Why 90% of Entrepreneurs Fail -- & Why You Won't

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Scenario: "Dude, we gotta invest in this money now. Now. Now. Now! Every minute we're not investing the money we have, we're losing increased sales, market share, fat profits, and our future Bentleys. I don't care what you do today; just invest our excess cash! Now!" "Wait, sucker!" -- you'd say. "If we can't find concrete, solid, hard information on an investment's benefits -- we won't invest. Pass!" And, you'd be a smart, rockin', ridiculously-good-lookin' businessperson.

You = Better than 9 out of 10 entrepreneurs who close shop within 2 years.

Ever made a ridiculously bad investment, then learned why it sucked so badly? If you're like most of us, you probably knew diddly about the investment. Your friend Bucky told you he had hot stock picks, a restaurant business, and four condos for you to get rich. Just contribute whatever you can, and you'll be rich -- he said. So you gathered your entire life savings, and invested that chunk. What happened next? Kabooooooom! Investing clumsily = The primary reason why most entrepreneurs fail. Here's how it usually plays out:

Scenario B: Microcosm of how entrepreneurs fail.

10:00 a.m: Danny thinks using a Google AdWords campaign will bring him hundreds of clients. 10:30 a.m: A "fabulous marketing expert" -- who coincidentally made all his money selling his 15 "fabulous marketing books" -- advises Danny to invest 50% of his money in marketing because it's oh-so important. 1:00 p.m: So he puts 50% of his money in AdWords on advice from an additional e-book author (who, also coincidentally, makes his money selling only "How I made $205,889.32 using AdWords" - blah!). 3:00 p.m: He creates his ads, submits them, and hopes for those "hundreds of clients." 5 days later: He gets a notice from Google: "You owe us several thousand dollars. Pay up, buddy boy." 6 days later: Danny closes shop. Files for bankruptcy. (Sidenote: Then finally figures most self-described "experts" are bad, bad, bad people.)

"What do I do? What do I do?"

Be smart. Of course that's easier said that done. Three sweet tips for ya:

  1. Don't put all your eggs in one basket.

    Ask yourself: "If this investment fails, I you have money remaining to survive another day? How big of an impact would it be if that investment fails? Is it minimal?" Google, Walmart, HP, Apple, Dell, Yahoo, and MySpace had significant cash left over after their initial failures. The ones that failed that you don't hear about? Zero.
  2. Invest minimally at first.

    If one small investment falters, you'll be okay. But, if that small investment works out, things are looking good for you to invest some more. Google Labs has a number of different ongoing projects; if one shows signs of hope, the company starts pumping more resources into it. Remember:
  3. It takes patience.

    Yeah, we're sure you're tempted to just throw it all on the table, and see what you get. That's why some bad people exploit those get-rich-quick schemes. As with anything though, throwing all your eggs out there is a signal for eventual disaster. Your business crumbles if you falter just once.

Take it from our main man, Warren Buffet.

He's the best investor in the history of the universe and its mama -- who urges patient investing:

We have $16 billion in cash not because of any predictions [about a market decline], but because we can't find anything that makes us want to part with that cash. We're not positioning ourselves. We just try to do smart things every day, and if there's nothing smart, then we sit on cash.

The moral:

When in doubt, don't invest.

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Posted on August 18

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