TMBA 275: How Should an Entrepreneur Invest $50,000?

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Ian and I have taken the last few weeks off to recharge and prepare for our upcoming Singapore Event. We’re back from our short break and ringing in the new year by discussing a question that Marc Cuban asked recently: what should the average investor do with $50,000?

We’ll dissect some of the ideas he proposed about financial investments, talk about how the location-independent entrepreneur can put them to good use, and explain exactly what makes our upcoming gathering of entrepreneurs such a unique sharing environment.

Listen to this week’s show and learn:

  • Why you should be paying down your debt first.
  • The differences between the ways that entrepreneurs and employees plan their investments.
  • Why you shouldn’t get a mortgage.
  • What we would do with our first 50K, knowing what we know now.
  • Why you need to have the available funds to make a good investment when you see it.
  • What it means to invest in yourself.

People on this episode:

Mentioned in the episode:

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Thanks for listening to our show! We’ll be back next Thursday morning 8AM EST.

Cheers,

Dan & Ian

Published on 01.01.15
  • http://wpcurve.com/ Dan Norris

    Hey guys great stuff I left this comment in the DC so I hope you don’t mind a slightly modified double post.

    One of the things I picked up from the Tony Robbins book was a quote something like ‘No matter how much of an expert you are in a certain area, at some stage in your life you will be wrong’. So in our case we see ourselves as experts in business but if we put all of our eggs in that basket then at some stage we will be wrong.

    This is the main reason I’m not taking the advice of just putting spare money into ‘myself’ or into my ‘business’. I’ve experienced this myself by putting money into businesses that ultimately failed and I’ve also seen it happen to ‘experts’ in other areas. Finance experts who lost millions in stock market crashes. Real estate experts who lost millions in real estate crashes. The point being, if you only double down on whatever you are an expert in (in our case business), then you run a high risk of losing it.

    I suspect like me, a lot of people in your audience are already very heavily weighted towards investing in themselves and their business. I have 4 businesses, I put money directly into 2 of them (2 of them don’t make money yet). I spend 100% of my time on my businesses which is probably the biggest investment of the lot. This is probably pretty typical for the TMBA audience. I don’t think spending even more makes much sense.

    I’m also nervous about taking Mark’s advice of keeping it liquid in case something comes along. Firstly because I think I’m already invested extremely heavily in business and I think I need to be more balanced. But mainly because there are a lot of assumptions in what Mark is saying. First off he’s assuming that you won’t just spend the money on shit because it’s so accessible (my history well me I will). Secondly it assumes that when you do deploy the money, you will make a great decision and get an amazing return for it. Again most entrepreneurs can probably attest at some stage to spending a lot of money on a project and losing all of it.

    It’s a great topic I think it’s a cool idea for an event. Looking forward to hearing back on how it goes.

  • http://www.adventurous-soul.com/ Shayna

    Great points Dan. I too am hesitant to pour ALL my money back into my business; because of: 1) The “at some point you will be wrong” phenomenon you mentioned; and 2) In my business, the connection between $$ invested and $$ made is not linear and obvious. I haven’t mastered ROI-positive customer acquisition through ads yet.

    I like to keep enough cash on hand for emergencies and for possible seizing of good opportunities (storing it in a different account that you can’t access as conveniently helps you avoid spending it) and for other investments I favor index funds that just track with the market. The last thing I want to do is have to spend a lot of time (my most valuable asset) tinkering with my portfolio.

  • Entrepreneurial Nomad

    I listened to the podcast and thought the clips from Cuban were off the wall – a strategy that seems to work for him now does not equal a good path for other people to take. Coming here, I’m glad to see you guys posted Bogle’s reaction.

    What to do with $50k depends on your situation. Regardless – an emergency fund is a key foundation for everyone – especially entrepreneurs. Throwing everything you own into your business is how a lot of us start out, but it’s not a reasonable long term strategy.

    Dan – since you’re reading Tony’s book – you might find this interesting: http://www.basonasset.com/yes-i-actually-read-most-of-tony-robbins-new-book/ – I agree with the view that it’s nuts to promote Bogle’s strategies in one chapter and then talk about investment gurus and the wonders of derivatives in other chapters. You picked out one of his good messages though – in managing the risk of being wrong at some point.

