…Isn’t hard work—although, it certainly helps to have a strong work ethic. It’s neither intelligence nor education. If intelligence and education led to financial success college professors would be the wealthiest members of society, but they are not.
The wealthiest people I know are entrepreneurs and people who make their living investing in businesses. That’s not to say you can’t make a good living managing someone else’s business, but the most financially successful people tend to be business owners. In my observation they are not necessarily the most intelligent, well-educated and hardest working people. So, what is their secret to success?
In the past twenty years I’ve worked with countless successful business owners (from millionaires to billionaires) from all different industries, backgrounds and walks of life. While they all have unique talents and perspectives, I’ve identified three traits they all share: risk tolerance, acceptance of failure and tenacity.
Risk tolerance. Successful people accept risk as part of the game—the greater the risk, the greater the reward. They want the upside more than they fear the downside. However, their risks are calculated, not foolish ventures.
Acceptance of failure. While they won’t necessarily tolerate your failure (when it impacts them), entrepreneurs understand that temporary setbacks are a part of the process. All of my entrepreneur friends have failed at something and most enjoy sharing their failure stories. That said, they mitigate their losses and learn from mistakes. They know that mistakes actually make them stronger in the long run. They also cut their losses faster than most. If something isn’t working, they get out of it and move on. Rarely do successful people make the mistake of doubling down on poor decisions.
Tenacity. Successful people are tenacious. They are not meek and they are not quitters. As long as they believe in an idea, they plow through the rough times when most people would choose to give up.
Successful people know that while the direction is clear, the path isn’t. They become comfortable with uncertainty and learn to trust themselves. There is always an answer… the entrepreneur’s challenge is to find it.
Since my latest blogs have focused on risk aversion, let’s examine the risk tolerance variable of this equation. Earlier this year, an acquaintance of mine cashed in her retirement account to fund a start-up business. A little context: she is in her 40’s with two kids. She quit her good-paying job to work on her new venture full time. The business idea was hers and she has a tremendous amount of passion for it. Does her decision sound risky to you?
Here is a question to test your risk tolerance. Would you invest your entire life savings for the potential to earn twice that amount in profit… if the odds of success were 50/50? In other words, if you had saved $100,000 would you invest the entire amount for the potential to make $200,000 in profit (giving you $300,000 total)? Your chance of success is equivalent to the toss of a coin. Would you risk everything?
I challenged a small group of friends with this question last week. My buddy Rob asked, “What’s the right answer?” Another friend, David, surmised that we all have a “magic number” and began running through different odds of success (60/40, 70/30, 80/20) in order to roughly determine each person’s risk tolerance. If 50/50 odds seem too risky for you, what would it take for you to risk everything in order to triple your money?
There isn't a right answer. We all fall somewhere on the range of risk tolerance. Unfortunately, your aversion to risk may be preventing you from accomplishing great things.
I’ve been asked, “What would you do if you knew you couldn’t fail?” This question is supposed to help you determine a career path. But, that question ignores reality because risk is inevitable. The proper question is: What are you willing to risk to accomplish your dreams?
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