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

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.

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.

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.

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)

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?

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.

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.

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.

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

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.

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.

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.

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

What a great episode Dan. Investing outside of my business is something I need to learn more about. I do invest almost everything back into my business but I really need to have some investments outside as well. What do you think about Bitcoin? I was reading this article: https://www.vettedopps.com/bitcoin/ and it is very intriguing. I am thinking of getting into Bitcoin but wanted to get your input.

Thanks Dan! I will be watching for your episode in January.