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Business Growth Mantra

Posted By Jason Trujillo, Woodbury Financial, Thursday, October 9, 2014

A Business Growth Mantra: Take Big Actions; Make Little Mistakes

by Steve Parrish

Originally posted at Forbes.com 10/06/2014. Click here for original article.

“My life expectancy is 24 years. My money expectancy is about 15 years.” This is the opening line a new retiree makes to a financial advisor. The discussion, and a number of other financial dialogues between consumers and advisors, is showcased in this series of videos designed to encourage people to take action on their financial goals.

This past summer in Chicago, people were offered free taxi cab rides with an advisor during which they could essentially lay out their financial concerns while being driven to their requested destination. These video vignettes remind me of the popular Discovery Channel program “Cash Cab,” but in this case the test is financial honesty and the reward is useful financial advice.

Take Action
The challenge is not so much finding good advice; it’s acting on the advice given. Think about the individual who said he has a longer life expectancy than money expectancy. If he had taken that cab ride 10, 15 or 20 years ago, would there be a better match up today with his money and life expectancy? I’m guessing that “back when,” whether the advisor recommended he invest in 60 percent equities and 40 percent fixed securities, or vice versa, the resulting difference wouldn’t be all that big of an issue. As long as the individual had actually saved the recommended amount of money, his portfolio would be in far better shape than it is today.

I refer to this as the financial law of “little mistake, big mistake.” A person should consider which financial strategies entail the potential for a little mistake and which have the risk of being a big mistake.

Examples:
1. An advisor suggests that a parent buy a particular life insurance policy. It turns out that the suggested policy is more expensive than another product released a few months later. I suppose purchasing the policy qualifies as a little mistake. However, had the parent decided to wait to buy life insurance coverage at a later date—and in the meantime becomes uninsurable or passes away —now that’s a big mistake.
2. An individual has money available to invest in equities. She uses dollar cost averaging to spread her entry into the market over 12 monthly installments. If it turns out the stock market had huge growth during those months, it could be argued she made a mistake. Why? She would have received a higher return on her investment had she participated in the stock market all at once. In the scheme of things, however, that’s a minor error. In comparison, not investing at all during those months would be a bigger mistake.

 

Taking Action in Business
You might contend that the “little mistake, big mistake” approach won’t work in the context of growing one’s business. The very nature of growing a business involves taking risks. I would counter that yes, business involves taking risks, but it also involves minimizing mistakes. When a successful business owner assesses a business growth opportunity, there is a natural balancing of the investment risk and the reward potential. For example, when an entrepreneur considers which expenses in a project will be variable and which will be fixed, that entrepreneur is in effect asking, “How can I limit my downside exposure; if it doesn’t pan out, can I limit this venture to being a little mistake by making some costs variable instead of fixed?”
Similar assessments go into the process of deciding whether to grow a business organically or through acquisitions. There are pluses and minuses to all these decisions. The trick to the decision-making process, however, is to keep the mistakes little, and the growth big.

Tags:  business decision-making  business development  business exposure  Business growth  business mistakes  business planning  business risk  financial planning  financial strategies  Forbes  INC 5000  Principal Financial Group  Steve Parrish 

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