Overcoming the Fear of Failure

I want to start my own business. In order to diversify my income streams and increase my income I feel that entrepreneurship is by far the best route. The problem I now face is that I am hesitant to risk my savings on an unproven venture. I am afraid to fail. I think that recognizing both my desire to enter the business world and my reservations is a good start, but as someone wise once said, "You can't win if you never play the game."

I spent some time this evening scouring the net looking for advice. Here is some of what I've found:

• Biz Thoughts: Don't Be Afraid to Fail
• National Federation of Small Business
• Practical Commerce: Four Things You Should Know

Because I went out looking for motivational and inspirational resources that is mostly what I've found. One common theme I have found is to start small. By moving slowly and making a limited investment you can gauge the market without large risks. Next, many people advise that what I consider failure, a business that does not proser and make money, is not actually failure. That seems silly, but learning from mistakes is a common theme too.

"No man ever achieved worthwhile success who did not, at one time or other, find himself with at least one foot hanging well over the brink of failure."

It was also pointed out that bankruptcy isn't that bad. I've traditionally been brought up to completely disagree with this statement. My parents have may encouraged me to learn chess or ride a bike through trial and error, but failing to pay back debt was certainly not something that was acceptable; thus, business by trial and error would have been out of the question. A willingness to follow my entrepreneurial spirit because of, rather than in spite of, bankruptcy is a totally new concept for me, but it is endorsed by the entrepreneurship articles I read.

In the end I have been encouraged to push forward with my plans to enter the business world. I will take the advice of other bloggers and business people and start small in an industry where I already have some experience. I'll put off my grand plans for real estate development and focus more on free lance coding and web based business. I'll try to grow Aspire 2 Wealth and keep the readers informed as I test out my business chops and grow my wealth.

Comments and suggestions are welcomed. Please subscribe to my RSS feed if you like what you've read. Till next time, thanks for reading.

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$940 in Found Money!

At the start of the year I wrote down my goals for 2008.  One of these goals was to create found money, which is money created outside of my normal income.  For now I have embarked on this goal primarily by selling unused stuff on eBay for extra cash.  Most of what I have sold is old inventory from my failed multi-level marketing business.  I bought this stuff for about $2,000 and the debt is still hanging around on my credit cards.

I have finally completed all of my auctions and tallied up the results.  I had a lot of sales, when you look at the gross amount, but unfortunately I found that the fees and shipping expenses greatly cut into my returns.  The gross amount taken in from all of the auctions was $940!  Next, we subtract the PayPal fees that averaged 4.5% and we end up with $898 that arrived in my checking account.  Next we must subtract approximately $45 in listing and final value fees paid to eBay (or about 4.8% of the gross).  Next we must subtract the shipping costs.  I was completely blown away by how much shipping has gone up because of fuel costs and surcharges.  Thankfully I learned quickly and increased the amount I charged after shipping the first round of product and loosing money on two of the sales.  In total I spent $272 on shipping.  That leaves me with $581 in "profit."

My return of $581 equates to a massive loss for the MLM business venture (should I write off the loss on my 2008 taxes?), but then again a few days ago all of this stuff was just sitting in a closet taking up space.  It is important to realize that $581 is much better than $0.  I hope this may inspire some readers to dig out their closets and start to pull in extra cash in the same way.  As to where the money will be spent, it seems that we needed new work clothes/shoes, text books, a printer for the computer, and repairs for the car.  In the end I think there may be a few extra bucks left for debt payment, but only a few.  That is another battle that is just getting started.  I wish everyone luck with their own efforts to create found money.

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Failed Business #1: MLM

Back in October of 2006 my wife-to-be and I got invited by her aunt to come have dinner. This aunt is fairly young at heart and we enjoy spending time with her. We were more than happy to drive 90 miles to meet up with her. My wife has another aunt who lives half way across the country from us and she was also in town to have dinner. As it turned out the reason for the invitation was that the two aunts were hosting a recruiting event for a multi-level marketing company (MLM).

I won't name the company for a couple reasons. First, these companies tend to have a fairly pro-active legal department, and the last thing I want to do is deal with that problem. Second, based on my experience it is certainly no worse than any other company in the MLM game so there is no reason to use the name. Finally, we do have family members that are involved and I no way want to hurt them or their business.

The way MLM companies work is that they sell their products through a network of independent consultants. These consultants market the brand and make sales which are either shipped directly to the customer or to the consultant (who then delivers the goods). Examples of MLM include Mary Kay, Amway, and Tupperware. Most people have come into contact with these brands either as a consultant or potential client.

