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Entrepreneurship Living Well

Why excitement may be getting in the way of your success

It has become very fashionable in these strange covid days to quit your job. There are all kinds of theories as to why that is the case, but the prevailing one is that a lot of people are simply looking for something new. In many cases, they are bored in their current jobs.

I get it. Over twenty years ago, I made the decision to leave corporate America, and I have never regretted it. Leaving full-time employment was far from just about money; in fact, when I quit, I was barely making any money at all in the little business I had started.

Money withstanding, quitting my job completely changed the lifestyle of our family for the better. That is not to say that those twenty years have always been easy, but I have had a very good and rewarding life both professionally and non-professionally.

It has also been a life that few would categorize as boring. I ran at least one business during all of those twenty years, and it has been a roller coaster with big successes and big failures. And, for the majority of that time, I was also a professional musician, churning out ten albums, a ton of instructional video content, two for-TV concerts, and a lot of other similar work.

Yes, it is hard to get bored when you have your own money at risk in a business that is bouncing between bankruptcy and success. And in my case at least, there was certainly nothing boring about the professional music career either. I was bankrolling elaborate and expensive albums/projects sometimes costing over $100K that could either flop or succeed (in my case, a bit of both). There is undeniably a big rush that comes from the public nature of music (such as concerts) as well.

No, my life has not been boring. And yet, I have often felt bored and restless. I want to talk about that in this post–where that boredom comes from and why it is dangerous.

Here is a principle that I have learned over twenty years. If you can apply this to your life, it may save you a lot of pain:

Excitement and success very rarely coexist. If you are chasing excitement, you likely will not see success, and if you are successful, plan on being bored.

It is rare for moderns to admit what I just said. You will get hints at it from past psychologists and philosophers (such as Ecclesiastes and Arendt). But in general, the modern professional is chasing both excitement and success even though the possibility of having both is almost non-existent.

Here is an example: I interact regularly with business peers, and a question recently came up that I have heard in different forms many times before:

In the early days of my business, it was like the Wild West, full of excitement and fun. How can I keep that culture in my business today?

There was a time in my life when I would have answered that question with a string of business babble and buzz words about company culture and such. These days, here is my answer:

You can’t… unless you want to put your success at risk.

The truth is that the business was more fun in the early days because it almost certainly was not yet successful. But over time, that changed, and as it turns out, success is boring.

In fact, you will find that when you are seeing the greatest success, you will feel like you are hardly doing anything at all. Furthermore, it is hard to replicate the rush you remember from more exciting times now that your success has mitigated the risk that you used to face.

Yes, it is the painful struggle that brings excitement. You will never feel more excited than when a lot is at risk and the ending is in doubt. Excitement comes from tension, and tension can only come from risk and uncertainty.

Let me put it another way: excitement and success are incompatible because excitement needs risk while success essentially is the elimination of risk.

This is a truth that we all instinctively understand. For example, the University of Alabama has an ultra-successful football program, but I have little interest in watching many of its games. Its games are boring blowouts, and the risk of losing is nonexistent almost all of the time. That is why Nick Saban is always whining because students leave in the 3rd quarter.

Now, once you understand this uneasy relationship between success and excitement, you have to learn to live with it. That is harder than it sounds, but managing that relationship will help you avoid traps and bad decision-making. For example, here is something else I can now see about myself:

My worst business decisions have always occurred when I thought I was chasing success but was really chasing excitement.

I will give you one example from my past. We launched a skincare product about fifteen years ago and things went just fine at first as we stuck with our bread and butter: ecommerce. However one day, an infomercial company called, and before I knew it, we were heavily invested in making a 30-minute infomercial. It was expensive, but it was also exciting. I flew to Miami a few times during production and enjoyed hobnobbing with the production crew and actors.

The story is long, but I will cut to the punchline. Within a year, we had lost a ton of money on production costs, inventory, TV spots, radio ads, and a lawsuit with a competing company. All because I made a series of bad decisions that took us out of an area in which we were good into something that was more exciting.

