If you’re thinking about starting your own business, and you really want to position yourself to take the kinds of stomach-turning risks that reap tremendous rewards, you may want to keep this story in mind.
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6 min read
This article was translated from our English edition.
The opinions expressed by the collaborators of Entrepreneur they are personal.
“Take a chance,” they said. When you are an entrepreneur, you have to bet on yourself and bet on the stars frequently. But how do you balance this appetite for risk with important personal responsibilities like paying a mortgage or taking care of your family? Too many founders accept risk without first establishing a safety net, and when situations change, the results can sometimes be catastrophic.
As CEO of a travel company, few things could have prepared me for the event. “Black Swan“(black swan) that was COVID-19. As soon as the closures went into effect, new customer acquisition immediately plummeted by 90%. We fought hard all year long to survive and had to take unprecedented risks to stay. afloat.
But it turns out that a controversial personal finance decision I had made in early 2020 gave me peace of mind about the whole situation. The move was inspired by an agreement made between Jeff Bezos and a quiet software startup more than a decade ago. If you’re thinking about starting your own business or side activity, and you really want to position yourself to take the kinds of stomach-turning risks that reap tremendous rewards, you may want to keep this story in mind.
Balance between risk and reward
In 2006, Jason Fried and David Hansson, the founders of project management software Basecamp, they proposed to Jeff Bezos that he buy them an uncontrolled minority stake in the company. The startup had already been in business for seven years and was profitable. But one of the reasons Bezos was invited to invest was so they could get paid, ensure the financial security of their families, and free themselves to take on greater business risks for years to come.
According to a publication blog on the site Signal v. Noise From Hansson: “What Jason and I got from the deal was the total confidence to go through with it. In 2006, we had only been running Basecamp for a few years. We had been besieged by venture capitalists and acquisition trackers. (Basecamp was) profitable, yes, but modestly. “
Risk is an everyday part of business life, and in some cases one wrong decision can set the entire operation on fire. This option is not viable if you have a family to take care of, so once my company built up enough capital, I made money moves that could release more courage and confidence in the decision-making process.
I took a profit distribution and used this money to purchase five single-family homes for cash, allowing me to diversify my personal income with rental properties. Cash transactions probably put many personal finance gurus to shame, but the security of knowing that my family would be served if the business ever went under has freed me to be more courageous with important business decisions. This courage came just in time, as pandemic travel restrictions forced us to be creative in keeping our travel company open.
This is not meant to be a wealth easing, but rather a warning about the big decisions you need to make once your business is truly successful. Instead of your business becoming your life, let me help you create the life of your dreams.
Build a business that can lead to financial independence
Obviously, to make moves like this, you need to rack up all those winnings to get started. So here are some tips from nearly 25 years in entrepreneurship that can help you succeed on your journey.
Prioritize profitability. It is not unusual for startups in Silicon Valley trade at a loss for months or even years before becoming profitable. Resist the temptation to make this the norm; Find ways to be profitable sooner rather than later and it will be easier for you to accumulate reserves that can lead to financial independence.
Avoid the fallacies of the founder. In his book San Francisco Falacy: The Ten Fallacies That Make Founders Fail, author and venture capitalist Jonathan Siegel talks about how many startups rely too heavily on making their product perfect, doing business with friends, or convincing themselves that failure is not an option. You may be tempted to raise investment capital to fix problems, but the reality is that you don’t need a fancy office or fancy parties to get your business off the ground; you need to determine what works and then stay in run mode.
Take care of your people. Despite the plummeting sales, we were able to keep everyone at the company employed and we had no layoffs. When you take care of your people through thick and thin, they will take care of you too.
Owning a business is often romanticized and everyone wants to be the founder or CEO. Remember that you started because you wanted more freedom for yourself and your loved ones, and that you can potentially create this security sooner rather than later. Take steps to build financial freedom today and free yourself to take the big risks needed and to shoot for the Moon.