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Top 5 mistakes in starting investing (and a business)

Posted by admin on November 20, 2008 in entrepreneur

In a previous life, I use to meet a lot of people with start-up businesses. They are absolutely great people to meet because they possess so much energy and passion. It is like having a bolt of energy walk into your office.  But, alas, you also become good at figuring out which start-up businesses will make it and which ones won’t. It, sadly, becomes a bit of a bad re-run.

What I have noticed is that a lot of the mistakes that start-up businesses make are the same that many people starting to invest make:

1. Why are you doing this? It sounds simple but why start a business or why invest? If its only to make money, the business will die a quick death through a lack of passion. Same thing with investing. Making money for money’s sake is a soul-less endeavor. If you are starting a business to solve a problem or investing to give your kids opportunities you did not, there’s a true purpose driving you on those nights when we are all down and asking ourselves “why?”
2. What is your niche? Business and investing are tough subject-matters to grasp. There are so many experts and the rules change all the time. So have your knowledge be an inch wide and mile deep rather than a mile wide and an inch deep. I have very rarely met a successful investor who was good at stock investing and real estate investing. They were great at one and did it well over and over again. Same thing applies to business. Find a niche and do it well. Most small businesses simply don’t have the band-width to sell to 1 million people like the business plans say. Sell to a small, defined market and focus on it.
3. Don’t reinvent the wheel. People have been starting businesses or investing for centuries and doing it quite well. What makes one special enough to reinvent the wheel? Money Gardener boils down financial security in simple elegance. I would add don’t chase the exotic financial products. Same thing with business. Take something someone has done well at and copy it but make it better.
4. Work hard. The book The Millionaire Next Door states that one of the keys to financial independence is that those who have work harder than those who don’t. Sounds simple right?
5. Don’t use do it, plan it. The big failing of entrepreneurs is that they spend so much time in the business, they don’t spend time to plan the business. Same thing with investing. The investing plan set 3 years ago may have to be altered to meet your changing circumstances. Quarterly net worth updates or business planning sessions also allow you to get a big picture on what is going on and adjustments that need to be made.