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  April 8, 2016
A Gambler’s Fallacy...

 

Gambling can turn into a dangerous two-way street when you least expect it. Weird things happen suddenly, and your life can go all to pieces.
                           ~ Hunter S. Thompson

So what do you think of my plan?...

I sat there for a brief moment pretending to be lost in deep thought.  

I had just spent the last hour listening to a draft version of a very oversimplified and extremely optimistic business plan pitched by a young man whom I am currently mentoring... I’ll call him Mike for the sake of anonymity.

The entire business plan was sketched out on two sheets of paper.

It described a scheme to flip residential houses, providing windfall Thinkingprofits to Mike and his two classmates... well... if and only if... all of the stars aligned and all of their initial assumptions proved correct.

As a great proponent of entrepreneurial pursuits, I often tend to maintain an optimistic attitude when it comes to others pursuing their own dreams of success.

Rarely do I splash the cold water of reality into the faces of those wanting to charge ahead in search of the American dream... however... in this particular case, a dose of reality was chiefly warranted.

Instead of summarily dismissing the whole idea entirely, I decided to spend some time asking Mike a series of difficult questions that would hopefully demonstrate that he should perhaps rethink his plan.

The questions were not unlike those posed to contestants pitching ideas on the TV series "Shark Tank".

The essential idea of "flipping" houses was to purchase a home in disrepair at a deep discount, quickly making essential repairs and improvements to the house, and then reselling the house at significant profit.

I asked Mike about the team’s prior experience of buying and selling residential real estate.

This was extremely important in being able to find the right house in the right neighborhood and then being able to negotiate a price where a potential profit could be made.  

There are several professionals, who have many years of experience, competing for these same houses.  What is it that would allow Mike and his partners to compete with these professionals?

I asked him about their current financial resources and their ability to secure credit from lenders.  

Since they were relatively young with little experience, banks and other lenders might be very hesitant to lend to them.

I then asked him about his (and his partners’) construction trade skills. These skills would be essential to evaluating and assessing areas that needed repair (remember... these houses are fixer-uppers). Additionally, unless they were prepared to do the work themselves, they would need to hire competent contractors who need a certain level of supervision and management.

With each of my questions, it became readily apparent to me that Mike and his partners were ill-prepared to take on this type of endeavor.

It also was painfully clear that Mike had no intention to listen to any reason or logic that I might add to this discussion.

With me, he saw just another person of some assumed authority telling him things that he simply did not want to hear.

He was fixated on the dream... rather than the merits of the actual plan.

As a serial entrepreneur, I have begun at least a dozen new businesses throughout the past 43 years (I started my first business at 12... painting house numbers on curbs) ... some of these business were more successful than others.

Each new venture extended my knowledge base and brought me valuable experience that I would ply into future endeavors.

Today, I’d like to share just a few of those lessons with you (and perhaps Mike... as he is a frequent reader of the OptiFuse blog).

Start small and take little bites

It seems that the age-old concept of starting in the mailroom (do they even have mailrooms anymore?) and working your way up is a lost art.

Long before Michael Dell became the CEO of a $60B computer electronics company, he spent his evenings and weekends assembling computers in his dorm room and selling them to fellow students at the University of Texas.

Bill Gates was a simple programmer... Steve Jobs and Steve Wozniak worked out of their garage building rudimentary computers, Ruth and Elliot Handler made wooden doll furniture in a second bedroom of their home, after several years they decided to make a "grown-up" doll (all dolls prior were essentially babies) and named it after their daughter "Barbie".

There are countless examples of people starting at the bottom and learning the business from the ground up.

Although there are a few companies that have been launched over the last 15-20 years, with little more than a wild new idea, that are literally valued at a billion dollars (or more) almost overnight, it is safe to say that these companies are anomalies and that the smart money is typically bet on companies that are built with consistent growth over time.

Knowledge and Experience

The best way to avoid mistakes is through experience... the best way to get experience is by making mistakes.

The reason why most entrepreneurial ventures fail is due to the lack of experience by the management team (more than likely the "team" consists of just the owner).

A few years ago, a study was conducted at MIT’s Sloan School showing that a company started by a sole owner was nearly 4 times as likely to fail as a company with 4 partners, each one with a varied skill set.

From my own experience, I failed more often as an entrepreneur, due to my lack of skills and experience than any other reason. I now know that I need to surround myself with people with a high level of skills and talents if my company is to become successful.

Asking for help

In today’s modern world, there are a myriad of resources available to help you, no matter if you are an entrepreneur, student, employee or manager.

The Internet and public libraries, of course, are an endless source of basically free information and instruction. One can find data on practically anything if you know where to look.

But beyond those research tools, there are people willing and able to help at little or no cost.

The key that unlocks this generous assistance is our willingness to ask for help.

But for some reason in our DNA, many of us erroneously believe that we need to go at it alone... being that mythical lone wolf or cowboy.

It’s perfectly okay to announce that we are stuck or lost and that we need help. There is no shame in getting a hand up.

One of the other critical aspects of asking for help... is being able to accept that your way might not be optimal...

Not only is it essential that we ask for help... but it is equally important that we actually follow that advice and counsel by those willing to lend a hand.

I highly doubt that Mike and his friends will heed any of my guidance. They are young and head-strong.

In some ways I hope that their gamble pays off... but then there is a side of me that believes if they were to succeed, they would simply just double down on their bet the next time...

The worst thing a compulsive gambler can do is to win the first few times... wrongly making them believe that winning is easy... and causing them to eventually lose it all...

Better to start small, gather experience and knowledge, and ask for help along the way...

...it might be boring... but a lot of success is just the culmination of doing the hard work.

Thank you very much for your support of OptiFuse where we hope to do the hard work to earn your business.

Jim Kalb



Jim Kalb President

Email - jimk@optifuse.com
Website - www.optifuse.com
Twitter - @OptiFuse


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