be primary decisions to reduce the options to a manageable number, and secondary decisions you make with respect to these remaining options. We may have expectations about how things will pan out, however, because we haven't engaged in alot of the secondary decision making as it confronts reality, we may end up learning that one or more of our primary decisions was unsound and that we should reexamine our primary decisions. This shift back to revising primary decisions is usually referred to as "pivoting" in the business literature.

One of the most difficult primary decisions I had to make was to remove 7 rows of vines that I mistakenly planted on my absentee neighbors property. After failing to secure an agreement with the owner for the upcoming season, I decided to remove them rather than dedicate all the time and effort required to maintain them for another season. I couldn't see myself spending all that time and effort working on something that I no longer had clear ownership off. I learned the hard way the value of precisely mapping your property boundaries. After I removed the grape vine rows, I made another primary decision to purchase land that had 14 acres of wild blueberries growing on them which are easier and less costly to manage and very productive. I would have never made this decision if I didn't make this mistake and was lucky to be able convert lemons into lemonade. The way I recovered from a bad primary decision was to make another primary decision to focus on growing a different type of berry that I could use for wine making.

Managing a vineyard takes a significant amount of time and money. When you are exerting all that effort and money year over year for very little benefit you have to wonder whether you are making a good primary decision. What motivates the primary decision to maintain a vineyard for me is not just the production of grapes, but the fact that people who will eventually be coming to the farm to sample our wine will have the visual of a vineyard and the option to sample some wine made from those grapes. Also, if a vineyard is not too big, it can be a good excuse to be active outside and engaged in a productive activity that you can get better at. In these times of covid, it takes my mind off the world and is good for my mental and physical health. Good business decisions are not just about making more money, they must also balance other factors that are important to your overall context.

So how do we make good business decisions? In this blog, I have argued that it is first necessary to distinguish between two types of decisions you need to make, primary and secondary decisions. Making good primary and secondary decisions are necessary to achieving success, but they involve different constraints. Primary decisions take into account your wholistic context where secondary decisions are more about making good decisions within the context of your primary decisions. Most business decisions involve making secondary decisions within the context of primary decisions already made. Sometimes we need to step back and realize that the decisions we are struggling with today could become irrelevent and timewasting if we revisited the primary decisions that justified this allocation of secondary decision making effort.

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Real Estate Limited Partnerships [Real Estate
Posted on April 26, 2021 @ 04:34:00 AM by Paul Meagher

There are different names for Real Estate Limited Partnerships (RELP). It might also be called Real Estate Joint Ventures or Land Development Partnerships. There are probably other terms.

I am using the term Real Estate Limited Partnership because it better highlights the legal structure of the company as a limited partnership.

In general, a limited partnership is formed based on two main types of partnership agreements:

  1. An agreement where all partners are general partners and have similar rights, obligations and liabilities.
  2. An agreement where there are two classes of partners:
    1. One or more general partners
    2. Limited partners who mostly help fund the venture, are not involved in day to day operations, and have limited liability in the event that the losses of the company exceeds their investment.

Most of the time, when investment articles discuss real estate limited partnerships they are referring to the second arrangement which is is used to fund larger real estate projects or a portfolio of real estate projects. An arrangement where all the partners are general partners is also an option for real estate investing and I would argue should also be mentioned when discussing options for how a real estate limited partnership might be structured, especially for smaller scale real estate projects.

One of the main reasons to create a real estate limited partnership as an investment vehicle, versus incorporating, is because it can be easier to flow income and losses directly to the partners. A corporate structure may reduce revenue distribution because income is taxed at the corporate level before it is distributed to the partners (i.e., double taxation). A corporate structure also makes it difficult to claim the losses associated with the real estate development in your personal income tax filings, where a limited partnership generally allows losses to "flow through" to the partners to offset personal income taxes.

A drawback to using a limited partnership versus incorporation for real estate development is that you may be exposed to more liability if something goes wrong. When setting up a Real Estate Limited Partnership as an investment fund, they can be structured so that the general partner is a corporation that is involved in financing and managing a portfolio real estate projects while the limited partners enjoy limited liability while investing in a diversified portfolio of real estate investments.

Real Estate Limited Partnerships may sound complicated, but in my own case, me and my wife both invested in and own a secondary farm property that could be viewed as a form of real estate limited partnership involving two general partners. We have invested over the years to getting the farm setup to make money and have been able to claim these development losses on our personal income taxes. This is because the losses from our partnership "flow through" to the partners. The farm as an entity is not taxed like it would be if the farm was an incorporated entity. Where farms chose to use a limited partnership structure, it is common for the owners to be general partners. Some farms may chose to incorporate to limit liability and to limit taxation of income to corporate levels if the farm is making a good income.

