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Bernard Lawrence "Bernie" Madoff, the largest Ponzi scheme in history
Madoff who?
Bernie Madoff ran the largest Ponzi scheme in history, defrauding thousands of investors over at least 17 years, and possibly longer. He pioneered electronic trading and chaired Nasdaq in the 1990s. On April 14, 2021, he died while serving a 150-year sentence for money laundering, securities fraud, and other crimes.
Understanding Madoff
Madoff claimed to generate large, steady returns through a trading strategy called split-strike conversion, but he simply deposited client funds into a single bank account and paid out existing clients. He funded redemptions by attracting new investors and their capital, but the market crashed in late 2008. He confessed to his sons, who worked at his firm, on Dec. 10, 2008. Next day, they turned him in. The fund reported $64.8 billion in client assets.
Madoff pleaded guilty to 11 federal felony counts, including securities fraud, wire fraud, mail fraud, perjury, and money laundering. Ponzi scheme became a symbol of Wall Street's greed and dishonesty before the financial crisis. Madoff was sentenced to 150 years in prison and ordered to forfeit $170 billion, but no other Wall Street figures faced legal ramifications.
Bernie Madoff's Brief Biography
Bernie Madoff was born in Queens, New York, on April 29, 1938. He began dating Ruth (née Alpern) when they were teenagers. Madoff told a journalist by phone from prison that his father's sporting goods store went bankrupt during the Korean War: "You watch your father, who you idolize, build a big business and then lose everything." Madoff was determined to achieve "lasting success" like his father "whatever it took," but his career had ups and downs.
Early Madoff investments
At 22, he started Bernard L. Madoff Investment Securities LLC. First, he traded penny stocks with $5,000 he earned installing sprinklers and as a lifeguard. Family and friends soon invested with him. Madoff's bets soured after the "Kennedy Slide" in 1962, and his father-in-law had to bail him out.
Madoff felt he wasn't part of the Wall Street in-crowd. "We weren't NYSE members," he told Fishman. "It's obvious." According to Madoff, he was a scrappy market maker. "I was happy to take the crumbs," he told Fishman, citing a client who wanted to sell eight bonds; a bigger firm would turn it down.
Recognition
Success came when he and his brother Peter built electronic trading capabilities, or "artificial intelligence," that attracted massive order flow and provided market insights. "I had all these major banks coming down, entertaining me," Madoff told Fishman. "It was mind-bending."
By the late 1980s, he and four other Wall Street mainstays processed half of the NYSE's order flow. Controversially, he paid for much of it, and by the late 1980s, Madoff was making in the vicinity of $100 million a year. He was Nasdaq chairman from 1990 to 1993.
Madoff's Ponzi scheme
It is not certain exactly when Madoff's Ponzi scheme began. He testified in court that it began in 1991, but his account manager, Frank DiPascali, had been at the firm since 1975.
Why Madoff did the scheme is unclear. "I had enough money to support my family's lifestyle. "I don't know why," he told Fishman." Madoff could have won Wall Street's respect as a market maker and electronic trading pioneer.
Madoff told Fishman he wasn't solely responsible for the fraud. "I let myself be talked into something, and that's my fault," he said, without saying who convinced him. "I thought I could escape eventually. I thought it'd be quick, but I couldn't."
Carl Shapiro, Jeffry Picower, Stanley Chais, and Norm Levy have been linked to Bernard L. Madoff Investment Securities LLC for years. Madoff's scheme made these men hundreds of millions of dollars in the 1960s and 1970s.
Madoff told Fishman, "Everyone was greedy, everyone wanted to go on." He says the Big Four and others who pumped client funds to him, outsourcing their asset management, must have suspected his returns or should have. "How can you make 15%-18% when everyone else is making less?" said Madoff.
How Madoff Got Away with It for So Long
Madoff's high returns made clients look the other way. He deposited their money in a Chase Manhattan Bank account, which merged to become JPMorgan Chase & Co. in 2000. The bank may have made $483 million from those deposits, so it didn't investigate.
