To Take Investment or Not?

By February 20, 2015blog

show me ROII’ve been asked a handful of times in the past couple weeks about whether to take on investment. I think it’s a little funny that folks ask me this knowing that I believe in customer-funded businesses instead of raising money. I suppose they are really asking to hear the argument for not taking on investment. None the less, my answer has been:

The real question is do you have a clear way to return that investment?

Meaning for every dollar you spend on hiring a new person, advertising, product development, etc… do you KNOW you can return $2 back through more revenue?

Or are you just throwing things at the wall to see what sticks?

If you KNOW you have a clear ROI for investing/re-investing any capital, then do it! That’s how people get rich.

If you don’t know, then put a 10% probability* of the investment sticking/producing a return on the investment dollars and ask yourself if the extra debt or less equity is really worth it? *10% is the approximate percent of time that new ideas produce a return for me. Which is why I try to minimize spend while testing new ideas.

I’ve seen too many people throw away too much equity and other people’s money by not first vetting the potential ROI of what that money is being used for first.

Nail it, THEN scale it with capital.

9 Comments

  • Dad says:

    A great blog!

    You had this ROI view ywhen you’re all of 12 years old.

    We were flying to St. Paul for funeral when I explained my thoughts about hiring a new attorney. You asked me two questions.

    The first was how much it would cost me to hire a new attorney. I summed up the salary, secretaryparalegal support, rental space, and a few minor things on the cost.

    You wrote all of these on the napkin and then asked me how much will the new attorney team bring it in.?

    I answered that each team would bring in about $30,000 more then it’s cost.

    You immediately answered: hire all the attorney teams you can get.

    I hired three new teams and thrived..

    Dad

  • Parker says:

    Better than the blog post (which is uncomfortably true) is your Dad’s reply! Sheesh, that explains a lot …

  • J. Kale Flagg says:

    Well written, concise and pointed. If more leaders of fortune 500 companies would employ this philosophy think of the growth our country would be experiencing. It brings GM and their wasted years to mind… billions and billions with nothing to show for it.
    There is great wisdom in these words, Bill. Thanks for sharing. the 10% concept sticks and makes a ton of sense. So does the last sentence. I will be using both.

  • Steve says:

    I think about this all the time, and this post (and your dads comment!) was perfectly timed and brilliant. Thanks Bill.

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