A short conversational video (Capitalism.com) arguing that many entrepreneurs are poor investors—either too risk-tolerant or risk-averse—and therefore fail to protect and grow the money they earn. The speakers recommend a two-part approach: (1) double down on the business as the primary investment, and (2) adopt a disciplined strategy to take profits ("dry powder") and allocate them into passive, long-term wealth-building vehicles. Practical tactics include protecting retained earnings, avoiding re-investing cash into items that can be financed, and using low-cost financing (e.g., Amazon Lending or local bank debt) for predictable needs such as inventory so operating cash can be deployed to advertising, R&D, hiring, or long-term investments.
Chapters
Entrepreneurs tend to think a lot about making money. It's what makes us entrepreneurs. But we tend to be really bad at investing, keeping, protecting and growing the money that we make. In fact, some of the entrepreneurs I know make really bad investors because they are either way too risk tolerant or risk intolerant. So they either keep their money on the sidelines or they're putting it into speculative investments that ultimately go down in value. So entrepreneurs are losing a lot of money by not having a solid investment strategy that allows them to passively grow their wealth without them thinking about it or taking attention or money out of their business. I think actually we can just look this up. This is just raw data for you. According to the data brain of Ryan Daniel Moran, the best investment you will ever make is in your business doubling down on being an entrepreneur and then having a strategy for taking those profits and putting them into places that allow you to grow your income and grow your wealth. And there are ways to do that regardless of what the economy is doing. And we discussed that a little bit in this clip. I think that entrepreneurs should be very protective of their dry powder.
Absolutely.
Of the money that they have saved those retained earnings. And I think one of the biggest opportunities lost is when people take that dry powder and they put it back into things that could be financed. For example, I think one of the greatest opportunities that physical product owners don't do is taking advantage of funding future inventory. So there's programs like Amazon lending, there's low cost debt that you can get from your local bank to borrow and pay for your future inventory because you can predict those sales, which frees up the rest of your cash to put into people or advertising or research and development or new products or to take off the table and invest into your long term wealth strategy.
Correct.
And one of the things I like about this is this protects that dry powder.
It does.
While allowing it to grow, protecting it from shrinking and saving it for when the right opportunity comes. And you say, okay, this is worth me putting my dry powder into.
And this is something where a lot of people don't realize how much money they're wasting. Wasting by not having these kind of strategies in place. Because when you have your dry powder earning 0%, you're literally, that's one of the transfers that's happening on your, on the wealth you could have had. If you look and say if you did everything perfect, which none of us will be perfect, there'll be things we can't predict. But if we did everything perfect from now until the next 30 years, we'd have X amount of money. And that's perfection. And none of us are going to hit that. But the question is, how close to that are we going to get? And so by not having these kind of vehicles set up, a lot of younger entrepreneurs are missing out on a ton of uninterrupted compounding growth they could have had. Because you need to, especially when we're in an inflationary environment, you need to have assets that are growing, otherwise your dollars, you're eroding your purchasing power as well. And there's a cost to paying cash for something. There's a cost to borrowing. Your cost to borrow is your debt service. Your cost to pay cash is the opportunity cost. So you just weigh those two together and say, if my cost to borrow is 35%, am I going to be able to go invest money and earn 35% this year? The answer is probably not. It's a very simple mathematical equation. A lot of people, it gets very obscured from what they need to do to evaluate whether they should or shouldn't have debt. But it's very simple. If we can take debt and we have a high degree of likelihood, we can invest money elsewhere to earn better. We want to do that. And of course, you don't go too crazy with this. You need to be prepared. I can't stress enough how important liquidity and reserves are. You need to be prepared for if we go through an economic downturn. You don't want to go bust. Where people lose is when you've over leveraged and you go bust because you've gone too far with it. So you want to manage that. You want to make sure you've got someone who's looking out for tracking your liquidity, that you're tracking your balance sheet, making sure that your business and your individual life is prepared for a reduction in cash flow, where things are not going quite like you planned. But once you're there, you can take advantage of a lot of things.