When clients redeemed their investments, Madoff funded the payouts with new capital he attracted by promising unbelievable returns and earning his victims' trust. Madoff created an image of exclusivity by turning away clients. This model let half of Madoff's investors profit. These investors must pay into a victims' fund for defrauded investors.
Madoff wooed investors with his philanthropy. He defrauded nonprofits, including the Elie Wiesel Foundation for Peace and Hadassah. He approached congregants through his friendship with J. Ezra Merkin, a synagogue officer. Madoff allegedly stole $1 billion to $2 billion from his investors.
Investors believed Madoff for several reasons:
- His public portfolio seemed to be blue-chip stocks.
- His returns were high (10-20%) but consistent and not outlandish. In a 1992 interview with Madoff, the Wall Street Journal reported: "[Madoff] insists the returns were nothing special, given that the S&P 500-stock index returned 16.3% annually from 1982 to 1992. 'I'd be surprised if anyone thought matching the S&P over 10 years was remarkable,' he says.
- "He said he was using a split-strike collar strategy. A collar protects underlying shares by purchasing an out-of-the-money put option.
SEC inquiry
The Securities and Exchange Commission had been investigating Madoff and his securities firm since 1999, which frustrated many after he was prosecuted because they felt the biggest damage could have been prevented if the initial investigations had been rigorous enough.
Harry Markopolos was a whistleblower. In 1999, he figured Madoff must be lying in an afternoon. The SEC ignored his first Madoff complaint in 2000.
Markopolos wrote to the SEC in 2005: "The largest Ponzi scheme is Madoff Securities. This case has no SEC reward, so I'm turning it in because it's the right thing to do."
Many believed the SEC's initial investigations could have prevented Madoff's worst damage.
Markopolos found irregularities using a "Mosaic Method." Madoff's firm claimed to be profitable even when the S&P fell, which made no mathematical sense given what he was investing in. Markopolos said Madoff Securities' "undisclosed commissions" were the biggest red flag (1 percent of the total plus 20 percent of the profits).
Markopolos concluded that "investors don't know Bernie Madoff manages their money." Markopolos learned Madoff was applying for large loans from European banks (seemingly unnecessary if Madoff's returns were high).
The regulator asked Madoff for trading account documentation in 2005, after he nearly went bankrupt due to redemptions. The SEC drafted letters to two of the firms on his six-page list but didn't send them. Diana Henriques, author of "The Wizard of Lies: Bernie Madoff and the Death of Trust," documents the episode.
In 2008, the SEC was criticized for its slow response to Madoff's fraud.
Confession, sentencing of Bernie Madoff
Bernard L. Madoff Investment Securities LLC reported 5.6% year-to-date returns in November 2008; the S&P 500 fell 39%. As the selling continued, Madoff couldn't keep up with redemption requests, and on Dec. 10, he confessed to his sons Mark and Andy, who worked at his firm. "After I told them, they left, went to a lawyer, who told them to turn in their father, and I never saw them again. 2008-12-11: Bernie Madoff arrested.
Madoff insists he acted alone, but several of his colleagues were jailed. Mark Madoff died two years after his father's fraud was exposed. Madoff's investors committed suicide. Andy Madoff died of cancer in 2014.
2009 saw Madoff's 150-year prison sentence and $170 billion forfeiture. Marshals sold his three homes and yacht. Prisoner 61727-054 at Butner Federal Correctional Institution in North Carolina.
Madoff's lawyers requested early release on February 5, 2020, claiming he has a terminal kidney disease that may kill him in 18 months. Ten years have passed since Madoff's sentencing.
Bernie Madoff's Ponzi scheme aftermath
The paper trail of victims' claims shows Madoff's complexity and size. Documents show Madoff's scam began in the 1960s. His final account statements show $47 billion in "profit" from fake trades and shady accounting.
Thousands of investors lost their life savings, and multiple stories detail their harrowing loss.
Irving Picard, a New York lawyer overseeing Madoff's bankruptcy, has helped investors. By December 2018, Picard had recovered $13.3 billion from Ponzi scheme profiteers.
