Little Known Secret

June25

I’m not sure many people know this, but when someone leaves the USA to travel abroad the US government issues them a water bottle, preferably in Nalgene format, and a fleece, preferably in North Face format. It seems to be our national uniform.

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Crazy Toothpaste – Hong Kong

June10

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I found this in Hong Kong and this is both hilarious and possibly the most racist toothpaste I’ever seen :)! If I remember high school history class correctly this brand was started after WW2 by the Japanese I think.

I can’t wait to try it out, especially since it includes “spring water from france”, which I have to say is my favorite type of spring water. Although I have no idea why it is in my toothpaste. I am pretty sure that “Hydro Fresh Gel” is going to clean my teeth just fine. And hopefully it doesn’t melt them.

Update:
Turns out I’m incorrect, it was first started in China and used to be called Darkie. You can’t make this up. Even crazier their campaign in China still uses the slogan “Black Person Toothpaste is still Black Person Toothpaste” when translated from the Chinese. Read the rest of this crazy story here.

Gross Margin, Operating Margin, and COGS for The Web Hosting Industry

June9

I am slowly trying to learn basic financial terms and it is frustrating as people define financial terms with other financial terms. It’s a total catch 22 where in order to learn one term you have to learn ten more finance terms, and than ten more for each one of those ten, and so on… So I’m going to try to explain some terms in a way that normal human beings speak. And hopefully this helps me learn them as well.

What is the difference between gross margin and operating margin?

Operating margin is the ratio of money the company made after all your costs (but before you take into account interest/taxes) compared to your total income.

Operating Margin Example:
– You sell $10,000 dollars worth of web hosting & related services one month.
– After all your costs (except interest/taxes) you have $1,000 dollars left.
– Your operating margin would be 10%. You get that by dividing the money you have left ($1,000 dollars), by the total revenue ($10,000).

Gross margin is the percentage of money you have left after you have paid for everything directly related to delivering that service or product (also called COGS or “Cost Of Goods Sold”).

The key word in that line is “directly related”, because this is supposed to only apply to what it cost to deliver those products sold. For a retail or a manufacturing company that is easy, but we are a web hosting / saas company and it creates a lot of confusion over what you include there. After a lot of research online it appears that it is up to the saas business to decide what goes in cogs for now since its such a new model compared to manufacturing. As more saas companies go public this will settle down too.

Here is what I think makes sense for web hosting after reading a lot of blog posts on saas “cogs” debates:

What I would include as COGS for web hosting (its a bit of a bastardized saas model)…

1. Cost to keep that product running.
– Hardware / Infrastructure Cost. Especially given we do a rental model so that all this cost is operating expense with no hardware ownership.
– Software licenses needed for those products.

2. Costs to support your customers.
– The cost of the tech support team.
– The cost of the change management & monitoring team. The people that keep the software up to date & services online.

3. Financial fees.
– Credit card and related fees.

*4. And possibly including the people cost of the engineering team as a license fee under #1. How would I do that? Take the total monthly cost of the engineering team and divide it over the # of hosting services and apply it. So that if our engineering team costs $100,000 that month and we had 50,000 hosting services active that month we would view that as a $2 license cost per service sold.

Gross Margin Example:
Let’s say I sell $10,000 dollars worth of hosting one month. The cost to deliver that $10,000 dollar worth of hosting that month is $2,000 dollars of hardware & software cost and $4,000 dollars worth of support cost.

So the gross margin would be 40%. How? Add up your costs, in this case $4,000 + $2,000 = $6,000. Then subtract that from your revenue, $10,000 – $6,000 = $4,000. And then divide the money left after subtracting costs by total revenue, $4,000 / $10,000 = 40%. And now you have that $4,000 dollars left to pay the rest of your costs that are not directly related to what you sold… (If you are in the software/saas business I highly recommend this article by David Miller

PS1, I make no guarantees this is correct… As this is a learning process for me.

PS2. An interesting note, Buffet-Munger look for companies that have long running high gross margin and high operating margin because they believe those are good signals that the business has a good economic moat. And if the operating or gross margin start to slip it can be an early warning sign the business is in trouble or loosing it’s moat.

Hong Kong Hiking?

June9

I am amazed with all the green space in Hong Kong once you get out of the city! Some really good trail running here as long as you are ok with some vertical running or a short bus ride. Pollution doesn’t seem too bad or anything either.

Fun hike along the “Dragon’s Back” today and just a little bit of rain at the end…

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New Zealand Trip!

June7

Nick and I did a big end of Australia year trip to New Zealand and it was a blast! We rented an RV and started in Auckland and went all the way to the southern most point. We covered 1850+ miles, and apart from some arguments over navigation styles we survived.

Here is our rough route :)

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And some pictures!

I loved this classified ad, for a “single Shepard”.
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This is bwb’s personal blog so he can share his thoughts with the world, however scary or silly they might be. Plus family and friends can track what I am up too, and where I am in the world.

I am pretty simple. I love Mangos. I love the ocean, although mostly at sunset as I’m a ginger. I love to travel, eat exotic food, read, and use my imagination. I love creating and developing ideas into businesses, understanding how all businesses work, and building cool stuff. I am a globalist and see the entire world as my responsibility and playground. And, I am married to an amazing woman who makes life even more fun :)! And, we are now the proud parents of Calico Jack :).


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