The simplest and most effective way to upsell customers is by establishing a relationship. When people make decisions, they usually do so after consulting friends and family. There are numerous psychological and evolutionary reasons that I don’t have the time to get into with this post, but let’s look at a few anecdotal examples. When people choose a college to apply to, it’s usually done with the input of family, intimate friends and a guidance counselor. When a woman at a bar is approached by a man, within a few minutes she’ll instinctively signal for her friend’s approval with her body language. If her friends don’t approve, they’ll give “the raised eyebrow look” or simply turn their back to the man and give him negative body language. Our need to ask for approval and consultation when making choices is done both consciously and subconsciously. The decisions we make are naturally biased to include the opinions of our peer group.

So if you really want to grow your business, if you want word-of-mouth buzz, increased conversions and customer loyalty, you need to work on developing more than just a customer/client relationship. To do so entails changing the way we think about our clients.

To change our relationship with our clients, we have to stop thinking about them as potential leads. Instead, we should think about how we can best benefit them without the need to get paid back. If the focus is on getting fair compensation for value that we give, then inherently the value of the transaction is degraded. If instead the focus is on giving as much to our clients as we can, they’ll then in turn value the relationship with us that much more.

They’re are numerous ways to give value to our clients, but the best way to do so is for FREE. What? Don’t people devalue things that are free? Not necessarily. If what we give away is of little value, for example a corporate sponsored water bottle at a marathon, then we associate little to no value with the transaction or the other party. If however, we give something meaningful, something above and beyond what people normally associate with “free”, then we’ll get a whole lot of customer loyalty. People will talk about how they got a “great deal” or know “this guy” that gives them special treatment.

Have you ever read Alice Schroeder’s “The Snowball: Warren Buffett and the Business of Life?” It’s a fantastic biography and I highly recommend it. There’s one passage in the book that I found quite salient to this topic. Every year, the little known investment bank (at least for non-financial people) Allen & Co. hosts a media conference at Sun Valley. The most highly regarded media and tech CEO’s, the Steve Jobs, Bill Gates, and Warren Buffetts of the world always attend. They might shun media conferences from bigger and more well known investment banks like J.P Morgan, but they almost always go to Allen & Co. The two main reasons they go is because a.) everybody who’s a bigwig goes and b.) the deeply personal relationship that Herb Allen’s, the CEO of Allen & Co., has built with them.

How can one guy build a relationship with the top industry leaders, including diehart competitors, across numerous sectors? Free surf n turf, babysitters and exclusive schwag like Allen & Co. Golf Polos. Most of that stuff costs Allen & Co. pennys. But the effect is powerful. The kids of the CEO’s always want to come back every year. And Warren Buffett, one of the richest men on earth, admitted that he relishes putting on the Allen & Co. polos.

So make a list of what you can give to your customers right now, that would cost them nothing to receive. Make it big. A couple of helpful hints on your blog, or a free newsletter is just the tip of the iceberg. Do you have a book, a video or some other form of content that you can give away for free? How about a sample version of something you’re selling? If your business is offline, make sure to include hand written thank you note. Sooner or later, you’ll repeat the rewards. It may not be in the form of direct income. It may be through word or mouth or new relationships which are often more valuable than money.

“Wall street people learn nothing and forget everything.” – Benjamin Graham

Let’s pretend that you’re the owner and general manager of a major league baseball team. Here’s the rules. If you’re in your twenties, then you have 40 to 50 years to run the team and try to win a world championship. A world championship is defined as saving and investing enough so that you can retire happily without worrying about your money running out. If you’re not in your twenties, then subtract your age from 65 and that’s how many years you have to win.

As a general manager, you have two to ways to fill out your roster.

1. Pick all the best players yourself.
2. Higher a VP of Scouting who does the work for you. There’s two very different types of VPs on the market.
   • Jim Kramer: A high powered baseball guru. Although he’s very expensive, he comes highly recommended and promises results. If not he’ll throw chairs around.
   • The Baseball Tron 5000: A simple computer program.  The Baseball Tron 5000 doesn’t take into consideration a particular player’s strengths or weaknesses. Instead, it issues a contract with every player available and pays them all a small retainer to be on your team. However, because your team will be so large most of them can only play a few games for you. In that sense no single player will have a huge impact on your overall performance. The program is very inexpensive compared to Jim Kramer.