A Madoff Victim Fund (MVF) was created in 2013 to help compensate Madoff's victims, but the DOJ didn't start paying out the $4 billion until late 2017. Richard Breeden, a former SEC chair who oversees the fund, said thousands of claims were from "indirect investors"
Breeden and his team had to reject many claims because they weren't direct victims. Breeden said he based most of his decisions on one simple rule: Did the person invest more than they withdrew? Breeden estimated 11,000 "feeder" investors.
Breeden wrote in a November 2018 update for the Madoff Victim Fund, "We've paid over 27,300 victims 56.65% of their losses, with thousands more to come." In December 2018, 37,011 Madoff victims in the U.S. and around the world received over $2.7 billion. Breeden said the fund expected to make "at least one more significant distribution in 2019"
This post is a summary. Read full article here
More on Economics & Investing
Sam Hickmann
3 years ago
What is headline inflation?
Headline inflation is the raw Consumer price index (CPI) reported monthly by the Bureau of labour statistics (BLS). CPI measures inflation by calculating the cost of a fixed basket of goods. The CPI uses a base year to index the current year's prices.
Explaining Inflation
As it includes all aspects of an economy that experience inflation, headline inflation is not adjusted to remove volatile figures. Headline inflation is often linked to cost-of-living changes, which is useful for consumers.
The headline figure doesn't account for seasonality or volatile food and energy prices, which are removed from the core CPI. Headline inflation is usually annualized, so a monthly headline figure of 4% inflation would equal 4% inflation for the year if repeated for 12 months. Top-line inflation is compared year-over-year.
Inflation's downsides
Inflation erodes future dollar values, can stifle economic growth, and can raise interest rates. Core inflation is often considered a better metric than headline inflation. Investors and economists use headline and core results to set growth forecasts and monetary policy.
Core Inflation
Core inflation removes volatile CPI components that can distort the headline number. Food and energy costs are commonly removed. Environmental shifts that affect crop growth can affect food prices outside of the economy. Political dissent can affect energy costs, such as oil production.
From 1957 to 2018, the U.S. averaged 3.64 percent core inflation. In June 1980, the rate reached 13.60%. May 1957 had 0% inflation. The Fed's core inflation target for 2022 is 3%.
Central bank:
A central bank has privileged control over a nation's or group's money and credit. Modern central banks are responsible for monetary policy and bank regulation. Central banks are anti-competitive and non-market-based. Many central banks are not government agencies and are therefore considered politically independent. Even if a central bank isn't government-owned, its privileges are protected by law. A central bank's legal monopoly status gives it the right to issue banknotes and cash. Private commercial banks can only issue demand deposits.
What are living costs?
The cost of living is the amount needed to cover housing, food, taxes, and healthcare in a certain place and time. Cost of living is used to compare the cost of living between cities and is tied to wages. If expenses are higher in a city like New York, salaries must be higher so people can live there.
What's U.S. bureau of labor statistics?
BLS collects and distributes economic and labor market data about the U.S. Its reports include the CPI and PPI, both important inflation measures.
Ray Dalio
3 years ago
The latest “bubble indicator” readings.
As you know, I like to turn my intuition into decision rules (principles) that can be back-tested and automated to create a portfolio of alpha bets. I use one for bubbles. Having seen many bubbles in my 50+ years of investing, I described what makes a bubble and how to identify them in markets—not just stocks.
A bubble market has a high degree of the following:
- High prices compared to traditional values (e.g., by taking the present value of their cash flows for the duration of the asset and comparing it with their interest rates).
- Conditons incompatible with long-term growth (e.g., extrapolating past revenue and earnings growth rates late in the cycle).
- Many new and inexperienced buyers were drawn in by the perceived hot market.
- Broad bullish sentiment.
- Debt financing a large portion of purchases.
- Lots of forward and speculative purchases to profit from price rises (e.g., inventories that are more than needed, contracted forward purchases, etc.).
I use these criteria to assess all markets for bubbles. I have periodically shown you these for stocks and the stock market.
What Was Shown in January Versus Now
I will first describe the picture in words, then show it in charts, and compare it to the last update in January.
