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Old January 9, 2008, 08:12 PM
Dien Rice Dien Rice is offline
Onwards and upwards!
 
Join Date: Aug 2006
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Default How To Be An Entrepreneur - Without Risking It All!

I've recently been re-reading Donald Trump's first book, "The Art of the Deal". I can't comment on his other books (I haven't read them), but "The Art of the Deal" is great! It gives you the insights of someone who made his mint on his "wheeling and dealing" skills...

(Admittedly, he did have a head-start with a successful and rich Dad. I think I read his first property deal, which he did in partnership with his Dad, was for an apartment block with 1,200 apartments in it. So you can see, he didn't exactly start from nothing! But there's still useful stuff in there...)

Anyhow, in his book, Donald Trump always talks about how he doesn't really see himself as a risk-taker. (This is a common theme among highly successful entrepreneurs.) Rather, he always looks at the "downside". What's the worst that could happen?

(By the way, Buffett does the same thing when he's buying stocks...)

It's a good attitude to have. What's the worst that could happen? If you can live with it, then you can do the deal!

Another thing I've picked up is, how can you reduce the downside? Donald Trump reduces his "downside" in many ways... Sometimes by selling to someone. Sometimes through partnerships.

For example, there was a derelict hotel in New York City, called the Commodore Hotel. It was losing money hand over fist. Donald Trump liked it, because it had a great location. Even though it was in a "lousy" neighborhood, lots of people walked past it every day on their way to work, since it was near a subway station.

At the time, he could have bought it and spruced it up a little, to see if he could make money where others couldn't. Doing that, he could have easily failed. Instead, he did different things to reduce his risk...
  • He negotiated an option to buy the building, but conditional upon him getting other parts of his planned deal in place. This reduced his money risk - because he didn't have to pay up front, until he knew everything else was in place.
  • He negotiated with New York City for a total abatement of property taxes on the building for 40 years. This reduced monetary risk in the future.
  • At the time, Hyatt hotels didn't have a hotel in New York City. He did a joint-venture deal with Hyatt, where they would both own the hotel 50/50. Donald Trump would build it, and Hyatt would run it. This also reduced his risk because the Hyatt brand name would attract customers. (There was no "Trump" brand name back then...)
  • As part of his deal with Hyatt, he negotiated a "non-compete" clause, that Hyatt couldn't build another hotel in New York City or JFK airport without his (Donald Trump's) approval. This reduced the risk of another competing Hyatt hotel in the area, which might reduce the appeal of his half-owned hotel, and so could have reduced profits.
Through lots of lengthy negotiating, he got all the parts of the deal in place... And it was a success!

By the way, the hotel is still there - it's the Grand Hyatt New York.

There are many ways to reduce your risk in any project... So, you can take a "leaf" from Donald Trump's book (and the book of a lot of serial entrepreneurs, I might add). That's to think - what's the worst that could happen? Then, think - how you can reduce that risk?

Hope you find this a profitable post...

Best wishes,

Dien

P.S. Donald Trump has had the occasional "downs", as well as "ups". "The Art of the Deal" was written before any downfall he had - but he did admit in the book that only once (at the time the book was written) did he do a deal without seriously considering the "downside". In that case, he ended up losing money on it. So, he doesn't always follow his own rules - but perhaps pays the price when he doesn't. (Sometimes, you can get emotionally attached to a deal, which can stop you from being objective.)
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