One of the greatest lessons I’ve learned through trading stocks is that you only realize a profit once you sell the underlying security. I have made the mistake of sitting on 50%, 100% and even 200% profits on a particular stock, only to see those profits evaporate.
This is always a very frustrating experience; almost more frustrating than sitting on a paper loss and waiting for it to come around. Of course, there’s no guarantee that this will happen to you, but if you’re a patient guy who usually invests in good companies at fair prices, then the possibility is always there.
When there’s hope…
Not all investments are in stocks. Sometimes you invest in yourself. You do so by starting a company or heading up a project. The buck stops with you; there’s no one to pass it on to.
In these situations, not only do you invest in yourself, but you invest in yourself altogether. Such projects consume so much energy and effort that it is easy to become emotionally attached to them. But, as with stocks, sooner or later you have to detach yourself from the project, people or company that you’ve dedicated yourself to.
This lesson is paramount in business: You can build an enterprise from scratch, see it prosper, but eventually, you do have to let it go. Sometimes you decide to sell, sometimes someone else forces that decision upon you. Whatever the case, to quote a legendary music mogul, “Business is fluid;” it comes and goes.
Some people sell to make a profit. Others sell for quite the opposite reason — because they have failed to reach profitability. In either case, all business people and entrepreneurs eventually come to a point where they need to walk away from the business that they founded or built.
As a young professional, you too will one day have to leave a team, department or company. Chances are that it will not be a company that you ran, let alone one that you founded, but to a large extent, the framework to decide what exit strategy you should take will be the same as if you did.
You need not be alone in this endeavor. You can learn from other business leaders to determine which approach to departing is right for you.
Rush to the top
Russell Simmons built up Def Jam into a formidable machine in the music business. He sold it to Universal for $100 million, then used the proceeds to launch numerous other businesses. Had Simmons clung on to Def Jam, he would have forgone the loot and never had a chance to found other enterprises.
I will survive
Ian Schrager was on top of the world as co-owner of Studio 54. He lost it all and went to prison. When he came out, he started all over again with Ian Schrager Hotels, climbing to the top once again. Then he announced that he would be exiting the hotel industry for the real estate world.
King of the jungle
Amongst media moguls, Kirk Kerkorian is a legendary figure, having made billions by repeatedly buying and selling one company, MGM. Sometimes he had to sell, other times he knew that the value of his holding had topped. Whatever the case, Kerkorian always knew exactly when to detach himself from his baby, and he reaped tremendous profits in the process.
The Weinsteins knew when it was time…
The Weinstein brothers built Miramax into a powerhouse. Then, they made millions when they sold it to Disney. Then, they got a divorce from Disney. In this case, it was a personality clash and a control grab that led to the divorce, but the fact that the duo was willing to let go of the studio that they named after their mother and father showed a maturity that is necessary to succeed in business.
No guarantees, no promises
In each one of these scenarios, these business-minded individuals decided to sell for one reason or another. Astute entrepreneurs sell when the market has topped off — they know that if they wait too long, their potential gains might decrease. In the last scenario, it’s conceivable that the Weinstein brothers did not want to sell at all, but knew that they had to due to a personality clash with the head of Disney. In all cases, the leaders knew that they had to walk away from something good to go on to something better.
These men also had the personal drive, determination and persistence to make sure that their lives did not fail, even if one of their ventures did. McDonald’s doesn’t make a better burger, Coke doesn’t make a better beverage, but one way or another, these companies persevere.
Do these case studies suggest that there is no risk involved in such decisions? Of course not. For every one success story, there are hundreds of miserable failures. For every astute business decision, there are countless gaffes.
But business is not for the faint of heart. What these men shared was not an industry, upbringing, education, experience, or even a personal style; what they had was a knack for business and the willingness to take a risk.
No risk is not worth taking, but before diving in, understand what is at stake, what the upside is and what the downside is… and remember to enjoy the ride. It could be a lot worse.
E-mail of the week:
I graduate from college this year and have to break the news to my parents that I will not be continuing my education by getting a masters degree, nor will I be entering the workforce. Instead, I plan on using my savings to start a business. How can I possibly approach this situation?
If you plan on starting a business, you first need to realize that you will always have to give people the kind of news that they might not be looking for. This, my friend, is just the beginning. That being said, you suggest that you have savings stashed away. Unless those savings came straight from mom and dad, then you are technically entitled to spend them as you wish. Most college kids do not even have savings, and those who do are usually not mature enough to invest them wisely. Instead of investing in others, you are planning to invest in yourself. Good for you!
Now, put the cork back into the bottle and tell me this: What on earth do you plan on starting? Actually, don’t tell me — tell your parents. Your parents love you and want to see you succeed. However, if they are not risk-takers by nature, then they will obviously be apprehensive. If that is the case, just formulate to their emotions and rationalize why you are about to pursue this opportunity.
You should — for their sake — have a contingency plan, in case things do not pan out. But, to quote a wise man, you can chuck that plan away in order to stick to your guns and make sure that your business becomes a success.
They will probably not like what they hear, but if you approach this the right way, you just might have your first investors, clients or, at the very least, unofficial cheerleaders! Good luck.
Ash Karbasfrooshan is also the author of Course To Success, available at www.CourseToSuccess.com. His new book, The Confessions of Alexander The Great: 33 Lessons in Greatness, is available at www.AlexanderTheBook.com.