As of January, the bubble indicator showed that a) the US equity market was in a moderate bubble, but not an extreme one (ie., 70 percent of way toward the highest bubble, which occurred in the late 1990s and late 1920s), and b) the emerging tech companies (ie. As well, the unprecedented flood of liquidity post-COVID financed other bubbly behavior (e.g. SPACs, IPO boom, big pickup in options activity), making things bubbly. I showed which stocks were in bubbles and created an index of those stocks, which I call “bubble stocks.”
Those bubble stocks have popped. They fell by a third last year, while the S&P 500 remained flat. In light of these and other market developments, it is not necessarily true that now is a good time to buy emerging tech stocks.
The fact that they aren't at a bubble extreme doesn't mean they are safe or that it's a good time to get long. Our metrics still show that US stocks are overvalued. Once popped, bubbles tend to overcorrect to the downside rather than settle at “normal” prices.
The following charts paint the picture. The first shows the US equity market bubble gauge/indicator going back to 1900, currently at the 40% percentile. The charts also zoom in on the gauge in recent years, as well as the late 1920s and late 1990s bubbles (during both of these cases the gauge reached 100 percent ).
The chart below depicts the average bubble gauge for the most bubbly companies in 2020. Those readings are down significantly.
The charts below compare the performance of a basket of emerging tech bubble stocks to the S&P 500. Prices have fallen noticeably, giving up most of their post-COVID gains.
The following charts show the price action of the bubble slice today and in the 1920s and 1990s. These charts show the same market dynamics and two key indicators. These are just two examples of how a lot of debt financing stock ownership coupled with a tightening typically leads to a bubble popping.
Everything driving the bubbles in this market segment is classic—the same drivers that drove the 1920s bubble and the 1990s bubble. For instance, in the last couple months, it was how tightening can act to prick the bubble. Review this case study of the 1920s stock bubble (starting on page 49) from my book Principles for Navigating Big Debt Crises to grasp these dynamics.
The following charts show the components of the US stock market bubble gauge. Since this is a proprietary indicator, I will only show you some of the sub-aggregate readings and some indicators.
Each of these six influences is measured using a number of stats. This is how I approach the stock market. These gauges are combined into aggregate indices by security and then for the market as a whole. The table below shows the current readings of these US equity market indicators. It compares current conditions for US equities to historical conditions. These readings suggest that we’re out of a bubble.
1. How High Are Prices Relatively?
This price gauge for US equities is currently around the 50th percentile.
2. Is price reduction unsustainable?
This measure calculates the earnings growth rate required to outperform bonds. This is calculated by adding up the readings of individual securities. This indicator is currently near the 60th percentile for the overall market, higher than some of our other readings. Profit growth discounted in stocks remains high.
Even more so in the US software sector. Analysts' earnings growth expectations for this sector have slowed, but remain high historically. P/Es have reversed COVID gains but remain high historical.
3. How many new buyers (i.e., non-existing buyers) entered the market?
Expansion of new entrants is often indicative of a bubble. According to historical accounts, this was true in the 1990s equity bubble and the 1929 bubble (though our data for this and other gauges doesn't go back that far). A flood of new retail investors into popular stocks, which by other measures appeared to be in a bubble, pushed this gauge above the 90% mark in 2020. The pace of retail activity in the markets has recently slowed to pre-COVID levels.
4. How Broadly Bullish Is Sentiment?
The more people who have invested, the less resources they have to keep investing, and the more likely they are to sell. Market sentiment is now significantly negative.
5. Are Purchases Being Financed by High Leverage?
Leveraged purchases weaken the buying foundation and expose it to forced selling in a downturn. The leverage gauge, which considers option positions as a form of leverage, is now around the 50% mark.
6. To What Extent Have Buyers Made Exceptionally Extended Forward Purchases?
Looking at future purchases can help assess whether expectations have become overly optimistic. This indicator is particularly useful in commodity and real estate markets, where forward purchases are most obvious. In the equity markets, I look at indicators like capital expenditure, or how much businesses (and governments) invest in infrastructure, factories, etc. It reflects whether businesses are projecting future demand growth. Like other gauges, this one is at the 40th percentile.
What one does with it is a tactical choice. While the reversal has been significant, future earnings discounting remains high historically. In either case, bubbles tend to overcorrect (sell off more than the fundamentals suggest) rather than simply deflate. But I wanted to share these updated readings with you in light of recent market activity.
