This morning we were thinking about investment versus expense in the hunt for value.
When you run a business you make decisions that are intended to move the business forward. While you are making decisions, some of those will undoubtedly have costs attached. I’ve found that how you think about these costs will impact the value that you gain from them. If you view them simply as expenses, than you will be focused on reducing them. If you view them as investments, you are more focused on whether the cost is gaining you your outcome. Which posture you choose is key.
Here’s an example to illustrate the two postures:
- Suppose your company’s marketing budget is $10K a month. For a lot of businesses, $10K is quite a chunk. It can be a very large expense and so you try to cut your marketing budget to save money. This is when you see it as an expense. You are focused on the outlay of cash, and it makes logical sense to reduce it.
- However, what if the $10K a month was an investment to gain $100K a month in revenue? All of a sudden, the posture changes. You remain aware of the cost, but you start asking different questions. Your focus shifts to your desired outcome (revenue) and you ensure that your investment gives you the best chance to get there.
In our careers, we’ve had many conversations with business owners who are simply focused on cutting expenses. As it turns out, these businesses often fail to thrive. Instead, the ones who thrive are those who strategically invest in projects and activities that drive the business. These thriving businesses are happy to spend because they see it as a way to accelerate towards their desired outcome. Now, don’t get me wrong, they’re smart about it. They look for investments that net 5X and 10X the investment. This way you don’t get bent out of shape if it doesn’t work out (results in business are never guaranteed)** and you are elated when it does.
We write this, because at the end of the day, trading is a business. You’d be surprised how many people we encounter who want to get all they can and have no expenses. Guess what, it doesn’t work that way.
Don’t set yourself up for failure by focusing solely on cutting expenses. Instead, weigh carefully the strategic investments you need to make to accelerate your business and drive it forward. This includes everything from trading platforms, commission rates, brokers, and mentors.
Take the posture of investment and invest wisely. You’ll be glad you did.
ps. We talk a lot about strategic investments for trading businesses in our 2-Day Workshop. We’d even encourage you to think about our workshop as one of those investments.
**Typically Angel Investors expect 10X returns from the companies they invest in. This is because 9 of the 10 companies they invest in will fail. They need the 1 that works to pay for more than the loss of the others.