Why do the rich get richer?

Have you ever wondered how the rich get richer?

Consider the old saying. “The higher the risk, the higher the gain.”

The type of risk I’m talking about isn’t putting on a blindfold and walking across the highway. It’s the risk that a well thought out investment might take longer than projected to deliver a return.

When you have limited resources as an company or individual, you are basically living month to month. When you invest in hiring a new employee, creating a new product, or opening a new office, you have to get to breakeven within weeks or you will run out of investment capital and have to pull the plug. When you pull the plug you lose your entire investment.

If you have to see a return in days or weeks you will focus on investments with low risk. However, low risk investments carry low returns.

The rich, whether companies or individuals, can invest in opportunities that may take years or decades to pay off. They have the resources to stay with the investment even if it takes eight years instead of four to break even and start returning.

As an industry matures, the investments it takes to remain competitive get larger and larger. At some point, typically only the top three players can afford to stay in the game. This is one reason you may need to keep growing. You can’t remain competitive if you can’t ante up the resources to sustain investments for new equipment, technology, people, and products.

A major responsibility of senior management is managing risk. The better the team and support tools, the more successful the strategy, meaning a company can manage more risk. The best way to do this is through a well structured strategic planning process, including effective implementation. (For more on strategic planning, review the first two chapters I wrote in the Business Expert Guide to Small Business Success.)

If you’re interested in having a facilitated strategic planning meeting that sets your strategy and launches its implementation, give us a call.

This entry was posted in HR Management, Strategic Planning and tagged , , . Bookmark the permalink.