Entrepreneurs put a lot of pressure on themselves to start a profitable business. Although that is the ultimate goal, it can be a huge obstacle at the very beginning. And I’ve seen that obstacle actually PREVENT entrepreneurs from starting a business — they’re so focused on “how do I earn a profit on this deal?” that they freeze up and don’t actually complete the transaction.
I thought about this problem from time to time but never put words to the idea until a real estate investing client of mine mentioned a similar problem that occurs among real estate investors. He says that aspiring real estate investors will similarly freeze up and avoid doing the first deal because they can’t figure out all the details and they’re worried about how they’ll make money on it.
The same can be said for first-time capital market investors who buy a stock and then watch that stock drop. (And there’s some kind of rule in investing that almost guarantees it WILL drop!!!)
There is a solution… and I have to attribute this solution to my friend and client, the real estate investor I mentioned above: Mark Evans (‘The DM’). Mark gives his real estate investing students some great advice that is as true in the financial and business world as it is in the real estate investing world: He tells his students not to bother trying to make any money on their first real estate deal. If they do, great. But if they don’t, don’t worry about it. Instead, just do the deal. See how it works. Work out the bugs. Watch how the money flows. You can always make money on your second and third and fourth (etc.) deals.
Entrepreneurs and capital market investors should learn the same lesson: Profit is important in the long run but in the short run, the more important lesson is getting started and learning how the business/stock/property/deal/whatever works. That takes the pressure off of making money the first time. Use whatever income you do make to cover some of your costs, but consider the real value of the transaction to be educational rather than financial.
Do the deal. Forget about profit for the first time… and learn.
I’ve recently started up a couple of other businesses and that is my initial goal. If you are starting a business, or buying a new real estate or financial investment, or even if you’re trying something new (like a new line of business or a new style of investing), steal this idea: Forget profit on the first deal. Just do the deal and “profit” from your new-found knowledge.