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Avoiding Losing Propositions – It’s Simple Math


I remember the first time I attempted starting a business. It was called “Verta.net” and was a local dial-up internet service provider. I think I was 13 or 14 years old. I thankfully had the help of a couple like-minded friends, and the support of my loving parents who’ve always wanted nothing more than to see me succeed. We didn’t have much money but I was resourceful, I hired a C developer and we made an auto-dialer to automate the account setup process. Then we made a bunch of these free setup CDs and put them all over the place in Central Ohio at local gas stations, convenience stores, pretty much any and everywhere that wouldn’t tell us to get lost. It’s pretty hard to tell a 13 year old “business man” no, even if you don’t stand to gain anything from the deal. Verta Net did get some customers, but it was definitely a losing proposition.

My second venture was a 50/50 JV in high school with a friend called VibePC.com, the plan was to build PC’s and sell custom computers on the internet, along with peripherals through one of a few drop ship suppliers. It seemed like a solid idea at the time, and I did sell a few computers to family friends and such, but overall, this plan was was also a losing proposition. It was from this point where I first started to learn the hard way that avoiding losing propositions was going to be key to investing my time where it mattered most.

I got my high school diploma a day after my 16th birthday thanks to an internet based homeschooling program I discovered. Grade school wasn’t really my thing anyway and I knew getting out early would give me time to focus on my many ideas and get a job  to save money. So, that’s what I did! I got a job working for a company that wasn’t my own. It wasn’t my intention to ever stop searching for ways to bring my own ideas to life, but all my time was being consumed and and I never made anywhere close to enough money to save to start a new business. I reached the point where I had almost lost hope, I was hungry for success but at the time I had started believing that t I needed to further my formal education to be successful in the real world. This couldn’t be further from the truth, but it’s what happened… I was flipping through an Alternative Press magazine and  spotted an ad for Full Sail University, or at the time “Full Sail Real World Education.” This school was teaching Recording Arts, Show Production & Touring and Music Business at the time, and that was all really interesting to me. But now I look at going to college a little differently… I’ve realized unless you’re planning on being a doctor or a rocket scientist, college is also more often than not a losing proposition.

In 2007 I graduated from Full Sail, and right before graduation I applied for one job on the internet. I got the job the same day I applied and ended up working at that company for my first 5 years right out of college. I did earn a decent salary, it was a far cry better than what I made working retail at Office Max at least. I was able to put back a little money while working this job and although a struggle at times, I was able to start paying my $1200/month student loan payments along with rent, utilities, car, insurance, health insurance, fuel, food, dog food, the list goes on! It didn’t take me long at all to realize how expensive life really was. I’m thankful for those 5 years for a few reasons, and one those would be that I now understand the logic behind using proformas to make sound investment decisions and maneuver around losing propositions. All you have to do is weigh out THE COST vs THE BENEFIT. By doing this, you’re going to consistently yield better results. If it isn’t likely the proposition will be profitable, just know when to get up and walk away! This helps mitigate most of your risk by protecting you from unnecessary loss.

A quote I remember being referenced a few years ago still stands out to me as if I just heard it yesterday: “Any truly great idea MUST benefit all parties involved equally. If it’s a disadvantage to anyone involved it’s not truly a great idea and it should be avoided.” Sure, you can let it go in one ear and out the other, or you can let it soak in and really understand what it means. Let’s use one of my startups, The Dollar SEO Club as an example. We sell SEO services that helps position businesses competitively in the organic search index. For The Dollar SEO Club to be deemed a “truly great idea” it must offer a benefit to our company and it’s staff, the investors, our clients, our clients customers. Everyone should stand something to gain out of the proposition or it shouldn’t be pursued at all. That doesn’t mean you can’t see crazy profits from a bad idea. Usually once you have a lot of money it’s pretty simple to sell anything, good or bad. There are perfect examples of this everywhere we look. WIth a liquor store and gas station on nearly every corner, let’s consider soda alcohol and tobacco for a minute, these things mathematically cannot benefit all parties involved but they are still very successful. This is all due to their immense marketing budgets which makes the use of these things appear interesting and enjoyable.

The sales of Alcohol and Tobacco definitely benefits the manufactures, the distributers, the governments, the liquor stores and the gas stations. But the other party in the equation here would be the consumers.  Consumers experience bad breath, yellow teeth or even worse – decay, poor smelling finger nails and clothing, endless procrastination/laziness, potential addiction, cancer, weight gain, bad health, mental instability due to a prolonged physical dependance and of course, the cost! So now that we know the consumption of soda, cigarettes and alcohol all three result in more bad than good. But how do we react to this new found realization as consumers? Do we continue consuming these things or do we focus entirely on what’s beneficial and avoid the marketing delusions altogether?