Let’s say you picked the “Do It Yourself” approach. I’m going to be honest with you, this is a dumb choice. First of all, you don’t know anything about baseball. You don’t know what an ERA or what an RBI means. When you make a trade for another player, you’re probably going to get screwed by more knowledgeable managers. All you know about baseball is that after watching a few games, it’s exciting to see somebody step up to the plate and crack a homerun.

So you know you need a homerun hitter. But he needs to last 40 years.  Ideally, you’d like him to hit 60 home runs every year but you know that would be impossible. In some seasons he might be so bad that you want to fire him. If he does, you’ll have lost a huge amount of your capital. That’s a lot of risk to take on a single player.

“What the hell,” you say to yourself. You’re young and you have to be aggressive. You subscribe to Baseball America, which has identified 10 players who did really well last year. You decide to make a substantial investment, 20% of your capital in a couple of these hotshots. It’s risky, but they come highly recommended! The next year, your guys start off good but fall into a slump. Now you have a problem. You’re debating whether or not if you should trade them and take the loss or wait and hope they improve. As you’re debating this, a new copy of Baseball America arrives. It’s touting 10 completely new “Must Own” players. They’re gonna kill it!

In investing, picking a single stock or even a couple of stocks that you think will kill it is like trying to identify a top slugger. There are many great players who do better than expected, but do you really trust YOUR ability to pick the best players when most professionals GM’s can’t do it? You might get lucky and find a Cal Ripken who returns above average results for a long time. But for every unidentified consistent winner, there’s a Sammy Sosa, an overpriced stock everybody loves in the short term. In the long run, these stocks probably won’t be giving you above average returns every year. They’ll return to the mean unless their really special. But even if they are special, you won’t know when they’ll slump or when they’re about to take off, so any investment that depends on when you buy/sell rather than buy/hold will depend on a healthy does of luck.

After learning more about baseball, you realize that it’s a bad idea to concentrate your capital into only a few players. Instead, you realize you need infielders, outfielders, and pitchers. Most people never learn the lesson you just learned. They try to find as much offensive one hit wonders as possible and forget about defense. They load they’re portolio with 5-10 stocks and think they’re “diversified.”

You carefully avoid that trap by filling out 10% of your roster with pitchers who do well when hitters struggle. For a small price, bonds will offset your risk to equities. This is the basic meaning of “hedging,” before hedge funds made the word a catchall for exotic investing.

You can also diversify your offensive. You not only buy U.S players, but also players from China, Costa Rica, Japan and Europe. In investing, this means having pieces of small, medium, and large companies which are both domestic and international. The key takeaway is that after you are diversified, if one sector goes down, it doesn’t drag your entire portfolio with it.

Let’s forget about picking our own players and go back to the second option. You hire a VP of Scouting. The way the VP of scouting does his job is by buying you small shares of every single player available so that you can create a farm system. No single player will have a great impact on your team, but if they all do well, you win. Statistically speaking players get better with time. You can get all these players through a Jim Kramer, who actively manages finding new players, or through the Baseball Tron 5000.

Out of your two VP’s who does a better after 40 years? Is it Jim Kramer, the bald but brilliant, chair throwing, temper tantrum guru? Or is it the silent and emotionless Baseball Tron 5000?

As it turns out, the Baseball Tron 5000 is the winner. That shouldn’t really surprise you if you’ve learned your lesson from trying to pick your own players. The Jim Kramers of the world, the actively managed mutual funds, have numerous fees and expenses that will cut into your profits. Because of these fees, almost all of them fail to beat the market. It would require somebody with an extraordinary amount of skill and information to succeed. Secondly, even though a few of these guys exist, (e.x. Peter Lynch, Warren Buffett) LIKE STOCKS, YOU WILL NOT BE ABLE TO IDENTIFY TOP MANAGERS UNTIL AFTER THEY HAVE SUCCEEDED.