Trevor Stark
3 years ago
Economics is complete nonsense.
Mainstream economics haven't noticed.
What come to mind when I say the word "economics"?
Probably GDP, unemployment, and inflation.
If you've ever watched the news or listened to an economist, they'll use data like these to defend a political goal.
The issue is that these statistics are total bunk.
I'm being provocative, but I mean it:
The economy is not measured by GDP.
How many people are unemployed is not counted in the unemployment rate.
Inflation is not measured by the CPI.
All orthodox economists' major economic statistics are either wrong or falsified.
Government institutions create all these stats. The administration wants to reassure citizens the economy is doing well.
GDP does not reflect economic expansion.
GDP measures a country's economic size and growth. It’s calculated by the BEA, a government agency.
The US has the world's largest (self-reported) GDP, growing 2-3% annually.
If GDP rises, the economy is healthy, say economists.
Why is the GDP flawed?
GDP measures a country's yearly spending.
The government may adjust this to make the economy look good.
GDP = C + G + I + NX
C = Consumer Spending
G = Government Spending
I = Investments (Equipment, inventories, housing, etc.)
NX = Exports minus Imports
GDP is a country's annual spending.
The government can print money to boost GDP. The government has a motive to increase and manage GDP.
Because government expenditure is part of GDP, printing money and spending it on anything will raise GDP.
They've done this. Since 1950, US government spending has grown 8% annually, faster than GDP.
In 2022, government spending accounted for 44% of GDP. It's the highest since WWII. In 1790-1910, it was 3% of GDP.
Who cares?
The economy isn't only spending. Focus on citizens' purchasing power or quality of life.
Since GDP just measures spending, the government can print money to boost GDP.
Even if Americans are poorer than last year, economists can say GDP is up and everything is fine.
How many people are unemployed is not counted in the unemployment rate.
The unemployment rate measures a country's labor market. If unemployment is high, people aren't doing well economically.
The BLS estimates the (self-reported) unemployment rate as 3-4%.
Why is the unemployment rate so high?
The US government surveys 100k persons to measure unemployment. They extrapolate this data for the country.
They come into 3 categories:
Employed
People with jobs are employed … duh.
Unemployed
People who are “jobless, looking for a job, and available for work” are unemployed
Not in the labor force
The “labor force” is the employed + the unemployed.
The unemployment rate is the percentage of unemployed workers.
Problem is unemployed definition. You must actively seek work to be considered unemployed.
You're no longer unemployed if you haven't interviewed in 4 weeks.
This shit makes no goddamn sense.
Why does this matter?
You can't interview if there are no positions available. You're no longer unemployed after 4 weeks.
In 1994, the BLS redefined "unemployed" to exclude discouraged workers.
If you haven't interviewed in 4 weeks, you're no longer counted in the unemployment rate.
If unemployment were measured by total unemployed, it would be 25%.
Because the government wants to keep the unemployment rate low, they modify the definition.
If every US resident was unemployed and had no job interviews, economists would declare 0% unemployment. Excellent!
Inflation is not measured by the CPI.
The BLS measures CPI. This month was the highest since 1981.
CPI measures the cost of a basket of products across time. Food, energy, shelter, and clothes are included.
A 9.1% CPI means the basket of items is 9.1% more expensive.
What is the CPI problem?
Here's a more detailed explanation of CPI's flaws.
In summary, CPI is manipulated to be understated.
Housing costs are understated to manipulate CPI. Housing accounts for 33% of the CPI because it's the biggest expense for most people.
This signifies it's the biggest CPI weight.
Rather than using actual house prices, the Bureau of Labor Statistics essentially makes shit up. You can read more about the process here.
Surprise! It’s bullshit
The BLS stated Shelter's price rose 5.5% this month.
House prices are up 11-21%. (Source 1, Source 2, Source 3)
Rents are up 14-26%. (Source 1, Source 2)
Why is this important?
If CPI included housing prices, it would be 12-15 percent this month, not 9.1 percent.
9% inflation is nuts. Your money's value halves every 7 years at 9% inflation.
