I like investments because they work for me while I sleep. They also work for me while I vacation on a beach in Hawaii.
The difficulty, of course, is finding a profitable investment.
Basically you invest in either a company or a person. Either way, an investment should have three key attributes:
- An innovative idea.
- A ripe market.
- Great execution.
While a good idea is important, the idea alone is not enough to guarantee a profitable return.
I used to invest in projects based solely on the idea. I spent almost $1,000,000 producing a movie in the early 80’s. The idea was . . . well, the title was Party Animal. If you’re male and under 20 you might enjoy it. I didn’t care for the execution of the idea, and lost a lot of money.
I invested more than $1,000,000 in a product called “Smart Pill.” This is a capsule which is swallowed then progresses through the gut to diagnose certain intestinal conditions. A great idea. Unfortunately the CEO was inexperienced in financing, and I was left with a substantial income tax deduction when my entire investment disappeared.
A good idea alone is not enough.
When you evaluate any investment, make sure there’s a strong market (present and future) for the product or service.
I have read that when the telephone was invented a prototype was presented to the mayor of Chicago.
“This is a wonderful invention,” he said. “I can foresee the day when every city will have one.”
You might remember that years ago FedEx initiated an amazing service. You could bring a document to your local FedEx office. They would fax your document from that office to their office near the recipient, and then deliver the faxed document. Wow! But that service lasted less than one year. Their cost-conscious clients soon bought their own fax machines (remember that slick paper?) and faxed directly to each other. The market for the FedEx innovation vanished.
I have been asked over the years to help other entrepreneurs get started. I like to do this. I have revealed my forms and operating procedures to potential competitors.
I am happy to share this information because I realize that the idea itself, while important, is not the primary driver behind success. The operating procedures that I and my staff have worked out over the years are also important. But the procedure, “Collect all rents strictly on time and collect a late fee if the rent is paid after the grace period expires” is just a guide.
In real estate the three most important factors are “location, location, and location.” In business the three most important factors are “execution, execution, and execution.”
On the internet you can easily find all of the lyrics to the song, “Over the Rainbow.” But have you ever heard that song sung off-key and with a scratchy voice? Perhaps it should be sung by Judy Garland.
The first successful computer spreadsheet was VisiCalc, introduced in 1979. I’ll bet you don’t even know what computer first used it. And VisiCalc has been completely overtaken by competitors. It isn’t around today.
Let’s abandon our fantasies about investing in the next great idea, or the next great market, and focus on all three factors – idea, market, and execution, both at the office and at home. Your investments should prosper, and so should you.
P.S. I love food. My wife doesn’t like to shop for groceries or cook. She says, “That’s what restaurants are for.” Who am I to argue with her?
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