Determining Factor for the Success of Business Startups
After running a number of businesses with employees for about a decade, I can tell you this: Being a true entrepreneur is not about how many assets are listed on paper under your name as the owner, but how much real profit or return on investment (ROI) you can generate (in a given time) with your investment.
For example, Person A (a true entrepreneur) would say something like this: “I invested $5,000 into this project about a year ago and a few months into the investment, it had generated $250+ per month of revenue for me.” Meanwhile, Person B (a Wantrepreneur) would say: “A year ago, after making a down payment, I owned 25 acres of land, and I’m now in the process of building a business hosting paintball games.”
Do you see the vast difference between these two startups? The first startup had already generated a positive monthly cash flow just a few months into her investment, which is a real Asset establishment. Meanwhile, the other startup owned the land (on paper), but with negative cash flow. He makes a monthly mortgage payment to the bank while not yet generating any significant revenue. This is basically just another liability added to his portfolio.
Now, if Person A replicates the profitability from that first investment model, we can predict a sizable ROI and assets she will accumulate over time. Meanwhile, Person B might struggle to get his project off the ground. And, even if that project finally takes off, it may take a while and might be harder to replicate than the business approach of Person A.
A good example of professionals conducting real-life business evaluations can be seen on Shark Tank. You can watch past episodes on YouTube to get an idea of how astute investors evaluate businesses and ideas. The “Sharks” often ask the type of questions that quickly hone in on the ROI of a company and its operation. They respond positively to those startups who know their numbers (ROI) and understand the business operation. On the other hand, if any startup has too many liabilities with a large amount of capital already invested without generating a profitable ROI, these sharks will tear them apart with full criticism.
Whenever you invest with the intention of entrepreneurship, you should always ask the key question of whether your investment is creating an asset or a liability. Simply put: An asset is something that puts money in your pocket each month, and a liability is something that takes money out of your pocket each month. You will have both Assets and Liabilities, but you want the end balance to be positive—and the greater the positive, the better!
If you’d like to learn more on the topic of building assets and minimizing liabilities from a professional who walks the talk, I recommend the practical book, Cashflow Quadrant: Guide to Financial Freedom by Robert T. Kiyosaki (author of Rich Dad Poor Dad).
I hope you find this short article helpful. If you do, please share it with others who you believe will benefit from it as well. Thank you!