What are some of the biggest risks you've taken in business? How can you be sure that the risk is worth it? In this episode, Wes and Brooks give us their thoughts on how to balance different risk tolerances among family members in the business.
How Do You Balance Risk Tolerance?
Taking risks is a necessary step towards growing a successful business. Knowing when to take certain risks and who to talk to about those risks is important. "Life is a risk. So, proceed. Just constantly look for ways to mitigate and reduce risk while going for your goals."
Learn all about it here on Builder Funnel Radio.
- 1:51 Family construction business's
- 4:30 How has your risk tolerance changed?
- 6:25 Why had your risk tolerance gone down?
- 9:55 Things that mitigate risk
- 18:03 Risks in partnerships
- 28:06 Staying on the same page
- 34:58 High risk moves
- 40:49 Talking to your partner
- 48:30 Highest risk
- 58:34 Spencer's takeaways
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Full Episode Transcription
Note: this podcast was transcribed automatically and may contain minor grammatical errors and missed words.
Spencer Powell 0:01
You're listening to builder funnel radio. This is the building a family business show with Wes and Brooks Powell. Let's dive in.
The Powell family construction business has been around for over 110 years. Over that time, it's evolved and been through four generations of the power family. What started as a new construction business building spec homes in the Seattle area, evolved to building communities, remodeling building custom homes, and then getting involved with property management. Today the business currently owns and operates two retirement and assisted living facilities, several apartment buildings and does third party property management in the Seattle area with about 750 total doors under management.
Over the last several decades, Western Brooks has seen it all when it comes to business evolution family dynamics in the construction industry. This is the show where I work to extract their knowledge and experiences to help you navigate family dynamics among other things in your construction business.
Let's dive into the show.
Hey guys, welcome back to another episode of building a family business. This is Episode Three. And we are going to dive into the world of risk and risk tolerance. So construction businesses tend to be a little bit higher on the risk spectrum, especially if you get into things like spec building. You've got big loans, construction loans, things of that nature. cash flow can be challenging, but we are going to dive in and I'm going to kind of grill Western Brooks on risk, how they feel about risk where they are on the risk spectrum, and then how you manage risk. And also think about risk when you're thinking about business partners and people that are involved either in your life and your business. So stay tuned. And this is Episode Three of building a family business.
Hey guys, welcome back to another episode of building a family business.
I'm Spencer here with Wes and Brooks. Brooks, How's it going today? Great. Good. Hey, yeah, yeah. How about us? and gone? Well, thanks. Good, good. So yeah, today we we're gonna dive into the topic of risk. I think that was something that came up in Episode One as we kind of got going into some of the history that just started to unfold. And and the three of us were kind of talking off the air and figured that would be a fun topic, especially since this business tends to be fairly risky in nature, or it can be but I thought we might just talk about, you know, where we fall on the risk scale to start, you know, so Brooks, as you think about, you know, I kind of think about risk on a spectrum, you know, you might be a high risk or low risk type of personality, you're more
you know, I don't know inclined to take risk or not, where do you think you fall on that scale just and has it changed?
Brooks Powell 3:00
interest over time, I would say it's been I fall if you have a scale of one to 10, let's say 10 being the highest risk, one being the lowest risk, I'm definitely in the eight to nine on taking financial risks. I mean, risks with my physical person like jumping off a cliff or something like that. I'm pretty low risk.
Don't like heights? Yeah. You have not big on heights, but it definitely on the financial side. tend to be on the higher end of the spectrum for sure. Yeah, and do you? Do you know why that is? Do you think it's just inherent like purchase part of you or do you feel like you're hiding I just, that's how I'm wired. Because I think as we delve into a deeper here is you will find there's other people with different risk tolerances, and I would I'm still I mean, even now I'm still pretty high risk, you know, financially going to take those chances for your for a higher return. Sure, yeah. And West, you know, if we're using that
Spencer Powell 4:00
One to 10 scale, you know, where do you think you are? Now you've got maybe you had a number in your head before Brooks answered, and then he, I don't know if that changed your answer.
Wes Powell 4:11
No, I was thinking about that. I assumed you're kind of using a scale of one to 10. And I would say 10 is a putting the house and everything else all on black, you know, going to Vegas, that would be my definition. 10. And then one would be suspenders and a belt.
Yeah, I think that's kind of a one or a zero. And I would say, based on Brookes spreadsheet said you're 8989 Yeah. Okay. I would say I'm probably today. I would say that in the past, and I think that's one thing we might want to talk about is work, how people's risk tolerances change over time, right. So I would say today that I'm probably
a six, six, maybe a seven
But I would say that when I started my billing career way back in the late 70s, early 80s, my risk tolerance was much higher, I would think it would have been more up in the eight, nine
range as well. And I think that just changes over time. As you go through life and have different experiences around risk, and either, you know, reinforces your risk level, or it can change that risk level or your tolerance for risk. I think age has something to do that as well.
