Going ‘All In’ When You’re Broke
Two weeks ago I wrote a post about when you should (and shouldn’t) invest large sums of money in your business.
This post discusses a related point; an interesting benefit of starting off in business when you’re nearly broke. Yes, there’s a benefit of being broke when starting a business.
Not Flat Broke
I was flat broke for a few months last year and it was not enjoyable. Cold-calling to drum up non-existent business so I could pay my rude Vietnamese landlord was very, very stressful.
You can’t invest much in your business when you’re flat broke. I remember I couldn’t even afford to hire a $3/hour freelancer to help me with data collection!
Being totally broke isn’t good. You need to have some money or you can’t do anything. This post is about when you have a small amount, most likely much smaller than you’d like. (This is most people’s situation, especially young people.)
The One Benefit Of Being Nearly Broke
When you’re just starting out in business it may actually benefit you to be close to broke. Yes, you don’t have nearly as much opportunity for upside, but your downside when something goes wrong is also limited. You won’t fall as far when you screw up, and that’s a real benefit when you’re a newbie and falling is much more likely that a big win.
When I finally scraped together $1,000 I used it to buy products and try to sell them on Amazon.
I went ‘all in’ and bought as much product as I could. Whatever was left over would be sucked up by my advertising budget. Boom, right back down to $0.
Wow, it was an exciting ride, putting it all on the line, rolling the dice, and dreaming of the future. It was a LOT of fun.
What happened? Only 2 of the 9 products I bought got any sales whatsoever and it wasn’t a lot of sales. Then I ran out of inventory due to bad planning.
I was once again, virtually broke. But how long did it take me to get my money back? Good news, I had already earned it back. I had done some more freelance work and was ready to throw another $1,000 into my business.
I went ‘all-in’ again and this time the product sold well and generated a profit. I learned from the first attempt and was ready to try again just a few weeks later.
Imagine A Different Story
Let’s say I had inherited $100,000 and attacked this project with the same gung-ho attitude. Yes I’d be starting out with more money but I probably would have lost a large portion of it, if not all of it, to learn the same lesson. If I lost it all it would take me 5+ years of saving to get it back!
I wouldn’t have learned 100X but I would be out 100X more money.
Imagine if I had taken out a massive $100,000 loan and lost it. Then I would be in a deep financial pit.
Or imagine if I had $500,000 saved for retirement and invested that! Any loss there would drastically affect my quality of life.
Large mistakes are more difficult to correct. It’s much easier to recuperate a lost $1,000 than a lost $100,000! Your mistakes, which are very common early on, are more easily forgiven with smaller numbers. Being nearly broke forces you to make small mistakes, even if you’d like to take bigger risks early on.
Try, Try, Try Again
When you’re broke you can go all in, dream of doubling your money, and then lose it all. Then in a few days you can do it again. Then again. Then again and again if necessary. The learning cycle lasts just 1-2 weeks.
Rather than taking one fatal financial hit you just take lots of little punches that sting but are relatively easy to recover from. Eventually you learn to block the punches and score some real points.