Worse is 15% inflation. Your money halves every 4 years at 15% inflation.
If everyone realized they needed to double their wage every 4-5 years to stay wealthy, there would be riots.
Inflation drains our money's value so the government can keep printing it.
The Solution
Most individuals know the existing system doesn't work, but can't explain why.
People work hard yet lag behind. The government lies about the economy's data.
In reality:
GDP has been down since 2008
25% of Americans are unemployed
Inflation is actually 15%
People might join together to vote out kleptocratic politicians if they knew the reality.
Having reliable economic data is the first step.
People can't understand the situation without sufficient information. Instead of immigrants or billionaires, people would blame liar politicians.
Here’s the vision:
A decentralized, transparent, and global dashboard that tracks economic data like GDP, unemployment, and inflation for every country on Earth.
Government incentives influence economic statistics.
ShadowStats has already started this effort, but the calculations must be transparent, decentralized, and global to be effective.
If interested, email me at trevorstark02@gmail.com.
Here are some links to further your research:
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Rajesh Gupta
3 years ago
Why Is It So Difficult to Give Up Smoking?
I started smoking in 2002 at IIT BHU. Most of us thought it was enjoyable at first. I didn't realize the cost later.
In 2005, during my final semester, I lost my father. Suddenly, I felt more accountable for my mother and myself.
I quit before starting my first job in Bangalore. I didn't see any smoking friends in my hometown for 2 months before moving to Bangalore.
For the next 5-6 years, I had no regimen and smoked only when drinking.
Due to personal concerns, I started smoking again after my 2011 marriage. Now smoking was a constant guilty pleasure.
I smoked 3-4 cigarettes a day, but never in front of my family or on weekends. I used to excuse this with pride! First office ritual: smoking. Even with guilt, I couldn't stop this time because of personal concerns.
After 8-9 years, in mid 2019, a personal development program solved all my problems. I felt complete in myself. After this, I just needed one cigarette each day.
The hardest thing was leaving this final cigarette behind, even though I didn't want it.
James Clear's Atomic Habits was published last year. I'd only read 2-3 non-tech books before reading this one in August 2021. I knew everything but couldn't use it.
In April 2022, I realized the compounding effect of a bad habit thanks to my subconscious mind. 1 cigarette per day (excluding weekends) equals 240 = 24 packs per year, which is a lot. No matter how much I did, it felt negative.
Then I applied the 2nd principle of this book, identifying the trigger. I tried to identify all the major triggers of smoking. I found social drinking is one of them & If I am able to control it during that time, I can easily control it in other situations as well. Going further whenever I drank, I was pre-determined to ignore the craving at any cost. Believe me, it was very hard initially but gradually this craving started fading away even with drinks.
I've been smoke-free for 3 months. Now I know a bad habit's effects. After realizing the power of habits, I'm developing other good habits which I ignored all my life.
Chris Newman
3 years ago
Clean Food: Get Over Yourself If You Want to Save the World.
I’m a permaculture farmer. I want to create food-producing ecosystems. My hope is a world with easy access to a cuisine that nourishes consumers, supports producers, and leaves the Earth joyously habitable.
Permaculturists, natural farmers, plantsmen, and foodies share this ambition. I believe this group of green thumbs, stock-folk, and food champions is falling to tribalism, forgetting that rescuing the globe requires saving all of its inhabitants, even those who adore cheap burgers and Coke. We're digging foxholes and turning folks who disagree with us or don't understand into monsters.
Take Dr. Daphne Miller's comments at the end of her Slow Money Journal interview:
“Americans are going to fall into two camps when all is said and done: People who buy cheap goods, regardless of quality, versus people who are willing and able to pay for things that are made with integrity. We are seeing the limits of the “buying cheap crap” approach.”
This is one of the most judgmental things I've read outside the Bible. Consequences:
People who purchase inexpensive things (food) are ignorant buffoons who prefer to choose fair trade coffee over fuel as long as the price is correct.
It all depends on your WILL to buy quality or cheaply. Both those who are WILLING and those who ARE NOT exist. And able, too.
