Investing in other businesses is a real passion of mine. As an entrepreneur I’ve enjoyed seeing the businesses I’ve put money into grow and become an increasing source of both pride – and of course income – over the years. A common question I’m asked by many people is why I invest in certain businesses and not others – and whether I can share some my tips for success – so I thought this could be an interesting area to investigate in this post. I hope you find my advice useful.
Be passionate about the business
This might seem obvious – but I believe it’s absolutely crucial to being an entrepreneur. ‘Passion’ is a much over-used word (I can’t tell you how many CVs I’ve seen it on), but it’s actually fundamentally important that you feel excited and yes, passionate, about the businesses you’re putting your money into. The enthusiasm that you feel for your new venture will be felt by others too, helping you to recruit and retain the very best people successfully, and most importantly build a business that is ultimately better than it was before your investment.
Investing in something that you’re passionate about doesn’t mean always sticking to the things you know, however. I strongly recommend diversifying your investments in other businesses – looking at sectors and industries that aren’t dependent (or vulnerable to) the same cycles of supply and demand that your core business is. It will give you the longer term stability you need to continue to grow right across your business portfolio.
Do your research
It never fails to amaze me how many people miss out this very basic, but vitally important stage when investing in a new business. They see an opportunity – often just trusting their ‘gut instinct’ – and go for it. Sometimes it pays off – but more often than not it doesn’t. So, my advice is to make sure you don’t skip the hard work – read the annual reports, look through the company’s financial history, hire the professional advisors you need and meet the people who run the company. It is absolutely essential to get a firm understanding not just of the direction that this particular business is heading in, but also the context in which it is operating – look at the wider industry, and the pressures and challenges the company you’re looking at is likely to face in the short, medium and long term.
Know your exit strategy
Things don’t always run smoothly in business, so it’s always wise to know exactly how you will extricate yourself from any investment in a new venture should things not work out as you’d want. A really important part of this is to be completely up-front about any exit strategy you have with the people whose business you’re thinking of investing in – they’ll appreciate your position (and your honesty), and it will allow all parties to operate on the basis of a clear understanding of the risks that all sides are prepared to take.
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