Taking calculated risks with people and investments

From: myfirstmillionpod

Investing in People

Taking calculated risks, particularly with individuals, is presented as a crucial, albeit sometimes painful, path to success. The philosophy advocates for “doing it wrong before you do it right” [00:35:49]. This means acting quickly on an idea and hiring individuals who are available, even if they aren’t the perfect fit, to gain initial momentum and learn through mistakes [00:36:04].

Case Studies in Taking Chances:

• The Restaurant Venture (Bad Start, Good Outcome): An entrepreneur’s initial attempt at opening a restaurant resulted in an $800,000 loss due to signing a bad lease and hiring the wrong manager [00:36:28]. However, this failure provided invaluable learning and led to meeting a successful restaurateur next door, eventually allowing the entrepreneur to buy into a “wonderful restaurant” that he understood because he had owned a bad one [00:36:48].
• Hiring a CFO (Unexpected Success): A chance encounter with a 23-year-old bank employee, Chris, led to him being hired as a CFO despite having minimal accounting experience [00:40:40]. Chris became a business partner for 12 years, significantly contributing to the career’s success [00:41:10].
• The Plumber Turned Warehouse Manager (Failed Bet): A plumber apprentice was hired to run a new warehouse, with the vision of him becoming a partner in an in-house 3PL business [00:43:08]. Despite initial hope, the individual eventually tried to start his own competing venture using company time and resources, leading to the end of the partnership [00:44:41].
• Johnny, the Eighth-Grade Programmer (Major Success): A 13 or 14-year-old programmer, Johnny Dallas, cold-called asking to hang out at the office during summer [00:45:20]. Given an immediate task to build a viral quiz website, he delivered by midnight [00:46:16]. He became a full-time employee in eighth grade, skipped college, and became the youngest Amazon employee after an acquisition [00:46:30]. Johnny is now starting his own company, securing a term sheet from a top VC firm at a $38 million post-valuation [00:47:20].
• Safwan, the Proactive Graduate (Promising Start): A college graduate named Safwan impressed with intelligent and persistent follow-up, offering actionable ideas even before being hired [00:51:00]. His “irreversible decision” to quit his job to work for the company, coupled with his big-picture thinking, immediately marked him as a “winner” [00:52:00].

Identifying “Winners”: Key indicators of a promising individual include “gumption,” which involves following up proactively within 24 hours and moving the ball forward [00:48:32]. Individuals who want to capitalize on opportunities will be persistent and actively propose next steps [00:50:00]. Another positive sign is someone who “thinks bigger” than the leader, pushing for faster timelines or larger goals [00:59:50].

Delegating and Managing Inbound Opportunities: Effective delegation is crucial for managing numerous opportunities and reducing personal “mental taxing” [00:56:29]. By having a trusted team member manage email and Twitter inbound, opportunities can be filtered, and initial conversations can happen without the direct involvement of the principal, allowing them to focus on high-value interactions [00:54:24]. Hiring excellent vendors, bankers, or assistants who provide “Four Seasons service” can also significantly offload tasks and improve efficiency [00:57:16].

Investment and Business Strategies

The discussion delves into differing investment strategies and experiences, specifically contrasting “get rich fast” via big swings with “get rich slow” through consistent, less volatile ventures.

The “Get Rich Fast” vs. “Get Rich Slow” Debate:

• Startup Investments (The “Olympics of Business”): Venture-backed startups are characterized as the “Olympics of business” [00:35:35]. They represent a “big swing” with a low probability of success (an 80% failure rate) [00:17:20], aiming for a billion-dollar prize [00:18:40]. While the payoff can be massive, entrepreneurs often sacrifice lifestyle, work extremely hard, and typically achieve a median result of “essentially zero” [00:19:12]. The venture path is often driven by ego rather than logical or rational decision-making [00:19:58]. Even paper gains from high valuations don’t translate to liquid wealth until an IPO or sale, which can take 10-15 years [00:17:09].
• “Boring House” Strategy: An alternative involves choosing ventures with an “80% chance of giving you a pretty solid return” [00:13:12]. This approach focuses on businesses that provide significant cash flow, offering an “awesome lifestyle from essentially year one” [00:21:06], or buying existing, already-working businesses and growing them [00:21:11]. This is seen as a “far better path on paper” [00:21:17].

Andrew’s Approach to Business Ventures: Andrew has deliberately chosen the “boring house” strategy [00:13:30]. He started by taking most of his profits (80-90%) from his agency and incubating new software companies [00:25:30]. This evolved into a strategy of buying businesses, which he found more effective than starting new ones [00:26:21].

• Compounding Returns: By buying businesses at 3-10 times earnings, leveraging debt, and doubling their value within 1-2 years, he achieved an estimated compounding rate of around 40-47% [00:29:40]. This consistent reinvestment of profits over 15 years has led to a portfolio of businesses worth over a billion dollars, generating over $50 million in annual profit [00:27:39]. This demonstrates the power of long-term compounding, where even a little better than average returns can lead to “hundreds of millions of dollars” [00:30:37].

• Examples of Long-Lasting Businesses: Businesses like Accenture, which provides consulting and digital transformation services, are expected to exist for decades [00:31:21]. Similarly, agency services like MetaLab are positioned for the next 20 years as more businesses transition to technology [00:31:40]. Other examples include Aeropress, which is seen as a product that could exist for 50 years [00:32:01], and stable local businesses like restaurants and bakeries [00:32:19].

Personal Philosophy on Risk

The conversation also touches on insights on investing time and money to increase personal leverage, and balancing personal wealth aspirations with business growth.

• The “One-Foot Hurdles”: Rather than attempting an “800-pound bench press” on day one, a more strategic approach involves jumping “one-foot hurdles” to feel a sense of success [00:35:10]. This builds confidence and avoids the burnout that can come from repeated, brutal failures common in high-risk ventures like tech startups [00:35:28].
• The Downside of Over-Delegation: While delegation is important, over-delegating personal tasks can lead to a lack of satisfaction from doing manual work and diminish camaraderie with others [01:05:17]. There is a balance between outsourcing miserable tasks and engaging in labor that provides a sense of accomplishment and connection, reflecting a “caveman brain” need for physical effort [01:06:56].
• The Five Pillars of Happiness: An entrepreneur’s business partner, Chris, developed “Sparling’s Five Pillars of Happiness” [01:01:00]:
  1. See family every day [01:01:14].
  2. See friends and loved ones multiple times a week [01:01:18].
  3. Be in nature once a week [01:01:21].
  4. New and novel experiences once a month [01:01:23].
  5. “Feel like a man or a woman” (engage in tough, gritty activities) once a quarter [01:01:26].

This framework suggests that a balanced life, incorporating these pillars, contributes to overall well-being, complementing financial success.