People who are unwilling and unable are purchasing garbage. You're giving your kids bad food. Both the Earth and you are being destroyed by your actions. Your camp is the wrong one. You’re garbage! Disgrace to you.
Dr. Miller didn't say it, but words are worthless until interpreted. This interpretation depends on the interpreter's economic, racial, political, religious, family, and personal history. Complementary language insults another. Imagine how that Brown/Harvard M.D.'s comment sounds to a low-income household with no savings.
Dr. Miller's comment reflects the echo chamber into which nearly all clean food advocates speak. It asks easy questions and accepts non-solutions like raising food prices and eating less meat. People like me have cultivated an insular world unencumbered by challenges beyond the margins. We may disagree about technical details in rotationally-grazing livestock, but we short circuit when asked how our system could supply half the global beef demand. Most people have never seriously considered this question. We're so loved and affirmed that challenging ourselves doesn't seem necessary. Were generals insisting we don't need to study the terrain because God is on our side?
“Yes, the $8/lb ground beef is produced the way it should be. Yes, it’s good for my body. Yes it’s good for the Earth. But it’s eight freaking dollars, and my kid needs braces and protein. Bye Felicia, we’re going to McDonald’s.”
-Bobby Q. Homemaker
Funny clean foodies. People don't pay enough for food; they should value it more. Turn the concept of buying food with integrity into a wedge and drive it into the heart of America, dividing the willing and unwilling.
We go apeshit if you call our products high-end.
I've heard all sorts of gaslighting to defend a $10/lb pork chop as accessible (things I’ve definitely said in the past):
At Whole Foods, it costs more.
The steak at the supermarket is overly affordable.
Pay me immediately or the doctor gets paid later.
I spoke with Timbercreek Market and Local Food Hub in front of 60 people. We were asked about local food availability.
They came to me last, after my co-panelists gave the same responses I would have given two years before.
I grumbled, "Our food is inaccessible." Nope. It's beyond the wallets of nearly everyone, and it's the biggest problem with sustainable food systems. We're criminally unserious about being leaders in sustainability until we propose solutions beyond economic relativism, wishful thinking, and insisting that vulnerable, distracted people do all the heavy lifting of finding a way to afford our food. And until we talk about solutions, all this preserve the world? False.
The room fell silent as if I'd revealed a terrible secret. Long, thunderous applause followed my other remarks. But I’m probably not getting invited back to any VNRLI events.
I make pricey cuisine. It’s high-end. I have customers who really have to stretch to get it, and they let me know it. They're forgoing other creature comforts to help me make a living and keep the Earth of my grandmothers alive, and they're doing it as an act of love. They believe in us and our work.
I remember it when I'm up to my shoulders in frigid water, when my vehicle stinks of four types of shit, when I come home covered in blood and mud, when I'm hauling water in 100-degree heat, when I'm herding pigs in a rainstorm and dodging lightning bolts to close the chickens. I'm reminded I'm not alone. Their enthusiasm is worth more than money; it helps me make a life and a living. I won't label that gift less than it is to make my meal seem more accessible.
Not everyone can sacrifice.
Let's not pretend we want to go back to peasant fare, despite our nostalgia. Industrial food has leveled what rich and poor eat. How food is cooked will be the largest difference between what you and a billionaire eat. Rich and poor have access to chicken, pork, and beef. You might be shocked how recently that wasn't the case. This abundance, particularly of animal protein, has helped vulnerable individuals.
Industrial food causes environmental damage, chronic disease, and distribution inequities. Clean food promotes non-industrial, artisan farming. This creates a higher-quality, more expensive product than the competition; we respond with aggressive marketing and the "people need to value food more" shtick geared at consumers who can spend the extra money.
The guy who is NOT able is rendered invisible by clean food's elitist marketing, which is bizarre given a.) clean food insists it's trying to save the world, yet b.) MOST PEOPLE IN THE WORLD ARE THAT GUY. No one can help him except feel-good charities. That's crazy.
Also wrong: a foodie telling a kid he can't eat a 99-cent fast food hamburger because it lacks integrity. Telling him how easy it is to save his ducketts and maybe have a grass-fed house burger at the end of the month as a reward, but in the meantime get your protein from canned beans you can't bake because you don't have a stove and, even if you did, your mom works two jobs and moonlights as an Uber driver so she doesn't have time to heat that shitup anyway.
