Hot Markets beat Hot Management

Sizing Capital Allocation and Ambition with Market Runs

This article is for budding entrepreneurs that know how to make money.

This article is about spending it.

A benefit of a corporate career is:

• Knowing how to make money.
• Discipline of performance measurement,
• Wide range of support and
• Endless training: both formal and informal.

One learns in the corporate world to colour one’s accomplishments in the jig saw of winners and losers. It’s natural to blur the dark experiences and put the bright ones on a pedestal.

However, the corporate success of making profits easily has some traps:

• Market run ups and downs are not allowed for; and
• Poor or no training on capital allocation and ambition.

When you leave to run your own business, these two items can be brutal.

Market run-ups and run-downs

I’ve found that overall in life there are “run ups” and “run downs”. Some say this is luck: good or bad. To stay the course, the short game “falls” must be inconsequential to the “long game” success.

If you have a pedigree of success and the confidence to tackle most anything, casting aside an initiative that is failing is the hardest lesson to learn.

I lost money on 3 property investments in a row over a 10-year period. I worked so hard to make them successful to no avail. The market was a head wind and I was blind. I stuffed up big time.

The lesson to learn is: You may have a band of successes and then a band of failures. It’s not “you” that turns bad. The wonderful eclectic world we live in has constant change. If either the market or your initiative is on the downhill slope: step aside… quickly.

Likewise when you can do no wrong and the cash is pouring in, work hard but don’t drink your bath water. Think of yourself as lucky; rather than brilliant. Markets can change very, very quickly.

Sizing Capital Allocation and Ambition

We all have finite capital to invest in those wonderful new ideas. A quick and early success pumps up the ambition. Suddenly the capital allocation is lots of chips on red. The wheel turns not to black but double 0. If you aren’t watching the wheel but following logic, you may load up the capital again. I’ve learned the painful lesson of betting against the house based on a successful track record. I thought I had beaten the house many times. I hadn’t. The house was previously on a losing streak and now the tables had turned.

Lesson to learn is: Small incremental revenue from a diversity of customers is always a good bet. Ill spend no more than I can 100% lose on initiatives until I see a run-up market. Then carefully increase it watching the market not watching myself.

Exceptions Prove the Rule

There are entrepreneurs who successfully win on a single number. Elon Musk, Bill Gates and many others bet all their capital on their own self beliefs. They are 0.00001% of entrepreneurs. But they were also “Time Billionaires” before $$ billionaires. That means they are playing a long game on themselves. They have time on their side. I’ve read that Warren Buffet did not make billionaire status until he was nearly 60. He started in his 20’s. That is the long game like Musk and Gates.

Simultaneously Overtly Positive and Extremely Negative

Now to the punchline of this article. I've read that intelligence is holding two contrarian views at the same time. For this article it means being overtly positive and extremely negative at the same time. That's a successful way to run with the market ups and downs and keep a balanced view ready for sudden change.

In our corporate "Slide Deck" when pitching initiatives, there was a page on "Risks". Perhaps a defensive page for the sake of showing balance. Today I like to see half the deck full of all the consequence of a collapsing market.

The astute seasoned manager will slow down the capital allocation and wait to see if the market responds. Then move quickly in a hot market and retreat in a cold one.

My mantra is "Hot Markets beat Hot Management".

Safiery, our company, has just turned 5 years old. We have gone from the smallest investment heading to $10m revenue on small incremental steps. It is all cash flow positive. Tens and tens of small initiatives peppered with one or two medium sized bets. We hold in-depth positive and negative debates at every step. Im blessed with a partner who has taught me the contrarian ways of overtly positive and extremely negative views. Our partnership is gold. Thank you Fiona.