Spencer Powell 5:34
Yeah. And and so Brooks, you said, you probably have been consistent around that, that eight, nine so I'm interested to kind of dig into this. Why do you think your risk tolerance hasn't changed much and then maybe we'll bounce over to us and you can talk about why yours has and has gone down?
Brooks Powell 5:54
I think it's an interesting question. Especially because the
My risk tolerance is probably not gone down my spouse's risk tolerance has gone down. And it may be that that helps moderate, I don't have to moderate or modulate my risk tolerance. Because I'm married to someone with a lower risk tolerance, probably still a six or a seven.
But then I'm going to be balanced by that.
And, but the, you know, minor, for me, risk tolerance was governed by, you know, my desire to, you know, make money. So I wanted to take more risk to make more money. And maybe that's changes with West what you're saying with age or it also might change with accumulation of assets.
So I don't know what you think about that less. Yeah, no, I agree with that. And that's probably what I would have said, I think.
Wes Powell 6:52
Yeah, definitely. My risk tolerance was much higher in the past because I could see by using leverage, you know, we could make
A lot more money when we when we started the building business and, and we can we can talk about leverage and the good and the bad of leverage. But certainly at the beginning, I saw the good parts of leverage, being able to use very little money, you know, borrow money from a bank and be able to make really great returns
in the building business. Of course, that is the it's a two edged sword. But I think
that my tolerance level has come down, as I've seen, you go through a couple of downturns and some different things and go, Okay, well, here's the darker side of of leverage. And so I want to D leverage a little bit, I don't want to have that much exposure. And then once you get to a point where maybe you don't, you don't use leverage, then all of a sudden you're going well, this feels pretty good, at least it did for me, and so I have less desire to go out and use leverage in order to make higher returns. However, I will say that
the less risk you take
You do make much lower returns. And so that can be super frustrating as well. So if you have a higher risk tolerance, all of a sudden you'd be going, man, I am not making the kind of money I should make.
Spencer Powell 8:12
Maybe I need to up the game a little bit and take on a little bit more risk in order to do that. Yeah, so on that topic, you know, you always hear that, you know, high risk, high reward. And obviously, there's a downside to the high risk as well. You know, as business owners, and a lot of a lot of people listening or business owners or potentially future business owners. How do you think about managing and balancing that risk? You know, obviously, a lot of us get into business for you know, maybe that financial upside. There could be other reasons you have, you know, a purpose you're trying to fulfill or a mission with the company, but there's usually a monetary component to it.
So how do you say, hey, I need to be on the higher end of this, but are there things you can do to mitigate that risk?
You know, and Brooks says you maybe you can chime in first and think about your experience over the years. Are there certain things that you thought about or tried to do saying like Yes, I'm, I'm a, you know, eight or a nine, but I'm trying to have my end result, like feel more like a five or a six or something like that? That's an interesting question, especially because the the the challenge we have a small business owners is that we typically have to personally guarantee any money we borrow. And so that's a
Brooks Powell 9:32
few listeners out there a personal guarantee is you're guaranteeing you will pay this money back regardless of what happens with your business or what happens
financially so as a personal guarantee, which then typically means you're pledging your house, your assets for both of you and if you have a partner, your partner.
And it's nice, you get to a situation where you don't have to pledge those assets and you could maybe get care so there's opportunities
guarantees from other people, opportunities to have other people use their money. There's ways if you're
married, you can have your spouse, own some of the assets, and then you are just guaranteeing personally. So you're putting only your credit at risk. So there's different vehicles that can be used to mitigate that risk. So you'll play as Wes says, you're not putting it all on black Vegas, and you know, hope it will, you know, hope it works out. Yeah. And I think the other thing you can do, too, those are all great ideas. I think the other tactic that you can take is just in before you take on the risk, you kind of walk your way through what that risk entails. And then you run out your What if scenario, so you're going, Hey, okay.
Wes Powell 10:47
What if the economy goes into a recession? What if I pick up four or five more competitors? What is, you know, so you kind of go through all these different scenarios and ask yourself what What I do in that situation and think your way through what your response strategy is going to be. And I think once you do that, something that maybe felt like it was an eight on the risk scale might drop down to a five or six because you realize that, hey, I can manage these, these different aspects, I think the longer you're in business to and you see more scenarios, you realize that you can handle a lot of different types of things that come up. And so your perceived risk level of five or six might be someone else's 10, or your perceived risk level of three or four might be someone else's 10. You know, so it's really depends on your feeling of confidence and your feeling of competence about handling what could happen if things go south.