One of the key concepts of MLM is that the company stresses that they can afford to compensate the consultants generously because they do not pay for advertising, retail space, or shipping. Compensation from these companies often hinges largely on a consultant's ability to recruit more consultants. This is reinforced by paying bonuses for recruitment and paying a recruiter a percentage of the sales from those they have recruited. In other words, when a person you recruited makes a sale (or sometimes another recruit) you get paid too. This sets up a 'network' where the work of those below you generates the vast majority of the money for a person at the top of the payment pyramid. While not a pyramid scheme per se it does resemble one. The FTC ruled this organization structure is not illegal however it can be ripe for problems.

Now back to my personal story. Dinner with our aunts was a recruitment dinner where we all listened to speakers while we ate our food. The aunt that drove hundreds of miles to "eat dinner" was the featured speaker. Long story short, her husband was involved in a series of businesses and for a time was fairly wealthy. His business interests soured, their family was forced to sell their house, and they lost nearly everything. The former stay at home wife then took up the MLM company in order to save her family. She worked hard and became fabulously successful with MLM. She just bought the house of a famous football coach (costing north of $600,000) and both her and her husband drive German luxury cars. She lives the high life and her husband has retired all because of this MLM company. Now she is here to offer the same opportunity to us (and the room full of 20 others).

I took the bait. I knew that I had the business acumen, and I had a grand plan to follow in my wife's aunt's footsteps. That night on the drive home we listened to the motivational CD presentation we were given, and that night I stayed up very late writing a full business plan. I determined that I had access to an untapped market for the products, I would approach dorms and residence halls on local college campuses and hold 'educational' programs which feature the products. I had been an Residence Assistant during college and I knew that RA's love to have outside speakers talk to their residents (which satisfies an RAs requirement to hold community activities for their students). I had figured out how to pass off my programs as educational and make a low-pressure sales pitch that would not get me booted off campus.

Fast forward 18 months. I have a closet full of unsold inventory and no residual cash rolling in. I collected a total of about $1,200 in revenue and invested about $3,500 in the business. I have over $2,000 in credit card debt left from having a go at MLM.

First of all, I'm a pretty decent sales man. My conversion rate for sales prospects was over 50% which I've been told is pretty good. I also had a business plan and attacked it with at least 20 hours of effort a week. I set up sales sessions and worked the phones. I was able to get my program approved by the local college. It would seem that all would be going fine. Why did I fail?

I did not recruit. I failed to recognize that the real money maker is to recruit new prospects, get them to buy their first shipment of product ($700-1400), and then move on. I also needed to find a few like minded people to work under me and do the same. I recruited a grand total of three people to the organization. I lost a bundle. Both aunts talked big about the potential profits, but when I shared my business plan neither let me know that I was barking up the wrong tree. It is too time intensive and difficult to spend your days selling widgets one at a time for $50 with a 15% margin when you can talk to a room full of 20 people who will buy $700 worth of product. Even a sales presentation to a dozen house wives that may spend $20 each doesn't work out to more than minimum wage. A couple of them may join and build your network but they must be willing to recruit like a fiend too.

I could switch to pumping the recruitment aspect of the business and do what has made my aunts so much money. I can't bring myself to try and bilk other people out of their hard earned money. I know that the success rate is terrible and that only a tiny minority that spend their $700 to get started will ever see more than a fraction of their money back. I am not willing to take advantage of people's natural enthusiasm and hope in order to lead them into an almost certain money loosing venture. Less than 10 percent of those that sign up will break even with the business.

That is my MLM story and an explanation for a portion of my evil credit card debt. Those of you with experience (either good or bad) with MLM I'd like to hear your stories. Please feel free to leave a comment.

P.S. My wife and I still get along just fine with the two aunts who introduced us to MLM. I know that it isn't their fault that I entered into a failed business model. Family is much more important than that amount of money, which is of course another reason the business isn't for me.

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My Money Decisions: The Good, The Bad, and The Ugly

Like everyone else in our consumer culture, I have made financial decisions that make me cringe. My bad decisions have helped me pile up a sizable amount of consumer debt. My good decisions have put me on a path to become wealthy. Today I'll share some of the highlights of my financial past that have brought me to where I am today.