Clearly, not every bad idea fails, and as far as that goes, you should be able (by legal means at least) to make or sell whatever your heart desires, even if it does require labeling such as “this product causes cancer.” But, as informed individuals, it’s our duty to do the simple math and determine whether or not something should be avoided. We decide our own fate, that’s fine, but if logic can help us make informed decisions, why would we continue to buy into something that’s doing more harm to us than good?  I made plenty of mistakes before I decided to stop shooting from the hip and start making more informed decisions. But now that I’m calculating cost vs. benefit I’m getting much better and more consistent results.

Another personal example would be an investment opportunity I just barely dodged for Bitcoin Mining. I had an investor who approached me asking if I knew anything about Bitcoin and other digital crypto currencies. We started chatting it up and our initial conversation concluded with him pointing out that he wants to sit down and talk business. He was on board and ready to make a move in a moments notice, but I was starting to learn more about mining and I quickly realized the difficulty of mining is nearly doubling month after month thanks to newer mining technologies such as ASIC. A good friend of mine told me he was making a killing selling USB miners on Amazon and he didn’t have an eBay account so I figured I’d inquire to figure out what price I could get the miners at. The price point he was buying them at requires a $100,000 minimum purchase, so they were pooling together as a group of buyers to meet the mandatory minimums. The fact that I could get near wholesale prices without having to meet the $100k minimum really sparked my interest.

I did a little digging and found that even after eBay & Paypal’s fees, I could still profit 20-25% just by focusing on reselling the mining hardware. I already had come to the conclusion that mining itself had become a losing proposition, so I had a hard time deciding whether or not to sell it to others. I decided to move forward with selling the miners on eBay because in my COST vs. BENEFIT analysis I determined it was still beneficial to a certain category of consumers who are okay waiting years for a ROI or have no other access to purchase the currency domestically so their best method of acquiring the currency was through mining. I made a little profit selling the miners but I decided to call it quits, it wasn’t producing enough to justify the labor requirement to manage everything.  Plus, a couple months into selling the devices the prices started rapidly dropping week by week. By the time we got our next shipment in from Hong Kong the MSRP had already dropped on the backend by 25-50%. Although I was turning a small profit, the whole process was starting becoming tedious and convoluted. I decided my time was best invested elsewhere.

Life can be full of regret, always beating ourselves over things from the past, wasting time and energy on things we can’t even change! I realized there is nothing to ever regret when you are consistently making the right choices. When you know that making one choice over the other will produce a better outcome, you will have no fear or regret in making the decisions you’ve made. We can still experience loss even after thorough due diligence, none of us are perfect. But what really counts is that we’re not going to find ourselves losing any sleep over a failed attempt because we’ll always know that we took the time to evaluate the proposition and make the best possible decision.



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Written by Justin Smith

Justin Smith is a proud libertarian who wants to get this corrupt government out of our lives. From 9-6 he's an internet marketing and web development consultant, best known as the creator of www.DollarSEOClub.com. In his free time he's always finding a way to give back, having co-founded www.PadsDr.org, a healthy homes initiative, and educating youth on the dangers and harms of drug addiction via www.DANC.us.


Comments (6 comments)

  • John B.
    April 30, 2014 at 1:21 am

    Its actually a nice and helpful piece of information. Im glad that you shared this useful information with us. Please keep us up to date like this. Thanks for sharing.

  • sharm
    January 17, 2014 at 4:56 pm

    Sorry I didn’t mean to disturb. Just thought of making friends….I ddnt know how else to contact u….

  • Sharm
    January 17, 2014 at 11:23 am

    Hi justin mind to have your email.

  • Duane Michaud
    November 11, 2013 at 2:17 am

    Hold on to your seats. Here goes the bitcoin!!!!!!!!!

    Fantastic blog. Great analysis here of cost vs. benefit. Bitcoin mining rigs were the five hour energy of bitcoins. Somebody took a dump in a box and called it a block erupter. Anyhow, bitcoins are alive and kicking STRONG. Be on the lookout for a licensed broker near you soon!!!

    • Justin
      December 2, 2013 at 12:40 am

      Boy did it go. Honestly, considering the recent movement mining was NOT such a losing proposition. Difficulty continues to rise but the value skyrocketed. I cashed out most of my inventory at $420ish and yielded around $30k that week. If only I held my horses a few days, we live and we learn. Thanks for reading the blog dude, it means a lot.

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