Why Entrepreneurs should not Put All Eggs in One Basket
“Do or die” situation often brings out huge success because I believe people will generally exceed expectations when they are faced in a difficult situation (of course, some would crumble and flee from challenges…)
Aggressive risk-takers pursue “high risk, high gain” business opportunities, with a hope of striking a gold vein and being showered in riches. Some made it, but unfortunately, many fall deep into financial troubles – that almost always includes personal finances.
Why? Because aggressive risk-takers are going all out, including sacrificing their personal finances – in short, they put everything at stake. That is not really entrepreneurship – that’s more like gambling with “winners take all” principle.
In my opinion, when you are single responsible to nobody but yourself, you could take the all-out approach. However, if you have a family to support and/or are the primary bread winner of your family, going all-out is probably the biggest business mistake of all.
A story of a friend
I have a friend who works in a family business. His father, still running the small business, is a great risk taker. He has won big in the past, but he has also lose a couple of deals, including getting scammed by a partner in a half-million dollars deal – something that cause his family to go through deep financial problems.
Still recovering from the loss, my friend and his father are working on a deal worth that much. The catch: My friend – who also runs his own business – has to support his parents because all of his parents’ money is staked on the deal.
That is not a success story – yet – as the deal is in progress.
But here’s a think to ponder: What if the deal went off? This is not about seeing a glass half empty; this is about securing your personal finance while taking on business opportunities – because sometimes, you need to choose between pursuing a high-risk-high-gain business opportunities or ensuring your family welfare.
What I recommend
Maybe I am not a gutsy entrepreneur like my friend and his father, but I like my entrepreneurial journey to progress in a well-planned manner, especially financial-wise. I allocate my eggs into many “baskets” that include retained earnings to grow my business, investing (mainly in precious metals,) personal savings account, and some others. And yes, I don’t do stocks. By having multiple baskets, I spread risks to minimise damages when things go wrong.
Sure, surprises will happen on regular basis – that’s how entrepreneurship works, but I follow Rich Dad Poor Dad’s Robert Kiyosaki’s advice to manage my risk. I believe that taking steps not knowing what will happen as the consequences is risky.
I’m not an expert, so take this as a friendly suggestion, rather than a professional advice… I want every business decision I make to have a cushion or a safety net – just in case what I work on fails. I need to reassure that when I fail, I will be able to move on immediately, as I expect to fail a lot in order to achieve success (failure is my friend!)
I don’t know your financial situation right now, but I suggest you to strategise your plans with your hard-earned money. I don’t think going all-out is a good idea – it’s better to use other people’s money (bank loans, investor’s money, etc.) instead of staking ever penny you have in your business.
So – how about you? Are you a risk-taker who are willing to stake everything to achieve big success or a risk-taker who works on achieving your goal via strong risk management?