Here are some of The Good decisions I have made:

• Education - I always worked hard in school and kept a high GPA. This led to me get into engineering school at several colleges (some prestigious and some not as much), and it allowed me to choose a school that fit my budget (State U). I worked even harder in college to graduate with better than a 3.5 GPA in Computer Engineering. That performance gave me a number of competitive employment options, but I selected the one that paid for my entire Masters Degree and permitted me to take courses by teleconference during my work hours. While job paid only 75% of what my peers got, it covered grad school expenses and that more than made up for the lower pay. Again I excelled and earned a 3.9 GPA in my graduate studies. Now, after proving myself on the job and in the classroom my salary has nearly doubled from what it was when I was hired (and is significantly higher than any of my old classmates).
• Entrepreneurship - I started my first business when I was 11 years old. I ran a neighborhood recycling service to collect the paper, glass, and plastic from my subscribers and take them to the county recycling center each Tuesday. We did not have curb-side pickup of recyclables. I saw an opportunity that my upper middle class neighbors needed to have filled and made it work for me. I charged $100 per year to subscribe or I would bill my clients $10 per month. My dad made sure I learned to use a computer (back in 1994) to make fliers in Word Perfect, invoices in a spreadsheet, and budgets in Quicken. When I wanted to travel to Europe on a school trip at 15, I paid my own way from the earnings of my business. I spent my money to buy for myself the things other parents gave to their kids, and I learned what it means to earn a dollar (with guidance and help from my parents).
• Work - I got my first real job when my business no longer was viable because sanitation department sponsored curb-side recycling made my business model obsolete. The first job I took was washing dishes at a little hole in the wall restaurant where some of my friends worked. I hated it. I learned after only six weeks working there that working hard is not nearly as rewarding as working smart. After talking to my dad about this, he suggested I find something I love and work in that industry. We came up with a plan for me to take an internship at a computer repair shop. I pitched my services free of charge to every shop in town in exchange for them teaching me how to fix computers. After a number of rejections I finally found a shop that would take me. My conditions were that I would work for three months free of charge, and if I met expectations I would be hired as a full computer tech. I learned quickly and was soon building new systems and diagnosing botched Windows 98 installations. I was hired on at $10 per hour at age 17. I've worked in the computer industry making at least that much per hour ever since.
• Investing - I got my first taste of investing in middle school when, on a whim, I joined the Stock Market Club. I was a nerd who was a member of the math team, the science quiz bowl team, the chess team, and the band. Stock market club seemed fun and exciting to me (plus my other friends were talking about joining too). We each managed a hypothetical $10k portfolio and checked it each day using the news paper. I selected three stocks for my portfolio: Disney, Dollar General, and Maytag. I picked Disney because I had just gone to Disney World for the first time and Dad said the place, "took all your money and convinced you it was your idea." I picked Dollar General because they had just opened a new store in my town and it was a bargain at only $1 a share. I picked Maytag because that's the company my dad worked for at the time and it seemed safe. I hit the jackpot when Dollar General doubled during our semester long competition, and I easily won. I never forgot the fun and money making power of the stock market. Today my approach is a little more rational, using my 401(k) and Roth IRA to buy index funds in diversified asset classes.

Here are some of The Bad decisions I have made:

• Consumer Debt - Gradually over the last six years I have built up a sizable pile of consumer debt. Frequently it is for unplanned expenses like dental bills, car repairs, and sporadic taxes. These types of expenses should have been paid by my emergency fund which at the time I had yet to set up. I also used debt to buy home furnishings, a flat panel TV, and a car. Thankfully these things were generally financed at below market interest rates (often 0%) and will outlast the length of the loan, but they still have added up to a significant amount hanging over my head.
  
• Bad Business Venture (MLM) - My wife and I tried a Multi-Level Marketing (aka pyramid scheme) home business. We tried unsuccessfully to sell beauty products and health supplements. I let my normally cynical business sense be swayed by the Mercedes and gorgeous home that our "up line" (my wife's aunt) bought with the business. I wrote a business plan and tried to do everything right, but what I missed was that the target demographic for the products is wealthy, vain older women, and I was a young, overweight man and my wife is introverted and shy. We had trouble finding clients in our sphere of influence and had terrible sales results when we did manage to get a captive audience. The $2,000 in 'initial' inventory is sitting in a closet while I pay off the loan the hard way.