On the other hand, the Baseball Tron 5000 is both cheap and effective. What it lacks in marketing it makes up for in performance. Since we know that as a whole, stocks do better over time than other investments, we know we need to be in the market. But we want to reduce our exposure to egregious fees and unnecessary risks. The best way to do this is by buying the entire market. Passively managed index funds do this for a very cheap price.

Vanguard and Fidelity are two of the most trusted name in the industry as far as passively managed no load funds go. Vanguard’s fees are usually around 0.19%. Fidelity’s Spartan Funds, are even cheaper with a 0.10% fee. They have no other fees or restrictions. Compare these prices to an actively managed fund’s fees of 2.0%. Over time and through the power of compound interest, that’s a HUGE difference. It could mean that you lose nearly 50% of your gains over time if you pick an active fund over a passive fund.

If you want something that you basically “set and forget,” take the time to look into a lifecycle fund. These funds work the same way as an index fund, except that they change their mix of stocks and bonds on their own as you age. If you want diversification and proper asset allocation (which you do!), these funds do it by themselves, although they aren’t perfect.

For example, be wary of the overpriced lifecycle funds that have fees around 0.70% which will cost you quite a bit of money in the long run. Also, make sure that whatever fund you do buy doesn’t concentrate all in one type of sector. There’s so many exotic sector index funds that it basically beats the purpose of indexing if you buy into them. Like any investment, these funds are not guaranteed. They just have less risk and upkeep compared to other ways to investing in the market.

Before you go dumping your 401(k) into one of these funds, make sure that the retirement date matches up to your age. If you’re fifty-five DO NOT buy into a target retirement fund set for 2050. You don’t want to see your entire savings reduced by 40% in one year if you’re just about to retire.

Also, don’t just plunk all your money down at once. That’s like spending all your capital to lock down contracts for every player in one season. It would be much smarter to have capital on hand so that you can renegotiate contracts the next season when prices change. In investing, you do this via dollar cost averaging to deal with the tyranny of the market.

Checkout the 22 year chart below for why you should dollar cost average into the market. It also shows the results between two of the more popular and “successful” actively managed mutual funds versus the Vanguard total market 500.

Here’s the main takeaway from this chart. You’re just gambling if you try to time the market rather than dollar cost average. The past won’t predict the future so the best way to invest is to do it a little bit at a time, over a long period of time.

Extra Credit Reading:

Bloomberg Story: Magellan Shows Peril of Active-Managed Stock Funds as Fees Bite

Wikipedia: John Bogle

A Random Walk Down Wall Street

• Taxi: $20
• Dinner w/ Friends: $40
• 3-5 Drinks: $30
• Avg. Cover  Charge: $10

I’d say if I added in all the nights when I just had two drinks at the bar and all the nights when I decided to see if I could a fire by swiping my Amex fast enough, I’d come out with the above figures as an even distribution of my going out costs per night. Now it’s no secret that attractive women usually do better in this area of life than men. Here’s their costs for going out.

• Taxi $0 (Male Friends Pays)
• Dinner w/ Friends $40
• 3 – 5 Drinks $0 (Somewhat Creepy Male Admirer Pays)
• Avg. Cover Charge $0

I do concede that women usually bear more cost in the discomfort of their heels. But still, when it comes to your cold hard cash, you have to know how to spend it wisely. Here’s a game I learned from some friends. I used it for about a month to scam errrr “win” free drinks. I’ve had several women tell me that “I’ve never bought drinks for a guy before.” Haha Suckah! Although I also had several girls who wouldn’t keep their end of the bet. In that case, be a gentlemen a politely excuse yourself to go talk to their much cuter friend.

If you google “e-commerce websites” you’ll find somewhere between 1,000 – 10,000 different options. This can be so daunting that it often leads to the paradox of choice – you don’t do anything. Instead you end up hitting the back button to Hulu so you can watch the Daily Show. Fun, but not productive.

When I first started my e-commerce business, I decided that I wanted a fully customized shopping cart so that I could cut down on lost conversions. I first tried to get two different developers to implement everything I wanted. This ended in missed deadlines and mixed results. I thought that by customizing the process, I could get everything I wanted. Instead, I ended up feeling like my customized solution was trash.

