Back in the 1950’s, a man who would one day become the richest person on Earth was forced to find the answer to this very same question.
Imagine with me for a moment, it's 1945, our young man has just left the army and decided to start up his own business. He has zero experience but he’s driven, smart and thrifty. He spends the next five years of his life working like a dog to build his operation.
From 1945 to 1950, he parlays $5,000 in savings and a $20,000 loan into a money machine that generates over a quarter of a million dollars a year. He’s netting between $30,000 to $40,000 a year, which is about $340,000 - $455,000 in today’s money.
The kicker? He’s barely 30 years old!
Unfortunately, by 1951 he will have his business ripped away from him in the most unfair way imaginable.
You see, in his eagerness to start his business, he negotiated the worst possible deal for himself with his landlord. On top of having to pay 5% of his gross revenue as rent, he had failed to insist on an automatic lease extension clause. And so at the end of his lease his landlord refused to renew and stole the store out from under the young entrepreneur.
The young man from our story was Sam Walton, and his variety store concept would one day become the model for the half trillion dollar juggernaut known as Wal-Mart.
How did Sam handle this devastating setback?
Can you imagine spending 5 years of your life, 18 hours a day, working your guts out only to have some greedy landlord snooker you out of your business? What was so incredible about Walton is that even in his fury he recognized that he was ultimately responsible ("I blamed myself for getting suckered") for his failure because he had failed to negotiate a renewal clause.
There are three key lessons that we can grasp onto from how Sam Walton handled this stunning reversal:
Always depersonalize failure -- did Walton
make idiotic mistakes in his first store? Heck yes, but
he never personalized it. He never beat himself up over
his errors. He learned from them and moved on. Remember,
being too reflective is death for an entrepreneur.
Keep a prudent cash reserve -- reversals
happen, so live beneath your means.
- After a fall, pick your self up -- focus on what worked, eliminate what didn't, and swing that bat again.
Sam Walton has created wealth and income for millions of people, and none of that would have happened if he didn’t have the cash to come back. Can you imagine if, instead of conserving his capital, he blew it on living the high life?
He would not have been in the position to take the risk of starting another store. He would have had to work for somebody else while he got another grubstake together. Who’s to say that he would have had the gumption to go for it again after a blow like that?
Here is the ugly truth: Sometimes really crummy things happen to really good people. I’m not excusing it, I’m simply acknowledging an ugly truth that exists whether we choose to embrace it or not.
Our job is to make sure that we are insulated against life's reversals, because they are seldom fair.
Living beneath one's means, keeping a cash reserve, and depersonalizing failure while owning one's errors and trying again are the keys to achieving great wealth and financial security.
Chief Investment Officer
ETF Master Trader