You are an Investor

In the midst of all the excitement over your new idea it is easy to forget that your idea should be considered as an asset. It may have real value financially, as soon as you put it down on paper. Certainly in the software development industry many new ideas have immediate financial value, often upto $1million.

A difficult hurdle for creative people is the separation of financial reality and the excitement of an idea. These two things must be kept very separate. As you develop your idea you need to parallel this with the development of the financial realities.

I suggest that right from the beginning you put aside time to make an analysis of what your idea is worth today. It is probably worth something to somebody. Analyse your potential exit market. Can you imagine a large company that already exists that might be interested in your idea?

For example, perhaps you have thought about how to solve the problem people have choosing a suitable gift, to give to a family member, for Christmas. You have finally come up with an idea to solve this problem, which probably uses the Internet or smart phone. At this stage your idea maybe very simple, just a sketch or two in your notebook. However, the decision you make about whether or not this idea is worth pursuing depends upon who you think will buy it (the idea) in the end. Can you see an Exit?

In the above example you might find that a large online retail store such as Amazon could be your Exit. This Exit Strategy will form the basis for how you plan the development of your business.

You must now analyse whether you really can build your business and deliver on your strategy.

You are an Investor
As soon as you have an idea You are an Investor.

The moment you decide to spend time on your idea, in any form, you’re making an investment. Even the time it takes you to just write that idea down is an investment. This is because your time is valuable to you, it is actually a limited resource, and you really don’t want to waste it. You would treat all money in the same way.

This applies even more particularly to businesses that are already making a profit. At the end of every financial year when you sit down with your accountant and analyse your balance sheet You will discover whether or not you have made a profit or a loss. If you make a loss this may be good because you won’t have to pay tax. However if you make a profit you then have an important decision to make.

Your profit is your money. It is money that you have in the present, right now. It does not seem that way at the time because it is all on paper, however it is important to discipline yourself to see it as real money. And to discipline yourself around how to use it.

A lot of business owners simply and automatically return the profit into their business or collect some bonuses. They rarely have time to think about what the consequences of this maybe. Everyone is running on adrenaline and there’s a lot of stress. Doing what you did last year seems like the best option. Unfortunately though this may not be the case.

Even though it is difficult, when you’re caught up in day-to-day activities, it is important to step back and analyse your profit as an investment. Is your business actually worth reinvesting in? Where are you headed? Have you got your five-year plan? Does the market still support the plan? Can you see another way that this profit could be spent?

A Full time investor, as opposed to a business person, always has a strategy for their investment. They’re very very disciplined about how they use their money. This discipline would be an excellent skill to add to your Toolbox.

I have a suggestion for a book you could read that I think is very helpful and relevant, although perhaps, quite difficult to put in practice when you are deep in the trenches of a flourishing enterprise. The winning investment habits of Warren Buffet and George Soros is a great book that will help you to see your business from the eyes of an investor.