Then I spent a couple of days researching what platform fit my needs the best and I came up with a solution. It doesn’t do everything I want. It does about 85% of the stuff I need it to do. And since I’m relatively lazy, 85% is more than satisfactory.

I’d wager that for 90%(1) of the people looking to start an internet business, an all in one solution is best. What I mean is that you’d want to get your domain name registration, website hosting, merchant account, secure and customizable shopping cart, ability to take visa/amex/mc/paypal, 24/7 support, anti-hacker trust logos, etc…. from the same company. It’s a lot less stress and that way you don’t worry about what you didn’t do, since they give you a package that takes care of everything right out of the box.

Out of all the options on the market, I think Yahoo Small Business is the way to go. They provide all those basic but necessary services at $40 bucks a month + 1.5% transaction cost on the revenue of each sale. Now if you were doing $100K+ in sales a month, then 1.5% is HUGE! You’d be better off diversifying your needs and saving more money in the long run. But for most people, it’s worth it. My first internet business in high school was run through Yahoo’s platform. They’ve since made numerous upgrades and additions, and I think they’re the clear choice if you don’t want to spend a week figuring out what merchants accounts, SSL Security Sockets, and all that other E-commerce stuff means. It takes about 30 minutes to setup an account. In a few days you’ll get all your how-to guides in the main and it’s really easy to integrate their shopping cart onto your webpage.

While the 1.5% transaction cost is fine for most small businesses, for me, it’s a deal breaker. So instead I have my own merchant account and payment gateway and opt to use a shopping cart platform. After looking at the choices on the market and testing a few out, I now exclusively use 1shoppingcart.com, which is owned by Web.com so it’s pretty damn secure. I choose them because I needed to do recurring billing along with mailing list management. They run about $30 a month with ZERO transaction fees.

The cart is very easy to integrate into your existing webpage (just copy past one line of code and tweak the shopping cart to match your page). Plus, I like that their shopping cart is simple and straightforward, a necessity if you want to ensure that people actually checkout instead of abandoning orders in the cart. Most sales are lost because of a complex cart (actually somewhere around 30%-50%) because they that require customers to give out way too much information. That’s a gigantic loss of revenue that can be mitigated through having a streamlined shopping cart so that consumers have less anxiety when checking out.

Based on my personal experience, I think you should avoid having a customized cart designed. For one, there’s no technical support when your cart goes down. The designer’s done as far as he’s concerned, unless you want to pay an expensive retainer. Oh yeah, don’t forget the cost ($350-$2,000)+ a year for high quality SSL security in additional to the development fees. You also have to trust in the reliability of your designer, somebody you’ve never met…

You should also avoid free shopping carts/platforms like the plague. The two most prominent are Zencart and OScommerce. Although they can work for some merchants, a huge downside is their lack of technical support. If you need help you’ll have to visit their forums and subject yourself to tbe mercy of nerds. I hate doing that. ZenCart & OSCommerce are usually easy to setup, but forget about doing ANY customization. The checkout process usually has numerous pages and forms to fill, leading to huge abandonment issues. In my experience, I was losing 50% of my sales through abandonment in the cart issues running Zencart. Pay the extra money and get a real e-commerce package.

Lastly, you can also try Google Checkout, Paypal’s checkout and other 3rd party that’ll use their merchant accounts for you, but I don’t totally recommend them. What I love is that they’re secure, easy to setup, and inspire confidence in the security of the transaction by their brand. But that’s where the love ends. First of all, I hate interrupting the customer experience and increasing friction to buy by redirecting somebody off my website. Consciously or unconsciously, the potential customer will think your business is untrustworthy and your conversion rate will go down. I would hate for that to happen to you. Unless you were my competitor. A third party payment processor can create unnecessary customer anxiety and abandonment of sales. They also have higher transaction fees (3-5%) to justify the fact that they are servicing your account for you. The only reason you might want to use them is if your credit is so bad that you can’t get your own merchant account, or if you’ve been blacklisted from getting a merchant account. But at that point, perhaps you should work on your personal financial situation before starting a business.

(1) Based on intuition and absolutely no scientific evidence.