Spencer Powell 11:46
Yeah, you know, it's interesting you say that, because I was just talking to a buddy of mine, and we were talking about this risk spectrum and he's more into investing in stocks, whereas I'm more investing into real estate and business. And that sort of thing. And by I asked him where he thought I was on the risk spectrum, and I tend to think of myself as a little more conservative, you know, so I might put myself at, you know, five, six, or seven, or somewhere in there. And he said, I'm probably like a nine, you know, and so it's alright, and you guys just kind of laughing, you know, if you're watching this, you can see but if you're just listening to the audio, these guys are laughing because I'm sure they probably know me as much more conservative than both of them individually. But it's all you know, it's all relative. And I think the reason that I think I'm lower on that spectrum is exactly what you were saying West is that I invest in generally individual stocks versus like mutual funds or index funds, and people say it's always safer to diversify, but I did a lot of research on those individual stocks and I dug into their numbers and I looked at where they were going, and I was closer to To them, and so I felt a lot more comfortable. And that was kind of what you said is like that, like confidence or confidence in those areas. And same with when I purchased my first rental, I ran the numbers and it was like, well, what's the worst case scenario? And am I comfortable with that? And can I could I figure out how to manage that. So those were just two personal examples, but basically, you know, exactly what you were describing. But I think that risk spectrum is very interesting because it's all relative compared, you know, to what somebody else's, you know, doing with, with their actions or their dollars and that sort of thing.
Wes Powell 13:37
I was having a conversation with a buddy the other day and just conversation about Are you a real estate guy? Are you a stock guy? Are you a business guy, and everyone believes in what you know, they really believe in and so I think the balance coming out of that discussion is where you can be spread across several different things and then understanding each different Investment time. And using that to your advantage. So if you're an owner of a small business, like we all have been in our, you might invest in your 401k in a certain way. But like, for me, I don't know much about the stock market. So I'm all in index funds in my 401k, because I just focus 100% on my own business not focused on the stock market. So that's how I manage my risk with that, since I know nothing about it. I think it goes back to control for a lot of people if you feel like you can control the outcome. So I would tend to be with Brooks in terms of looking at the stock market. I don't feel like control that. So it feels a little bit like going to Vegas, you know, and that's just because I haven't probably taken the time to educate myself. So I can make informed decisions and do it in a in a practical in the suit way. So I think once again, it goes back to how can you minimize your risk level just three years. educational process and what you're comfortable with and your experience. However, I will say that we do have a relative who shall remain nameless, who was very much into real estate, that was the only thing to do. did not believe in the stock market. It was, you know, just a terrible, terrible thing. People lost all their money in the stock market. This individual was required by a bank to for a real estate loan to invest in the bank stock and had to buy a small amount of bank stock. Well, fortunately, or Unfortunately, the person who did that by 510 times the amount of stock that they were supposed to buy for. So they were aghast when they found out until the stock tripled. And then this person is now a total devotee to the stock market and has been for probably 30 years. So once again, you know, if you have a little good experience, then you kind of go I want to learn more about this and maybe figure out how this actually works, maybe it's not a terrible thing.
Spencer Powell 16:03
Yeah, yeah, that's pretty funny. So, going back to kind of the risk spectrum, and Brooks, he had mentioned that, you know, your wife maybe brings averages out, you know, your risk, but let's talk about, you know, if you're in business, either for yourself, but you're in a relationship, and so you got to think about that, you know, part of the risk component, or maybe you don't, and then also if you have, you know, a partner or multiple partners in the business, you know, so how do you balance that out? And is it Do you think it's better or worse to have people that are on you know, similar risk styles? Or is it better to have people that are, you know, different because you do get some of that, that balance there?
Wes Powell 16:49
Well, it's interesting, because if you're,
Unknown Speaker 16:52
if you're married, then typically all your finances are commingled. And you're both partners are going to be signing of guaranteed guaranteed loans and things like that. But probably you know, those conversations you're having before you get married are not about, hey, what's your risk tolerance?
Spencer Powell 17:15
Sounds like one conversation.
Wes Powell 17:17
Conversation certainly wasn't one that has an I had. But I think it's a good thing as you're going into business to have those conversations. You know, some people are in a relationship, not married, but in business together. I've seen that happen, which makes it a little more complicated legally. But again, the conversations are key. And then if you're partners like I was partners, we're still partners, my younger brother Todd, and he, and he has a different risk tolerance and his spouse has a different risk tolerance. So you're managing not just your business partners risk tolerance, but there's their life partners. risk tolerance. You can have a lot of different risk tolerances to deal with. And then you also have ages age spectrum. So when you're talking about you have all these different age spectrums that people are thinking differently depending on their age. Now one thing too, I think, as you're Brooks is here talking about partners. And, you know, I, so less partners are 5050. You know, some partners are 7030. You know, they have some, some other split. But I think, where you might end up with problems, if you have a partner and you're thinking about your different levels of risk tolerance, say, Okay, if you have a minority partner, let's say, minority partners in for 40%, or 30%, but the majority partner has a much higher risk tolerance. And so they may be doing things that the minority partner really can't control, but they so they feel stressed all the time because of what the majority partner is doing vice versa, you know, if the majority partner has very low risk tolerance, and you have a minority partner who really wants to go, go Go and they want to take on more risk than then that can cause a problem too. So it could work both ways. But I think those that's one of those things and talking to your partners, or even if you're in a relationship right now in businesses to talk through that and go, Okay, what, what are different risk tolerances? Where's the control? Where's that? You know, and think about those two things? Because I think they're, they're actually joined. And if you don't work your way through that you can have some discordant relationships or potentially could have some discordant relationships.