The truth is that it took me a long, long time to learn this lesson, and I could give example after example of my stupid decisions. But, here is something I eventually learned about success:

If you want to see success, learn to do one thing so well that it bores you.

Now, to apply this to real-life (not just business), here is the big problem: we are not wired in such a way that we can be happy while bored. As I have written before, if we do not have enough tension/excitement in our life, we have a tendency to manufacture some, even when doing so is destructive.

If you stop and think about it, I would bet you can identify ways you have made decisions for excitement even when you knew there was the potential for enormous damage.

I will give you a simple example from my own personal life. If I am in a boring conversation, I have a tendency to say something to start an argument. I know that it will likely not end well, but I engage in that destructive behavior anyway. I subconsciously choose dangerous excitement over safe boredom.

Or, consider these examples of destructive excitement:

In a boring marriage and looking for excitement elsewhere? I do not have to tell you how destructive that can be to your personal life.

Enjoy the excitement that comes from making big purchases? The $8,000 refrigerator may scratch that itch for a few weeks but also deplete your savings or drive up a credit card balance.

Tired of modest stock market returns? Speculating in cryptocurrency is exciting, but it is likely to destroy your retirement accounts.

Bored with your existing business and want to expand into something new and flashy? Don’t bet that this kind of diversification will work for you as well as staying in your lane and focused on what you already do well.

You may think I am implying that excitement must always be sacrificed for the sake of success. I am actually not implying that at all. We need both success and excitement in our lives. However, here is what I am saying:

Generally speaking, a good life is the result of good decisions.

When you are making big decisions, ask yourself if you are making them for the sake of excitement or success.

And then ask yourself if you are willing to live with the results.

Maybe leave your business and marriage alone and take up hang gliding for excitement. A quiet personal and professional life is highly underrated.

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Entrepreneurship

Should you buy a business (or a house) in this economic environment?

In the best of times, my crystal ball is hazy. Even though I have been a business owner for over two decades, I find it hard to make good economic business decisions by predicting the future. However, I am not sure that I have ever seen things hazier than they are right now.

I am always looking for new businesses to acquire that we can integrate into our existing business. I get business listing notifications by email constantly, and I can tell you that these are strange times. We all know about the red-hot housing market, but the same seller’s market exists in business. Severely high-priced businesses hit the market one day, get multiple offers, and sell the next day.

Traditionally, businesses are priced based on their net worth (assets – liabilities) + their income potential. So for example, if a business has $1 million in intellectual property assets and $1 million in inventory, it would sell for $2 million + some kind of multiple of income.

A common traditional multiple of income in the kind of businesses we target is 2-3X. In other words, in our example, if the company has a net income of $500K/year, we might expect to pay between $3-$3.5 million for the business. This consists of $2 million for the assets plus another $1-$1.5 million based on the income multiple.

Today, sellers are asking for and getting higher income multiples. In many cases, the multiples are obscene. You can see this just by watching Shark Tank. When you see a company with no real assets and $500,000 in sales pitching a $10 million valuation, you are perfectly right to scream at your TV screen. While Shark Tank is a typical reality TV show (meaning it is not exactly reality), I think it is a pretty good indicator of what is happening to business valuations. These days, the pitches there are just nuts.

The last time I saw this phenomenon was about a dozen years ago. We all know what happened back then both in real estate and the stock market.

I suspect strongly that we are going to see it happen again.

These days, I sift through the business listings that pop up and reject almost every one of them right away. To me, they fall into three categories: too risky, outright junk, or overpriced. At the moment, I am perfectly happy on the sideline. Buying businesses at these prices in this environment is not for me. That is true even though I am looking for businesses that we can easily integrate into our existing systems and greatly improve right out of the gate.

That being said, I am the first to admit I may be wrong about all this, and in my hesitancy to take on this kind of risk, I might be actually taking on more risk. It all comes back to what you believe about inflation.

Most of us already see inflation everywhere we look. There are a few reasons why. First, the government is pumping tons of money into the economy which devalues the money already in the economy. That is one reason why prices are going up and wages are going up. I can tell you that the wages we need to pay to hire quality employees have jumped 30% in the last year. It costs more to run a business today than a year ago and that is driving up prices.

