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Seth Godin on Tribes: Part I

tribes Seth Godin joined us on The Bigg Success Show today for the first of a three-part series to discuss his fantastic new book, Tribes. Seth is well-known to most of us, but here are some of the details: He is known as the most popular business blogger on the web. He also has written 10 best-selling books, including three of our favorites: Permission Marketing, Purple Cow, and The Dip. Here’s a recap of the first part of our conversation:

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marylynnI have to tell you, Seth, that your book The Dip was very influential in my decision to leave radio to build my own brand. You talked about how the industry forgot they were in the relationship business, not just the radio business. That really helped take me over the top and I said, “Yes, I’m going to start Bigg Success!”

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seth_godinI’m so glad to hear that and Tribes is going to help you even more because I talk a lot about the difference between having faith in a vision, faith in the future, or faith in the content about what you do and abandoning the rules or the religion of the status quo.

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What is a tribe?

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georgeWe love this book, Seth. We see some of the themes from your previous books and you pull it all together, which is fantastic. Why don’t you start by telling us what a “tribe” is?

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seth_godinA tribe is a group of people that are connected by a common goal, a common language, and common rituals. Usually they have a leader and a movement – they’re trying to make something happen. A tribe is very different than a crowd. A crowd is just a bunch of people. A crowd is people coming to your Grand Opening Sale, people clicking through to your web site, or people looking at your ads on TV. Marketers love crowds, but they have to earn a tribe, which is a totally different thing.

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marylynn
Because a tribe interacts with each other and that’s what starts creating the movement.

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seth_godinThat’s exactly right. Tribes are always bigger than the leader himself. We can look at some famous ones, like Gandhi or Martin Luther King, Jr. Clearly it was the movement and the tribe that made the difference, not the person at the front of the room. We see tribes in everything from marathon runners or triathletes all the way to the Red Hat Ladies, the fifty- or sixty-year old women you’ll see around the world at cafes or the women who have now taken up roller derby and do it in the evenings instead of watching TV.

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Engagement comes from quality, not quantity

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georgeOne of the things in your new book goes back to the crowd theme. It’s the quality, not the quantity, that matters.

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seth_godinExactly. What we’re seeing is there’s a guy named Gary Vaynerchuk, who has his own TV show about wine. Gary has a tribe. It’s only a couple of hundred thousand strong, so it’s tiny compared to what any TV network would want. But Gary has benefited enormously, both in terms of revenue and public appearances but also in terms of his impact on society and the people he wants to reach. It’s far more effective than if he had a spot on The Today Show.

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marylynnIn your book, you point out something about Gary that I thought was very interesting. What he does is narrate his tribe’s passion. He doesn’t push it on them; he just leads the passion.

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seth_godinThat’s right. Almost every tribe was there before you got there to lead it. Almost all the things that human beings want to do, they’ve already figured out. What they’ve been waiting for is someone to connect them and give them a voice. My friend, Jacqueline Novogratz, runs the Acumen Fund, a very important philanthropic venture out of New York. She has trouble finding people who all along believed there was a better solution to the developing world. Once she finds them, all she has to do is point them in the right direction and they’re eager to get on board. It’s not about persuading the undecided; it’s about connecting the committed.

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Seth is also the founder of Squidoo, where you can find a special page about Tribes.

Next time, we’ll continue our conversation with Seth. We’ll learn what pushed Seth to become a tribe leader. He’ll also tell us about the power of one. Until then, here’s to your bigg success!

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Seth Godin on Tribes: Part 2

Seth Godin on Tribes: Part 3

Are You Throwing Money Away by Owning Your Home?

toss_moneyWe all know that the three essentials for living are food, clothing, and shelter. We definitely rent our food. Do we rent or own our clothing? Hmmm.

Part of the American dream is to own your own home. And there are good reasons to do so. For instance, a Federal Reserve study[pdf] shows that the average family that owns a home has a net worth of nearly $625,000 while families who rent have a net worth of just a little over $54,000.