Spencer Powell 19:40
Yeah, I think,
you know, so you guys have kind of mentioned that you have to at least take these things into consideration and think about them. I've guess I'm curious, just because you've had personal experiences, probably on different sides of the coin, you know, either being the more risky person or the less risky person. Maybe not you breakfast You're not a nine. But you know, I guess, when you have to go to make decisions, how does that end up playing out? And I mean, I know that it's not like, oh, it always ends up this way. But, you know, for people listening, like how do you navigate that somebody is low risk, somebody high risk, and you're, you know, you want to make some moves in the business.
Wes Powell 20:19
You know, what, what do you do about that? Is lots of conversation. I mean, it takes a lot more conversation to be in partnership than it does not to be in partnership. But with partnership comes great skills from other people. And so if you're in partnership with somebody, and you just have to talk through, you know, what is your issue, maybe there's never been a conversation about risk tolerance. It's just been, it's evolved. And you've done some deals together, and you're like, Oh, this is all working out. And as long as they're working out, there's really not a big discussion about risk tolerance and But if it's not working out, there's a lot of discussion because then people are contributing more capital, or you might have to sell some assets to keep the project going. So I think that's the the conversations that you have on a regular basis. You know, this would go back to the business structure. And, you know, communication, which is, you know, are you meeting monthly to go over your financial statements and talk about where these projects are? Or are you just waiting until it's all over? And then you have a discussion about it. So it's, it's a lot of conversations on a regular basis about these hard questions. And using real numbers, we were in a situation where we had a business line and it looked like it was going to lose $150,000 in an upcoming year. So we, we've done the due diligence, we knew we'd run the numbers, we knew, like you know what, I think it's not gonna work out very well this year for sales. And so we sat around the table For owners as it Okay, it looks like it's going to lose $150,000 if we continue on in this in this vein, you know, everybody get out their checkbook. And then you decide, you know, everyone either throws their checkbook down and says, Okay, we're doing it, or you have some more conversation in that situation was that, you know, we're not so into that line of business anymore because no one wants to write a check. And but that's the good conversation. And yeah, but it took a couple months of a lot of due diligence, looking at numbers. You know, Wes, you're involved in that conversation when we were working on that to try to figure out what was the right thing to do, but, you know, the rubber hits the road when you got to write a share. And that's helpful, too, I think, as part of those conversations, too, is remembering if you haven't done it to begin with, make sure that everyone's on board as to what the goals are for the business. I mean, that really has helps a lot. If everyone knows what they're trying to accomplish to the business, then it's much easier to have those conversations about should we be in this line of business? How much risk do we want to take on? if everyone's in lockstep around the goals, if you've never had that conversation, and you just kind of assume that your partner is thinking the same thing that you are, or vice versa, then it's harder to figure out what you want to do. Or there may be more dissension, I guess, between the parties. So I would say, even if you do think that you have common goals, revisiting those goals as part of that monthly discussion or quarterly discussion, or how often however, often you meet to go over your financials and your strategy, I think it's pretty important because people do change over time. And you may get to the point in your business where one partner is going, you know, I want to go for it. You know, this is I see the brass ring, and I want to charge forward to that and the other partner is going yeah, I was that way two years ago, but now I'm not feeling Knowing that as much some different things have changed in my life, and maybe the best answer is sometimes for one partner to exit, and figure out how to do that. And that can be a legitimate exit strategy. It can be a legitimate way to resolve that difference of opinion, you know, you don't have to be locked in business together. So that's probably another topic too. How do you exit? And how do you have that written into all your agreements so that you can split the sheets? gracefully? If you should come to that?
Brooks Powell 24:34
It's one of the interesting thing is is that is we're having these conversations that so many things do come back to, to good structure, good communication, good goal setting, because as we talked about risk, risk, everyone's gonna have these different risk tolerances, and most likely there hasn't been a discussion about it because you might have come into the business because you're good at a trade you mindset. Hey, I'm good at this and that evolved into a remodeling business or homebuilding business. And then you're just in business. And so you're not having so some of its going back, I think, and, and is you're hearing these different ideas thinking about, well, what things should I think about? I mean, I've got a business and it's up and running, and things are going great. And then now we're what are all the things that I didn't think of when I got started? I mean, that I think, Spencer, I'm not sure if that's the way you feel about your business. But I feel as I look back all the time, I'm always like, oh, gee, I wish I had thought about that sooner. So that you think about it as quick as you can.