Here are some The Ugly decisions I have made:

• Weight Gain - I have been overweight my whole life. It has varied from just being a slightly chunky kid to being flat-out-fat at the end of high school. I have never enjoyed team sports much because I'm not very good at them, and I always caught flack from the jock types at school. I also hate running more than about anything else in the world. M7y lifestyle is sedentary because working as a computer engineer (and now blogger) means I sit in front of a computer terminal about 90% of my waking hours. During the last two years of college I took up racquetball and managed to loose a LOT of weight and reach a BMI within the 'normal' category. I was at my target weight and felt great. All of that progress was lost two years ago when I tore my ACL while I playing and needed knee surgery . Since then I have sat on my butt making excuses while I've gain a ton of weight back. I can feel it sapping my energy away. Being overweight is terrible for my pocketbook in a number of ways and poor health later in life may my limit my ability to enjoy the wealth I am working so hard to build now. This is my worst personal finance decision that I intend to fix ASAP.

Check out these other great personal finance blogs that have also recently posted about their Best and Worst Personal Finance Decisions.

6 Financial Lessons - Don't Learn The Hard Way - from Gather Little by Little

My Least Bad and Least Good Financial Decisions - from Plonkee Money

My Best and Worst Financial Decisions - from Moolanomy

Best and Worst Financial Decisions: From the Trenches - from I've Paid for this Twice Already

My Best and Worst Financial Decisions: They Might Surprise You - from Being Frugal

My Best and Worst Financial Decisions - from ChristianPF

My Best and Worst Financial Decisions - from The Dough Roller

One good financial decision and a whole lotta bad - from DebtFREE Revolution

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Back to the Grind

I am back from my Holiday travels. The entire trip consisted of three things: 1) Driving, 2) Eating, and 3) Football. My wife and I had a good time visiting her family, and I'd say the trip was a success.

During the trip I was asked several times what my plans are for the future. That got me thinking that I don't really have a cohesive plan for the next phase of my life. I've reached a point where most of my short term goals like completing my masters degree and buying a house have been achieved. What do I do next?

I might get a Ph.D. It can almost never hurt to get more education (especially when my work contributes to these endeavors) and it would be really neat to be Dr. Adfecto! I have also thought about becoming a Certified Financial Planner. Why not make my favorite hobby into my day job? I might actually enjoy my work that way. I have also looked into becoming an entrepreneur by starting businesses in a few different fields; 1) real estate investing, 2) real estate property management, 3) franchise (Subway, Papa Johns, etc), 4) home theater/networking/automation/AV installer, and 5) financial services firm. I can already see the glass ceiling above me at my current job (though I have a few years before I hit it) so I want to be prepared to maximize my earning potential.

Another thing I thought about a lot over the last few days is my near term financial goals. I'd like to put them down here to document my thoughts and outline the specifics. First, I want to pay off all of my debt except my mortgage. That is my most immediate goal and I think is a great goal that everyone should achieve. I currently have about a 12k car loan and about 12k in consumer debt that I want to pay off. I also want to reach a savings level that maxes my Roth IRA ($5500/year) and puts me on course to max my 401k (15% of gross pay). Next I want to purchase (preferably with cash) a replacement for my 1999 Chevy sedan that is sadly already struggling. Third, I want to establish an emergency fund with > 3 months of expenses in an online savings account. I have set a very ambitious completion date of July 1, 2010.

This is the basic advice that the columnists like Walter Updegrave (CNNMoney), Michelle Singletary (Washington Post), and Liz Pulliam Weston (MSN Money) or the gurus like Dave Ramsey (The Total Money Makeover), Robert Kiyosake (Rich Dad, Poor Dad), and David Bach (The Automatic Millionaire) or the scores of personal finance bloggers (Money Blog Network) write about every day. I agree with them and will put these goals into practice in my life. Reading these articles and books is a great start however, is not enough to bring out the type of wealth I want in my life. I want to be able to travel to exotic places, to own a beautiful spacious home (or two) with upgrades like a home theater and billiards room, own a pair of late model mid-luxury cars (for example Infinity G35 for me and an FX35 for my wife). I want be able to work with flexibility and generate as much of my money as possible from completely passive sources (bonds, stocks, 3rd party managed real estate or businesses, etc). In other words, I want to be truly wealthy with a net worth of 10-15 million. That my friends is not the 'Millionaire Next Door' or the 'Comfortable Retiree' that will result from the advice of those I mention before. What then should I do to achieve this kind of wealth that such a small percent of Americans achieve? That is a whole different set of ambitious goals I need to figure out.

Aspire 2 Wealth is a center piece of this thinking. It will provide me a place to put my thoughts into concrete form so my ideas don't go to waste. It will also (hopefully, one day soon) give me an audience (or even better, a community) to give me feedback, encouragement, and tough love to push me further toward my goals. I think I need someone to call me on my pie-in-the-sky dreams and make me take action on the dozens of "million dollar ideas" I think I have on a regular basis. Thoughts and suggestions appreciated.

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