A wealthy person's attitude toward the poor is indecent. It's 18th-century Versailles.
Human rights include access to nutritious food without social or environmental costs. As a food-forest-loving permaculture farmer, I no longer balk at the concept of cultured beef and hydroponics. My food is out of reach for many people, but access to decent food shouldn't be. Cultures and hydroponics could scale to meet the clean food affordability gap without externalities. If technology can deliver great, affordable beef without environmental negative effects, I can't reject it because it's new, unusual, or might endanger my business.
Why is your farm needed if cultured beef and hydroponics can feed the world? Permaculture food forests with trees, perennial plants, and animals are crucial to economically successful environmental protection. No matter how advanced technology gets, we still need clean air, water, soil, greenspace, and food.
Clean Food cultivated in/on live soil, minimally processed, and eaten close to harvest is part of the answer, not THE solution. Clean food advocates must recognize the conflicts at the intersection of environmental, social, and economic sustainability, the disproportionate effects of those conflicts on the poor and lower-middle classes, and the immorality and impracticality of insisting vulnerable people address those conflicts on their own and judging them if they don't.
Our clients, relatives, friends, and communities need an honest assessment of our role in a sustainable future. If we're serious about preserving the world, we owe honesty to non-customers. We owe our goal and sanity to honesty. Future health and happiness of the world left to the average person's pocketbook and long-term moral considerations is a dismal proposition with few parallels.
Let's make soil and grow food. Let the lab folks do their thing. We're all interdependent.
Sammy Abdullah
24 years ago
How to properly price SaaS
Price Intelligently put out amazing content on pricing your SaaS product. This blog's link to the whole report is worth reading. Our key takeaways are below.
Don't base prices on the competition. Competitor-based pricing has clear drawbacks. Their pricing approach is yours. Your company offers customers something unique. Otherwise, you wouldn't create it. This strategy is static, therefore you can't add value by raising prices without outpricing competitors. Look, but don't touch is the competitor-based moral. You want to know your competitors' prices so you're in the same ballpark, but they shouldn't guide your selections. Competitor-based pricing also drives down prices.
Value-based pricing wins. This is customer-based pricing. Value-based pricing looks outward, not inward or laterally at competitors. Your clients are the best source of pricing information. By valuing customer comments, you're focusing on buyers. They'll decide if your pricing and packaging are right. In addition to asking consumers about cost savings or revenue increases, look at data like number of users, usage per user, etc.
Value-based pricing increases prices. As you learn more about the client and your worth, you'll know when and how much to boost rates. Every 6 months, examine pricing.
Cloning top customers. You clone your consumers by learning as much as you can about them and then reaching out to comparable people or organizations. You can't accomplish this without knowing your customers. Segmenting and reproducing them requires as much detail as feasible. Offer pricing plans and feature packages for 4 personas. The top plan should state Contact Us. Your highest-value customers want more advice and support.
Question your 4 personas. What's the one item you can't live without? Which integrations matter most? Do you do analytics? Is support important or does your company self-solve? What's too cheap? What's too expensive?
Not everyone likes per-user pricing. SaaS organizations often default to per-user analytics. About 80% of companies utilizing per-user pricing should use an alternative value metric because their goods don't give more value with more users, so charging for them doesn't make sense.
At least 3:1 LTV/CAC. Break even on the customer within 2 years, and LTV to CAC is greater than 3:1. Because customer acquisition costs are paid upfront but SaaS revenues accrue over time, SaaS companies face an early financial shortfall while paying back the CAC.
ROI should be >20:1. Indeed. Ensure the customer's ROI is 20x the product's cost. Microsoft Office costs $80 a year, but consumers would pay much more to maintain it.
A/B Testing. A/B testing is guessing. When your pricing page varies based on assumptions, you'll upset customers. You don't have enough customers anyway. A/B testing optimizes landing pages, design decisions, and other site features when you know the problem but not pricing.
Don't discount. It cheapens the product, makes it permanent, and increases churn. By discounting, you're ruining your pricing analysis.