Spencer Powell 25:38
Yeah, I think so. I mean, hindsight is always 2020 but certainly with some of those things that that seemed to just hit you and you go, oh, like why? Why didn't we think about this before? Why didn't we talk about this before? And so hopefully, you know, what we're talking about here is having you guys listen and being able to have some These conversations sooner that are super helpful because it's interesting just I've been thinking about the last couple of episodes, as we've been talking. And just a lot of times what you guys say is just come back to regular communication around where you stand, where partners in the business stand, you know, where everyone involved kind of stands, whether that's from a risk standpoint, or, you know, how much they want to be bought into the business standpoint, or exiting, or you know, all these things. But what I'm curious is, you know, Brooks, you mentioned, kind of the regular cadence of monthly meetings, like looking over financials. And, you know, Wes, as you think about these types of conversations, are there some steps that people can take just kind of tactical things like, oh, a monthly meeting or do this quarterly or, you know, things that you've done over the years where you've looked back and you say, yeah, that actually is, that was really helpful because it brought out some of these conversations are at fourth
Some of these things to happen.
Wes Powell 27:03
I think it goes back to that conversational piece. And we always think that everybody else in business knows what's going on, you know, our partners know everything that's going on. But if you've done a good job of splitting up the duties, you're working in different parts of the business, whether you have 234 partners, and so you really aren't tuned in to what's going on in the other aspects of the business or as much so at those monthly meetings, I think it's a good job, I mean, a good idea to have a set agenda, where you're going to talk about things such as Okay, well, let's, let's review our financials for last month. Let's see where we are, according to our budget, and so if you're not budgeting, you definitely need to be budgeting and working against that budget to see if you're on or off. And then reviewing your sales pipeline, reviewing production, reviewing all the different aspects of the business and that allows all the partners to weigh in in literally What else know what's going on. And then that can lead to some really constructive conversations as to maybe some actions that you should take, which you might miss, because we get very tunnel tunnel vision in our businesses. And as you said, you know, looking backwards, you go, Oh, that was very obvious. But it's not very obvious if you just work in the day to day and you get your nose down, and you're really working hard. So those meetings can also be an opportunity to say, Hey, what's going on? In the bigger picture? What's going on nationally, what's going on in our region? Is there something else that we should be thinking about as well?
Unknown Speaker 29:36
I'm a vague or myself and my brother Todd, his wife, my wife is we were we own the business together. And we did monthly steering meetings as we call the steering meeting and I had a set agenda. And to your point was and it covered sales, sales pipeline, budgets, your income statement for the month. So you're working Going against your your income your budget for the year. It went over warranty because warford construction warranty can be a big liability, any any headwinds there any unhappy clients that are causing, you know, there are kind of rally to savers. So that was something we always manage. And we had cash flow. And we always had miscellaneous under miscellaneous we had and we also had staffing. So any any staffing issues or people giving notice, or we were losing staff are we having to hire, and that way all four owners were all in the same place at all times, and then you can have those discussions about also new opportunities, which goes back to this risk question. And there's an evolution of how people are feeling about risk depending on what's going on in the business at that moment and how they're feeling just on a monthly basis. Now there's bigger meetings annually and semi annually where you really dig in Decide are we are we going to pursue? Maybe there's a land acquisition you want to pursue? And are we looking for decisive properties? Or are we looking for something that would be this type of client for remodeling, we really want to focus on kitchens or bathrooms or Full House remodels, those kind of things. So I don't understand you're in your business. How do you handle communicating like that with these with meetings?
Spencer Powell 31:25
Yeah, I mean, we've we've pretty much adopted the monthly cadence as well. And, you know, basically a lot of the stuff that Wes was walking through, you know, those different components of the business, and ours is such that I'm the most active day to day and then there are three other owners in the business that are less active. And so that really is a lot of me having to communicate what's going on or they're asking questions of me to learn and uncover some of that so that when we do get to decision time, for Hey, we want to invest these dollars in this place or that place, then they're asking questions to find out, you know, oh, is is this something that we do want to want to do? And, you know, I've been fortunate enough that there's a lot of trust there. So a lot of times, they just say, Yeah, go for it, but
Unknown Speaker 32:17
by a lot of discussion around it. You're just like anything, you got to bring in your team with you all the way and your ownership groups part of your team, plus your employees. So you have to keep those, those owners owners in position about where you're running the business and there always needs to be a business manager, someone's got to run the overall business. And you know, owners can be split up on their regular duties, but someone's got to make sure there's, you know, there's cash in the checkbook, and someone's got to make sure the bills are getting paid, and sales are coming in. So you can do it as a team. But someone always has to be the business manager.
Wes Powell 32:54
You're just gonna say on that, that regular cadence. That regular cadence once again that the beat a dead horse, but it does provide the information that's necessary, especially if less active partners. So they're there, if they have a low risk tolerance, it can help defuse any issues around that by having that regular communication.
Spencer Powell 33:18
Yeah, yeah, that makes sense. And, and let's talk about, let's talk about high risk moves. And so I was thinking about this, I know you guys have had different opportunities to make different moves over the years, and you could probably categorize some of them as high risk. So let's start with maybe a couple of things where you made a high risk move, and maybe why so you can jump in first, where it didn't work out, because I think most often it's our losses where we have the most learning, you know, so and we'll, I'll give you a chance to, you know, share some some wins and some victories. Let's start with the loss.
Yeah, we'll finish with the highs.
