Traditional Business Ownership
Some people opt for the big dream—building their own business where they are the boss
and they call the shots. It’s an exciting idea, isn’t it? Here’s the reality for most people:
Step one: They use their life savings, take on new debt, and many times borrow money
from friends and family to get started.
Step two: They take on more debt in the form of leases and personal guarantees in just
about every direction.
Step three: Now instead of focusing on what they are good at (let’s say they were great at
sales and decided to start their own business), they have to be all things to all people. They act
as attorney for legal matters, accountant for financial matters, babysitter for employee matters,
negotiator for purchasing matters, and collection agency for accounts receivable matters. They
even get to take out the garbage. They are doing EVERYTHING but selling, which is what they
were good at in the first place.
Step four: They struggle. Instead of owning the business, the business owns them. They
are the first person to work and the last person to leave. And after everyone else gets paid, they
might be able to take home enough money to pay their own bills, let alone reduce the debt they
incurred to start the business in the first place.
Step five: They succeed or they fail. They either hit a point down the road where the
business is successful, or they fail, many times filing for bankruptcy and falling back into a
corporate or sales job. And even if they are successful, that usually means a lifetime of long
hours and stress.
Sounds romantic doesn’t it? If you haven’t started your own business before, ask friends
who have if this description isn’t accurate. Most people who start their own traditional business
aren’t worried about getting a return on their investment. They just want a return OF their
investment. It’s pretty clear that traditional business ownership can’t provide the Perfect Career
as we’ve described it.
The Investor
The last category of ways to earn a living in the world today is to be an investor. And what
do you need to become an investor? Money, right? If you don’t have a lot of money, it’s going to
be very difficult to earn a living from the return on your investments, especially if you try to be
conservative to reduce the risk of loss.
But let’s say you do. What’s the next thing you need in order to be a successful investor?
You need to have incredible knowledge and skill. I know more people than I could count who
were skillful real estate investors over the years. But when things radically changed in the real
estate market, their skill couldn’t help them. They lost big.
Would you like to invest in someone’s traditional small business? Good luck. In most cases,
you won’t be an investor; you are more likely to be a philanthropist.
How about the stock market? People do great there, don’t they? A few do, at least from time
to time. But I know more people who’ve lost than have won, especially in the past decade. It’s
very difficult to have guaranteed returns when you’re not in control. And trust me, as an investor
you are NOT in control. Anything can happen. And it can happen overnight.
Let me tell you a story to illustrate that point. In late 2001, I was living large. I had sold a
company I co-founded and was working as a very highly paid consultant. For my part of the
sale I received approximately 170,000 shares of stock in the new company. It was publicly
traded on the New York Stock Exchange and selling for about $44 a share, which meant the
value of my stock was around $7.5 million. I had big income and a great portfolio. Life was
GOOD.
I used part of the stock to secure a home construction loan of about $2 million for a dream
house I was building. As for the rest, I didn’t diversify because I knew the company was in great
shape with a good product and an amazing sales force.
Then something out of my control happened. Overnight the stock went to $37 a share
because a group of investors had targeted the company and shorted the stock. In other words,
the lower the stock price went, the more money they would make.
I thought it was ridiculous because the company was doing great, so I bought some more
shares at $37, using my existing shares as collateral, knowing the price would go back up. It
went to $33. I bought more shares. It went to $27. I started getting margin calls, which meant if I
didn’t send them money, they were going to start selling my shares to cover the losses. I didn’t
have it to send.
The stock continued to go down. It went all the way to $10 a share and my $7.5 million was
gone. Poof! All in less than 90 days. Now, the stock eventually came back and the company
was taken private for $65 a share. But I wasn’t there to capitalize on it. I was wiped out.
Could I have been smarter? Sure. Did I make mistakes? Absolutely. But here’s the lesson: If
you’re going to be an investor, you have to accept that things will be taken out of your control
from time to time. And when that happens, it can be very expensive.
So, back to our Perfect Career List. Can being an investor deliver on that list? I don’t think
so.
We’ve talked about blue-collar work, white-collar work, sales, traditional business
ownership, and investing. And none of them can deliver on our Perfect Career List. So is the
perfect career even possible? The answer is yes, but to get there you need to understand that
everything is changing. The old models of compensation are dead or dying, and we are going
through the biggest economic shift in any of our lifetimes.
To be continued...
No comments:
Post a Comment