Monday, November 5, 2018
Delray Beach, Florida.- “I have a simple question,” RS wrote. “How can you calculate the odds for losing your money before you start a business or invest your capital? I’ve read what you said about it, but I can’t figure out how to do it! (I can, though, tell you that the odds to roll a 6:6 with two dice is 2.77%.)”
I like the critique implicit in RS’s question. The answer is that you cannot mathematically calculate the odds of losing money in a business. But you can figure out if the odds are in your favor.
I told him to start with this:
* Have you ever started the same or a very similar business before?
* If not, have you worked as a senior person in the same or a very similar business?
If the answer is no to either question, the odds are against you.
If I feel the odds are against me, the only way I will invest in a new business is if I can do a series of marketing tests to identify its optimal selling proposition within a timeframe and a budget that I can afford.
That will be different for everyone. For me, the timeframe would normally be up to but not more than 2 years. And the dollar limit would be $50,000 to $100,000.