Wes Powell 34:03
One that pops to mind right away is probably just when the internet was really coming on strong, and there was people were really trying to move their businesses online terms of online ordering. And of course, we this plan is in the direct mail business using direct mail promotion. And so I came up with a great idea that I should target veterinarians, with campaigns where they could go online, and they could easily create a monthly reminder card customized to them that would be sent out to all their clients to remind them of particular things. Or it could be, you know, like, flea, flea and tick months, you know, the February you go in and create a card and it's all personalized. So I was gung ho on this as totally in, went out a web developer got a design You know, did a little did a little market research, you know, called a few vets when visited the Humane Society and I did very random sort of market research. And but I was convinced, I was totally convinced. Yes, drunk the Kool Aid, so to speak. So anyway, I, I say, I don't know, probably 100 grand or so into this endeavor at the time, which was a chunk of money for me at the moment. And I was really looking for ways to expand our business. And that's why I was doing this. And I would have to say that it bombed. Probably probably the biggest bomb ever. I think, one bet to sign up. And what I discovered which 2020 hindsight was that veterinarians really are not business people. They're doctors. So they have a strong desire. To help, and but they tend not to be around growing their business. And so what I the fatal flaw, or the fatal mistake I made was looking at them saying, oh, they're like me. They want to grow their business. They want to take over the marketplace in their town. And that was totally wrong. So is that was, why was that high risk? It was high risk, because I didn't do what we talked about at the beginning of the program, which is, I didn't do all the due diligence. I didn't figure out what could go wrong. I didn't say, Okay. Is anyone really going to buy this? I just convinced myself that they would. And so I think the smarter move would have been, obviously do a lot more due diligence and a lot more market research. But I think I didn't want to spend the money or the time because I got very excited about the idea. So sometimes we get very excited about our ideas and become convinced that they're fantastic. And that we are wonderful, and do that and we should spend money. We're going to make a ton to
Spencer Powell 37:00
Cuz that was kind
Wes Powell 37:00
of more of my, you know, going to Vegas and putting it all on black. I didn't think that I was but I kind of
know and Intel, you know, having, you know, having been having conversations with you while you went through that, that success mailer. Yeah, it didn't seem like it at the time because it's like, well, this all seems to make sense. But then it goes back to doing more due diligence and questioning, you're like, I'll be in the sales process, you call it questioning down which is you just keep questioning down until you get to the real, the real answer and sometimes our excitement especially in the construction business or home building business, you get excited about, you know, gee, everyone's gonna love some kind of new product that I could come up with. I just think it's great. And you don't do the due diligence to find out really is it and you don't test market it. You could market and I think that that's key, and I think if you are thinking of going into a new line of business. So let's say you're saying, hey, I want to fire up a handyman division. Or if you're in spec building, you want to go into remodeling or remodeling spec building. Always ask yourself, Oh, now I guess the point when make there is make sure that you don't have the mindset of, if we build it, they will come. Many people do go into that they think, Oh, I can just hang up my shingle, and people start knocking on my door. So whenever you're budgeting for your startup, for that division, or that new activity, make sure you it, at least double it in terms of what your marketing spend should be. Or maybe you haven't thought about marketing, but that's one of the key pieces of any new business is how am I going to market it? How am I going to get out there and get in front of the customers?
Yeah, gonna sell the product to these fans?
Spencer Powell 38:48
No, no, you're good. I was just gonna say you know, Wes, you and I were talking about that the other day and you know, based on our conversation, something that you could have done in that scenario was actually go to a bunch of And explain the concept and take deposits and say, Hey, we're thinking about building this, you know, eta is whenever pay will take 500 bucks, you know, and if we don't build it, you know, we'll refund it. But here's the concept and then when people actually trade dollars, then you know, you're on to something. But, you know, to your point we get we get excited about the idea. Oh, yeah, it makes so much sense to me. But selling something is totally different. So
Wes Powell 39:27
one thing though, is is going to other people that have no stake in it and have no you know, they they care for your well being, but that's about it, and then get their unvarnished feedback because you know, that they'll tell you go man, that's the stupidest idea I've ever heard. Yeah. And sometimes it is. Yeah, sometimes it is.
Spencer Powell 39:49
Yeah, for sure. So Brooks, what about you any any high risk moves that didn't pay off and what were the lessons?
Brooks Powell 39:56
The lessons are always always check with your A significant other before you buy something. So
I was driving by this one building that I thought
it was called the holly Creek and it was in in our local town, and it was an 18 unit. I just thought this building was fantastic.
Wes Powell 40:17
Brooks Powell 40:19
I was looking at it looking at it kind of talked about it. There's a little, you know, question on history here, whether I really talked about it with my wife or really didn't talk about it with my wife. While she was on a three week trip to Morocco with her sister, I bought this 18 unit apartment. She comes back. I'm like, Hey, good news.
Spencer Powell 40:37
That just sounds like a high risk move already.
Regardless of the numbers, yeah.