  • http://www.tropicalmba.com/ Dan Andrews

    Great points Dan, I share your concerns. Your point about expertise leading you astray is a great one, also that what you see as your big opportunity might not necessarily be one. Also the behavioral stuff has a lot of legs too, especially if it’s your first 50 or 100k. I remember Dave Ramsey (or some other financial guru) saying you should pay of your smallest loan balance first, even if the interest rate isn’t the highest because you want to create emotional wins for yourself, in his experience he thought that would create greater results.

  • http://www.tropicalmba.com/ Dan Andrews

    Read that review too, yeah it kinda confirms that this stuff is just all over the map. Agree for sure RE: emergency fund. That’s the first step IMO.

  • http://www.tropicalmba.com/ Dan Andrews

    same thing with us and the biz, I feel like our business is only so much of an engine, at some point if you start pouring too much gas into it it simply can’t combust… it must be the case that each individual business has a clear point of diminishing returns in terms of injecting cash, i’m not even sure where ours are though even after years running them. I agree with keeping the portfolio something interesting, I’ve been considering investments that are simple to track and would be complimentary to our current businesses, and perhaps would help us learn some valuable information (hopefully, more on that soon!).

  • http://www.linkedin.com/in/sholaabidoye/ Shola Abidoye

    The answer to this question is exceedingly simple:
    If your business a) isn’t as big as you want it to be b) isn’t a market leader c) is self funded, you should be investing in customer acquisition. Does this mean we all shouldn’t have emergency funds or even 1 or 2 homes or other small retirement plans (ex. a small portion of your yearly salary) – no. This information is coming straight from Koch’s work (80/20 Principle, Star Principle). To quote Dan Kennedy, having a lifetime customer is basically like a convertible security- it has an equity and a fixed income component. The opportunity costs of SPLITTING YOUR FOCUS is always high. In deMarco’s book, he addresses the fact that most penta+millionaires who are self-made got that way from from the sell of their principle asset – their company. Once you sell your company (after it’s a market leader), you have a wad a cash and by all means go ahead and invest. But if I were a talented employee looking to work for a self-funded company, I’d be weary of owners not reinvesting into their own companies. And let’s not talk about Return on Ad Spend. When invested correctly, for every $1 you put into customer acquisition via paid media, you can get $2, $3, $5 out…..what financial investment has that kind of return. Also for anyone looking to invest in the equity market, do people realize that at it’s nucleus a company is basically an amalgamation of a portfolio of lifetime customers? Really think about that. The problem with the whole lifestyle business movement is the “niche site” mentality. No one is willing to go all in. If your company isn’t the market leader and you are self funded and are diverting huge resources away from market leadership and scaling, you’re missing the point – big time. Again, for the love of God people go read Richard Koch’s work. Self-funded businesses who are not reinvesting into making their company’s market leaders will never harness the disproportionate super-profits that come to you via the “winner take all effect” Just some thoughts (hastily written on a Sunday evening)

  • http://www.linkedin.com/in/sholaabidoye/ Shola Abidoye

    Shayna, according to EY 98% of women owned businesses never crack the $1 million or more threshold. From what I’ve come to glean about you on the DC, you have what it takes to do so – IF you stay focused. To do so, you’re gonna have to become world class at customer acquisition. And this is a full time job! My point is I don’t get people on places like the DC talking about investments when they don’t even run 8 or 7 figure businesses. I too am fan of index funds – got into them over 15 years ago. But I don’t pay attention to that stuff. It’s a distraction. If investments are an interest to you (or anyone else) follow a proven model: sell your company and become an angel investor or full time investor in some other form of investment. Just a thoughts (love ya like a play cousin ;P) – the article I pulled the stat from: http://www.ey.com/US/en/Newsroom/News-releases/news-2-percent-of-women-owned-businesses-break-us-1-million-dollars-in-revenue

  • http://www.strebecklaw.com/ Zachary Strebeck

    I’m at the point in my journey where I can’t even imagine having that $50K. Though I may be coming into a similar amount of money through other means. I’d like to put it back into the business to avoid the huge tax hit I would take. Would buying assets like Flippa and Empire Flippers sites be a smart way to go?

