Investment Risk

What is a better investment:

  1. Investing $1 million to make $10 million, or
  2. Investing $30,000 to make $50,000?

Certainly, $1 million is way bigger than $30,000. Let's say for the sake of argument that you have both sums of money to invest and your spouse will not kill you for doing so. Also assume that you are an entrepreneur and will have a significant influence in the outcome of both scenarios, i.e. similar chance of a positive outcome.

Worst case you could loose it all, $1 million or $30,000. Best case you would earn $9 million or $20,000.

I think it's pretty obvious that if you are going to invest your capital, time and effort in a venture as an entrepreneur, you should be thinking pretty big. And the rate of return is so much higher in scenario 1.

What if you had to invest $6 million to make $10 million? Same rate of return but you make $4 million instead of $20,000.

If you look at the $20,000 scenario, you would have to repeat your success 200 times to get the same gain. How much effort would that be?

Usually efforts and gains are not linear. So you can figure that winning 200 times for each small gain of $20,000 (for a cumulative gain of $4 million) would take quite a bit more effort than winning once for a large gain of $4 million… probably by a factor of 5-10. The expression the rich get richer is there for a reason.

After thinking about this a bit it's obvious to me why serious entrepreneurs tend to go for the bigger deals or investments.

There is only so much time in a day so you might as well spend it on the bigger payouts. Your time is a big part of the investment risk equation.

By | 2017-04-03T12:36:34+00:00 September 18th, 2008|Categories: Business Strategy, Doug's Blog|

About the Author:

Doug Wagner is an entrepreneur, President and Co-founder of Sunwapta Solutions. Sunwapta's mission is to help businesses transform from surviving to thriving, sustainable growth. From strategy to implementation, this means marketing, sales, managing your brand and delivering consistent value. Get more clients and keep them.