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Homeowners on the move

We’ve seen an interesting statistic bantered about, but we haven’t been able to pin down a reliable source. If this statistic is true, American homeowners move once every five years or so, on average.

So we thought we’d consider what that does to the buy vs. rent equation. We’ll use some averages and national statistics to create an example. However, what really matters is your own situation and your local real estate market. Only you, working with your financial advisors, can determine what’s in your best interest.

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marylynn When I was younger, one of my bosses in radio told me that I was just throwing away money by renting. I remember thinking that it made sense. I’d reached an age where maybe I should consider buying. So I did. As often happens in the radio business, less than a year later, I lost my gig. So I had to sell my house to move to a different market. I lost a lot of money by buying. If only I had had a crystal ball!

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Putting buy vs. rent to the test

We created a fictional purchase to see if we would be better off renting or owning a house for five years. We assumed that:

  • We put 20% down (approximately $63,000).
  • We financed the rest with a 30-year mortgage
  • The interest rate would be 6.50%, slightly above the current rate.
  • Our house would appreciate 4% per year, slightly below the recent average.
  • Property taxes would cost us 1% of the value of the home.
  • Insurance would run 0.50% of the value of the home. (Renters and homeowners have to insure the contents. We have the added burden of insuring the building.)
  • Repairs & maintenance would consume 1.50% of the value of the home.

Over the first five years, 83% of our total mortgage payments would go for interest. In other words, for the most part, we’ve traded renting property for renting money. If the interest rate is higher, the portion that would go to interest would also be higher. Of course, the reverse is also true.

During this period, we would pay $2,171 per month as “rental costs” for our home. We call them rental costs because they have no value once they’re paid. They only allow us to keep owning. So if we could rent a similar property for less than this, we would be better off renting instead of buying.

Of course, if we had made a down payment of less than $63,000, our cost would go up because we would be paying even more interest.

Where’s the break-even?

We also looked at how it would take before we would break-even. After all, it costs money to sell a house. We would have to pay commissions to our realtor, closing costs, and the like. We assumed these costs would total 8% of the selling price.

Given our assumptions, we looked at what would happen if we sold after one year. Our house would now be worth $326,560. From that, we would pay $26,125 in selling costs. After a year, our mortgage balance would be $248,392.

So we would be able to take out $52,043 in cash. But remember, we invested $63,000. So we lose about $11,000 if we sell after one year.

But that’s not the whole story …

We haven’t yet considered the opportunity cost of tying up that $63,000 in a house. Because if we didn’t invest it in this house, we could have invested in something else. We assumed we could have earned 6% by investing in some portfolio of financial assets.

That would have returned nearly $3,800. So by buying this house and selling it in a year, we would put ourselves in the hole nearly $15,000.

Even after 2 years, we’d still be about $3,500 behind, given our assumptions. Of course, one of those assumptions is that real estate prices are rising. It’s almost certain they will in the long run, but will they rise in the next year or two? They may not in some markets.

What’s the bottom-line?

We concluded that if we didn’t plan to own a house for at least two years, we’d rather rent. We also saw that the longer our holding period, the better we would do. For instance, in the last five years of the mortgage, only 15% of the mortgage payment would go to interest. It seems like buy-and-hold is rewarded in real estate investing.

How to get around it …

We have two friends who have been able to get around the short-term ownership problem. One of them is in the military, so he moves frequently. He only buys a house that he knows would make a good rental property. If he gets transferred, he hires a local property manager and rents it out. Until he decides where he wants to retire, he plans to hold a number of his houses.

Another friend doubled-down on this strategy. He moved quite frequently as he climbed the corporate ladder. Not only does he own houses in a number of cities, he bought additional rental properties, so he has a diversified portfolio across a number of cities. Now he’s retired living off the rents!

So you can get around the disadvantages of short-term ownership by having an alternative exit strategy!

Next time, we’ll discuss how a toy that you probably played with as a kid can help you manage your time. Until then, here’s to your bigg success!

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(Image by tychay, CC 2.0)