  • http://wpcurve.com/ Dan Norris

    This seems like a hail mary to me. Nothing against those sites but I think you really need to know what you are doing to buy and sell sites profitably. If you feel you have a unique advantage there then cool but if not I think it’s a big risk.

  • http://wpcurve.com/ Dan Norris

    I don’t agree with this. I’ve never been in a position in business where I can safely invest $x to acquire a customer and confidently know that I will get that money back. Maybe there’s something wrong with my businesses but either way I think when you are starting out paid acquisition is almost always a bad idea. First off, what you do will likely change a lot so it’s impossible to work out the long term ROI. Secondly you are only guessing at lifetime value, making assumptions, most of which will turn out to be false. Thirdly you put yourself on a playing field against huge companies with gigantic advertising budgets who can get way more efficiencies than you.

    If you are lucky enough to have a business where you can acquire a customer for $50 and make $100 then all good. But in reality I think that is rarely the case. Of course if you have $5m in funding (like lead pages) then you can afford to experiment to get it right. But how many people reading this are in that situation?

    BTW most of the founders of the big startups like you mention have other startups and invest in other companies, I’d say all of them own real estate and they probably all own shares. Again though, probably not that relevant for someone reading this.

  • http://www.strebecklaw.com/ Zachary Strebeck

    Maybe it’s better to reinvest into my law business, but that is a service-based deal. I’d like something to provide a more passive income base. Thanks for the help!

  • http://wpcurve.com/ Dan Norris

    I don’t really believe in passive income. I would be thinking more about building a service about what can be delegated and what can be automated. That’s not really passive but it’s a proper business not just a job.

  • http://www.strebecklaw.com/ Zachary Strebeck

    I see what you’re saying, and it makes sense. I do have an idea along those lines – it’s my first big “goal” to complete for 2015. Thanks again.

  • http://empireflippers.com/ Joseph Magnotti

    I agree with a lot of what Dan is saying here (except the lottery ticket), but I would love the opportunity to connect and review some options for you. Once I can ascertain your skill level and budget I can see if buying an online business is the right move for you.

  • http://empireflippers.com/ Joseph Magnotti

    Thanks for the mention guys. As you know we are kicking off an investor program that I hope will become a successful part of everyone’s portfolio. I’m not saying to stick your entire $50k in an online property, but at least some of your “dry powder” should be used for a site that meets your skills and objectives.

  • http://www.strebecklaw.com/ Zachary Strebeck

    When (and if) the money shows up, I will take you up on this. Thanks.

  • Justin Cooke

    Hey Zach,

    To be clear – buying a website is rarely a truly passive investment. In fact, and in your situation, I’d be worried about the time you’d be applying to the website that was taking away from your main/core business.

    Now, that being said a $20K – $50K investment will get you started and you’ll be able to dabble – just know that you’re entering a new learning curve. You can look for something that’s MORE passive than others – just know that the little time you will be spending won’t be at the best ROI and that your main goal will be learning/growing.

    Those who seem to really be successful with the sub-$1M websites are those who build team and process in such a way that a website acquisition IS mostly passive – only because they’ve got a proven team going to work on that new site. First purchases are rarely that way, but are the first step in that direction, of course.

  • http://www.tropicalmba.com/ Dan Andrews

    I think one appeal of investments like index funds etc is understanding the nature of time, like you can be nasty at customer dev / lead gen and sometimes your business engine just isn’t enough to capitalize on it in relatively short order, and replacing the engine could take years, so it’s that sort of leveraging time mindset (and other forces outside of us) that makes this stuff attractive… i remember thinking at one point when I was selling Valet Podiums that I simply can’t work any harder… i might have been fooling myself, but it would take years for me to see the payoffs. If I had cash at the time I think it would have made sense to spend at least a bit of time on it.