Brooks Powell 40:45
Like, hey, guess what we bought this apartment building.
And so number one that she wasn't super excited about that but she got on board. So we closed on it a week after 911 so number One didn't check with my partner. To course, I had no idea that what 911 would do the real estate market our area. So no planning, no deep planning. I'm like, Oh yeah, I'll buy this building. Like every other building I've bought with lots of leverage and to work out just fine. Oh, yeah. I ended up selling it three years later, you know, so 2000 123 before the market turned around in our area, and you know, I think I lost 200 grand or something. Yeah, just a total Miss. Yeah. So, anyway, so it was called the holly Creek it became known as hell Creek.
Wes Powell 41:42
And yeah, I got out of it.
But ya know, do do not a lot of due diligence besides driving by and yeah, I like it. We did an inspection. I'm like, Oh, yeah, that will all be fine. So just total lack of due diligence, not checking with your partner. Make sure everybody's on board. Because when things get worse, if they're not on board, it just becomes much more unpleasant. And then building ended up getting sold at the wrong time, because there wasn't the, it wasn't a commitment to it because I hadn't done those first few steps. You know, of course, you can always say, Wow, 19 years later, I should have held on to it because it's quadrupled in value or something. But, again, not doing those first steps so that everybody's on board, especially in real estate, because it's a long haul thing in real estate works. I mean, I think human nature in general says that we tend to extrapolate right? So we always extrapolate either, you know, if the line is going up, we just keep extrapolating up if it's going down and keep extrapolating down. And that's not the way it works, you know, mines bend, and and they usually do I mean, it's probably more common that they will bend. Right? And so, you know, if you're not accounting for that, You can you can certainly be in a world of hurt. So,
Spencer Powell 43:04
yeah, and it sounds like in both of those examples you guys just talked about I mean, excitement was what led to taking the action and so sounds like you know, slow down a little bit when you get ready to make a big move and just make sure you're checking those boxes doing a little more research than you think you need even if things seem to be really good on the surface. And then obviously the communication piece and if you have partners involved that that stuff cuz to your point Brooks if you would have had those conversations everyone was excited about it. Knowing that there could be potential downside at times you may have held on to it you know, if you had the the buy in and I think one
Wes Powell 43:44
yeah, the other just not gonna jump in my buy, as you're saying that Spencer was is that, you know, it's easier if you write small checks to start with to kind of measure your commitment. And I think that's helpful you say, Okay, if you're talking about You got multiple partners, you're like, this is a great idea. Because everybody just right up was contributed capital to this idea. And that really just helps to determine whether people really want to do something because sometimes people sit in a meeting go like, yeah, okay, and the money's coming out of the company checkbook, which today into something new. It's like always a land acquisition that you're like, you know, this is something that we haven't done before. Everybody write a personal check to contribute the capital. And you really can find out if, if the partners are committed, if any partners they have are committed, because you can be partners just with one other person, but they have influencers in their life that affect their thought process. And they have to take that whatever information that the business has in that small environment, go out and check where whoever else is there sharing your money with or who they're partners with. And then you can find out because there's, there's typically not just two people The business together three, there's four or six because of those relationships. It's funny that you mentioned that about the the check writing, because Spencer just mentioned that about customers as well. Right. So maybe, maybe that's a theme, which is if people are willing to part with their money either in a deposit because they like the product or service that you're talking about, or your partners are willing to put money into the game, you know that you have to write a check, then that is some level of commitment. You know, Tesla, you know, when they introduce their, their new truck here, so we'll see if they ever build their new truck, but they were taking online deposits for 500 bucks or something like that. And they said, part of that was the try to figure out what's the depth of the market and how committed are people are they willing to put up 500 bucks or 1000 bucks or something before we build this track, so yeah, I think they got quite a few deposits, who knows question would be if you take a non refundable deposit. That's right. I think that would be an absolute real test of the market, which is, and again, you can do this in your business, because sometimes you're contributing capital and you're like, that's a non refundable deposit. I may never see that money back. before. So I think it would have been a much bolder move for Tesla to have said, we're taking non refundable deposits for this truck and tested how much people believed in it because pretty easy to put down 500 bucks refundable and Visa card, right? And say, Oh, yeah, I'm in. And you know, you're gonna build a $2 billion manufacturing facility based on a $500 deposit. A good test of a good test of Well, hey, what are we really? Potentially what's the market out there? I guess.
Spencer Powell 46:51
Yeah. Yeah. So let's, let's let's flip it. Let's talk about high risk moves that have paid off. Do you have one that comes to mind
Wes Powell 47:00
Well, I think the highest risk move I take was asking my wife to marry me. She said, Yes, we paid off in spades has worked out really, really well. So I think that was my highest risk. I think the second one probably was moving across the country to buy a business and moving the family and doing that. And that worked out really well, as well. So I think sometimes you do have to make that leap. So we've been talking a lot about getting everyone's input and doing all your due diligence and figuring out what your worst case scenarios are. But eventually, you do have to take the step, whatever it is, if you do want to get the reward. And so I think that's the flip side of it, is that action is required. If you consent, if you consistently take yourself out of everything. You're really not, you're not going to gain, you're not going to grow and skew bad and some people are in that boat where they really will take zero risk. And that just limits their growth as a person, I think.