I tend to not believe that the government pumping is that big a deal long term. Even when you start tossing trillions of dollars at the economy, that is still just a fraction of the overall GDP. The average person will take the $1400 stimulus and buy another 65″ TV they don’t need, and that will be the end of it. The unemployment benefits are a bigger deal, but that will eventually end as well.

To me, a bigger problem is that commodity prices are going up rapidly. For example, a big driver behind the real estate run-up is lumber, which has jumped enormously during the last year. Steel is up, food is up, and fuel is up. Everything coming into our warehouse from cardboard to finished products is costing more, and in some cases, a lot more.

The big question is whether this inflation is temporary and covid-related. My gut and experience tell me that that it is indeed temporary, and that is driving my decision-making these days. I think that the biggest reason we are seeing enormous inflation in commodities is simply because of shipping logistic problems caused by covid. I know about this problem because my business is dealing with it every day.

If you order online, you have probably noticed how inconsistent shipping has become. Imagine those problems multiplied across the entire supply chain. Getting anything imported into the United States has become a huge challenge; so has transporting it across the United States. Most businesses I know are facing problems just getting inventory into their warehouse to sell. In our business, this is easily our biggest challenge right now.

While this is a big problem today, I believe it is short-term. I have to think that the market will adjust and shipping logistics will adjust to the new normal. More ships will be built, more containers manufactured, and ports will be expanded. When that happens, commodities like lumber are going to drop almost back to where they were before covid.

In other words, I do not see today’s buying opportunities as some kind of bargain where we are just starting a long period of inflation. I actually think we are on top of a bubble. I don’t see the commodities problem fixing itself within a few months, but I am betting it will fix itself within a year or two.

We shall see if I am right. If I am, I am going to be in good shape when things crash. I will be able to buy businesses at bargain prices. The same goes for real estate.

But if I am wrong? I am going to be doing a lot of hand smacking in five years as I mutter “I should have bought every business I could afford back in 2021.”

Now, many of you do disagree with me on what is going to happen with inflation. That is perfectly understandable. If you believe that inflation is a serious long-term concern, you want to invest your money in assets such as real estate and businesses that will appreciate along with the inflation. Keeping cash actually becomes very risky and downright dangerous because your cash will lose value as inflation occurs.

I have many friends who own businesses similar to mine. We talk regularly about inflation and the possibility of hyper-inflation. And I will tell you that many of them that are normally very conservative with money are furiously trying to reduce cash by investing in real estate and their businesses.

In many cases, they are even borrowing money to buy assets. Even the ones that are normally anti-debt seem to be going in that direction. Remember that just as cash loses value during inflation, the cost of debt does as well. If you can buy an asset with debt for $1 million and inflation takes the value of that asset to $2 million within a few years, borrowing the $1 million looks pretty smart.

I get why they are borrowing money, but that is not a train I am going to board. In fact, the fact that my most debt-adverse peers are suddenly borrowing money makes me more confident that I am right and we are about to see a big correction. Personally, I am still of the mindset that the best place to be is sitting on cash with no debt.

If you disagree with me about inflation, I can understand why you might want to buy a business. If you do buy though, just keep in mind that you are not buying at a bargain if you are considering historical pricing methodology.

Also, keep in mind that it is hard to look at the current situation and not see a lot of risk. Don’t get me wrong: business always involves risk, and far more than the average person suspects. But today’s risks are unprecedented in many ways and one is certainly not seeing that risk reflected in the prices for which businesses are selling.

That in a nutshell is what I would tell you about buying a business in 2021. In short, I probably would pass unless the deal is fantastic. But remember this: even if I am right, my timing could be wrong. The bubble I expect to burst may not burst for another five years.

Everything I have just said about buying businesses applies to buying houses as well. I just don’t think this is a great time to be needing to buy a house. If you can afford to wait and you agree with my assessment that the market will self-correct its supply problems, I think you should consider waiting. If you have to buy a house right now, that is an entirely different matter of course. It is not the end of the world either way, especially when looking at the long term.