  • http://www.tropicalmba.com/ Dan Andrews

    you got it Joe, I am very curious to follow along with that.

  • http://www.tropicalmba.com/ Dan Andrews

    also if you think it’s going to help you avoid taxes you defo need to consider that in advance and talk to an accountant.

  • http://www.linkedin.com/in/sholaabidoye/ Shola Abidoye

    “I’ve never been in a position in business where I can safely invest $x to acquire a customer and confidently know that I will get that money back” . If your business relies on ‘free’ traffic, you never will. Other business models allow for controllable, repeatable, scalable and predictable customer acquisition and minimum lifetime value. I’ll just leave it there – to each his/her own!

  • http://wpcurve.com/ Dan Norris

    That may be true but we are also growing by 20% per month without it and that is about as far as I would want to grow a service business.

  • http://www.marketfit.net Gregory V. Diehl

    I hired Shola Abidoye, founder of Converport last April to help me create, publish, and market a bestselling book for $5,000. Unfortunately, after delaying everything six months past the due date, she decided to cut off all contact with me without delivering what I paid for.

    I know these are strong accusations I am making, and I am prepared to support them with emails and recorded calls if necessary. Please let me know if you have any questions or any suggestions for getting Shola to reach out to me so we can resolve this dispute.

    You can read the full details of my experience getting ripped off and scammed by Convertport here: http://www.borderlessblog.com/shola-abidoye-scam-inspired-me-write-self-publish-first-book/

    Because she has ignored all my attempts at peaceful resolution, I don’t see what other choice I have but to start warning others about her fraudulent behavior before I gather to evidence necessary to take her to court and try to get my money back.

    I have yet to receive even a partial refund for what I paid, and Ms. Abidoye publicly denies that I hired her to do these things. She has taken a very insulting and condescending tone to me or anyone who questions her about this incident.

    Gregory Diehl

    livefreeretiree@gmail.com

  • http://www.marketfit.net Gregory V. Diehl

    I hired Shola Abidoye, founder of Converport last April to help me create, publish, and market a bestselling book for $5,000. Unfortunately, after delaying everything six months past the due date, she decided to cut off all contact with me without delivering what I paid for.

    I know these are strong accusations I am making, and I am prepared to support them with emails and recorded calls if necessary. Please let me know if you have any questions or any suggestions for getting Shola to reach out to me so we can resolve this dispute.

    Because she has ignored all my attempts at peaceful resolution, I don’t see what other choice I have but to start warning others about her fraudulent behavior before I gather to evidence necessary to take her to court and try to get my money back.

    You can read the full details of my experience getting ripped off and scammed by Convertport here: http://www.borderlessblog.com/shola-abidoye-scam-inspired-me-write-self-publish-first-book/

    I have yet to receive even a partial refund for what I paid, and Ms. Abidoye publicly denies that I hired her to do these things. She has taken a very insulting and condescending tone to me or anyone who questions her about this incident.

    Gregory Diehl

    livefreeretiree@gmail.com

  • http://www.marketfit.net Gregory V. Diehl

    I hired Shola Abidoye, founder of Converport last April to help me create, publish, and market a bestselling book for $5,000. Unfortunately, after delaying everything six months past the due date, she decided to cut off all contact with me without delivering what I paid for.

    I have yet to receive even a partial refund for what I paid, and Ms. Abidoye publicly denies that I hired her to do these things. She has taken a very insulting and condescending tone to me or anyone who questions her about this incident.

    I know these are strong accusations I am making, and I am prepared to support them with emails and recorded calls if necessary. Please let me know if you have any questions or any suggestions for getting Shola to reach out to me so we can resolve this dispute.

    Because she has ignored all my attempts at peaceful resolution, I don’t see what other choice I have but to start warning others about her fraudulent behavior before I gather to evidence necessary to take her to court and try to get my money back.

    You can read the full details of my experience getting ripped off and scammed by Convertport here: http://www.borderlessblog.com/shola-abidoye-scam-inspired-me-write-self-publish-first-book/

    Gregory Diehl

    livefreeretiree@gmail.com

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