There is much more that could be said on this topic, but the point of this blog was to raise awareness on three topics:

  1. There are different ways to setup a real estate investment vehicle. A limited partnership structure may have certain advantages from the point of view of claiming losses during development and income distribution when you start earning income. Being able to claim losses associated with development lowers the break even point for your investment. To get back your money, you don't need to get back the initial amount you put into it if the losses you can claim offset income taxes you might otherwise have to pay in.
  2. An important consideration in private investing is the extent to which income and losses "flow through" to the investor. A limited partnership often allows income and losses to "flow through" to investors where this is less direct or impossible for an incorporated company.
  3. If you own some land that you want developed, a real estate limited partnership is one way you might want to structure the investment vehicle. For example, your stake might be the value of the land you currently own, to be matched by an equivalent amount from one or more investors who supply the amount of capital required to develop the project to the point of a liquidity event - the sale of the real estate or the initiation of income streams from the development.

I am not an expert on these topics so I would advise you to research these topics on your own and form your own opinions. I do think it is worth the effort to research further because it is easy to assume that incorporation is always the way to go when there are also some advantages to limited partnership structures depending on your situation.

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Permaculture Property Summit [Agriculture
Posted on April 23, 2021 @ 10:44:00 AM by Paul Meagher

I am quite interested in a free online event that started today and which will be taking place over the weekend.

The event is a virtual summit on the multi-faceted topic of Building Your Permaculture Property that is being held to promote the launch of a similarly named book by Rob Avis, Michelle Avis and Takota Coen.

Rob and Michelle Avis were trained as engineers. They operate a consulting company called Verge Permaculture. I'm a fan of the content they publish on their Youtube channel where this virtual summit is being hosted as a live Youtube event. It is bringing together alot of interesting speakers and leaders in Permaculture.

You can find more information about the speakers here:

https://vergepermaculture.ca/building-your-permaculture-property-summit

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The Value Of Frustration [Entrepreneurship
Posted on April 16, 2021 @ 09:51:00 AM by Paul Meagher

Last night I upgraded webserver software that hosts these sites and encountered some upgrade issues that caused my email systems not to work for awhile. The websites were up but it took about 6 hrs to resolve the email issues. Quite frustrating but I did manage to learn a few things that I figured I would share.

1) If you upgrade webserver software and run into a problem getting it working again, there is a good chance that some new security feature of the software is the cause.

2) One piece of the email system software that was upgraded failed because the keys used for authentication were too short. A config file setting for the software allowed you to specify the number of bits to use for the cryptographic keys. The number of bits was too small so I had to increase the number of bits to use to a higher recommended number. I also had to generate new keys using new crypto algorithms that the upgraded software provided. Once I did this, the email system software would now startup because the new cryptographic security requirements were met.

3) Another piece of the email system software that was upgraded failed because you have to sanitize user emails in a new way in the "router" module before you can hand the email data to the "transport" module. The old way I was doing things involved sending "tainted" data to the transport module. So I had to rewrite the "routers" section of the config file so it "untainted" the email data before handing it off to the "transports". The transport configs had to be revised as well to use new untainted variable names.

My objective when I upgraded the webserver last night was to simply run newer versions of the software using existing configs. I believed that simply upgrading the software would lead to upgrading the security because I would be running newer versions of the software. Newer versions of the software often address security vulnerabilities in the older versions. In the case of upgrading webserver software, however, the old settings you currently have may not be compatible with the way developers and maintainers of the newer version of the software want it to run so you may have to dig back into your config files and change some settings and perhaps generate more secure keys to actually upgrade the security aspect of the software.

If you can endure frustration for a few hours and solve your problems, you will often come out the other end with some new and useful ideas you didn't know before. When you are banging away on a problem at 2:30 am in the morning, you are often not thinking about the value of frustration, although sometimes I do in fact remind myself of the learning value of frustration and it does help to calm your nerves and keep you working productively on the problem. What I took away from my frustration was that we all talk about the need for increased cybersecurity but what does that mean? Well three things it means is using better cryptographic algorithms in your software, making sure to properly sanitize (or "untaint") all data coming into your programs before you use them, and anticipating that when I upgrade software in the future that some old configs might conflict with a more secure way that the newest version of the software wants to run. My frustration has given me a new appreciation for cybersecurity and a desire to keep more up to date on certain aspects of it.

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