About a year or so before the financial crisis, which brought households and governments to the brink of economic disaster, mineral exploration companies, along with their stock prices, were white hot. For those unfamiliar, these are companies that go out and raise a few million bucks to drill a prospective patch of land (frequently in far away and sometimes volatile countries) in hopes of finding the next big mineral deposit. Every investment in the space was (and still is) based on a thesis from a group of geologists who could tell a pretty compelling story about why there likely was the motherlode sitting a few dozen metres below the surface of the ground they owned claims on. It’s a risky/speculative investment environment, as you can imagine; but if they hit, and the geologists’ thesis proves to be accurate, nothing pays investors like that kind of discovery. It’s not uncommon in such a scenario to make 10, 20 even 30 times your money if you invest early enough, before the major discovery is made. The downside, however, is that 95% of these companies inevitably fail… therein lied part of the attraction for a young, perhaps naive fella like myself: the element of risk mixed in with the potential for massive reward.
Before the crash, I had built a pretty solid business marketing for companies in this high risk, high reward industry. It was exciting. I was meeting multi-millionaires who had previously made mineral discoveries in Africa, near the Arctic, Mongolia and other faraway places that sparked my imagination and curiosity. I ate, slept and breathed the industry. I was hooked and had caught a bad case of tunnel vision. My blinders were up, and all my chips were in.
Once the financial crisis hit, money dried up for these types of companies, and their stock prices sank like you wouldn’t believe. Many lost between 80-90% of their value in a matter of months. I was a 24-year old kid who, to my near financial demise, had built his business to service this industry; and I had put nearly all my extra capital into related stocks.
My blind spot as an entrepreneur was a lack of respect/understanding for the severity of the downside. I had little context of just how bad a bear market can be for the industry I was in. Sure, I had read about it and heard stories of how severe the gold market crash was in the 80s, but I didn’t truly appreciate how quickly this industry could go from good to bad; and how rapidly liquidity can dry up.
Knowing it was risky, I still believed I would be able to navigate around the storms. I thought I’d be able to see the crash coming beforehand, and therefore spare myself much of the losses which were so infamous in the industry’s previous bear markets… rookie mistake.
This mindset was incredibly reckless. A classic know-it-all approach common in young men after they taste a little bit of success. You see, leading up to the financial crisis, I attributed my growing business and profits in the market as being a byproduct of my ability. The reality was, I had some talent, but it was a bull market, and a rising tide lifts all boats.
The result of my blind spot as an entrepreneur was I almost went broke from the financial crisis. I was all in on a single industry. Financially, I was grotesquely over-exposed.
That brings me to the point of this weekend’s musing…
Every entrepreneur has a blind spot – always will. Hopefully, your blind spot changes over time, and you learn from past mistakes, but you’ll always have at least one.
I learned my lesson from the financial crisis. My clients are now in a diverse range of industries, and my investment portfolio is spread across nearly a dozen sectors. But I still have a blind spot (or two)…
To remedy this, or minimize its potential negative impact, entrepreneurs need to check their egos and surround themselves with people who are not Yes Men, but rather teammates. As I’ve always said, you can’t build a great business alone. Jordan had Pippen, Montana had Rice. You need partners/employees/teammates who compliment your abilities and will challenge you when you get carried away or overlook (blind spot) a key element. Without them, it’s easy to make one or two reckless decisions that expose you to prolonged and unnecessary risk. This is one of several reasons I’m an advocate of always starting a business with a partner. Avoid going solo so you’re blind spots don’t create problems.
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