Spencer Powell 48:05
Yeah, yeah. I think that it makes sense. I was, as you were talking about that I was thinking, you know, anytime I think about something positive, that's happened in my life in any area, it doesn't have to be monetarily, it's usually action is what started it, you know, and you, you chalk up some L's and you get some wins. But, you know, if you continue to take action, and then do some of these other things that you guys have talked about, you know, you'll you'll end up winning more often or the wins will offset the losses by a longshot and you learn from the losses, you're able to, to move ahead, but I think you know, so ask yourself, How
Wes Powell 48:40
can I, how can I spread my bets? Sure. So you know, I'm gonna do this, but are there some other bets I can make the same time that would offset that somehow, and provide a softer landing when things don't work out?
Spencer Powell 48:52
Yeah. How about you Brooks is he got one?
Brooks Powell 48:54
question because we talked about risk tolerance. I like You know, none of the things I've ever done, I thought have been super risky. So that's where I'm
like, Okay, well, that's probably a problem there.
And we, we doesn't land deals where, you know, is it's been, I think, probably pretty risky. I've never felt they're risky, but I think probably most people will look at them and go, that's pretty risky. We bought some land in the city where you had to get tons and tons of entitlements, it would take three, four years, the market would be going up or going down. And sometimes those land positions really pay off over time as you battle your way through it. So again, land development is probably one of the riskiest businesses there is out there. I think, besides home building or construction, where you're having to really leverage leverage up. Oh, yeah, we had some land deals that went really, really well. Probably the most risky thing I've been doing recently was actually closing our construction business and saying, Okay, I'm going to go do something else. And you know, we're not knowing what that you know what that would be. So I would say that would be pretty risky of the way, the way I'm looking at everything.
Spencer Powell 50:16
Sure, yeah. Because you knew that world. So the risk is in the unknown in in that scenario. Cool. Well, hopefully, hopefully those lessons learned, help some of you guys out there. And I guess as we kind of get to the end of this conversation on risk, you know, another question that came to mind is kind of like, when do you wish you would have risked more either in a certain instance or just time of your life and maybe Wes, you can chime in on this but you know, thinking about and should have, should have really gone for it there. I'm gonna kick it to brunch because that's Okay,
Wes Powell 51:01
I'm thinking about that question. I need to think about that a little bit more. Yeah.
The, you know, for me when you can risk for question, really, it's always easy to look back and say, Oh, well, that went so well, I should have said, I've invested 100 grand, I should have put a million dollars at it. And I think I would have to wait for me to think about it as been. I should have risked more by talking to more people about different ways of doing deals. So we always did everything with our own capital. And I think if I had talked to more people about using their capital, then we could have grown to a much larger size and had more revenue and net and net income. So limiting my thought to well just do it with what I have. So if people are listening and thinking, well, I only have X amount of capital, it was actually going out and talk talking to people and saying, hey, I've got a great idea. It's working well, and, you know, there's potential for growth here. Are you interested in investing? You know, as a limited partner or something like that? I think that would have, that's probably the thing that I looking back would have said, okay, using other people's money could have allowed for greater growth instead of just looking at and then as a way of moderate, mitigating risk. You're not putting all your own money on the table. You're asking other people to believe in what you're doing. So yeah, there's loss, but it's not going to be all your money. So you're, you're sharing the game and sharing the risk. So I don't know what you think about that was based on No, I think that's a that's a great example. And as you're saying that I guess I was thinking maybe in a slightly different tack, I think. I think we can always risk more personally. So as I think about myself as going through life Did you know I definitely could have risked more around doing things that was pretty uncomfortable with and expanding those skill sets, which I think would have reduced my risk maybe on the business side. So, you know, if you're afraid of public speaking, doing more public speaking, if you're afraid of writing, if you're afraid of cleaning customers, you know, risking more around those areas, which then allow your business to grow and to grow as a person, I think. I don't know. You know, comfort is the kind of the baseline for all of us or not for everybody, but certainly for me, so I think if you're too comfortable, then you're probably not growing and you're probably not risking enough and ongoing thing. Yeah, that's a good point. Just making yourself a little bit uncomfortable. General that the if you're an eye for us, it's certainly if you're I was doing deals where I was feeling uncomfortable. It's kind of it was a it was a gut check. how uncomfortable do I feel and the more Comfortable you felt probably the less, less risk and the less opportunity for returns the more uncomfortable I felt it was like, Oh, yeah, this is getting a little bit sketchy out here. But you get, you can do that with your, like you say was like I would never, for me, pious first thing would be for me to stand up front of somebody gave a speech. Yeah, that would be that would just be off the charts. Never, never be willing to do that. But making yourself uncomfortable in many different ways to try to grow as an individual or as a business and any other business only grows as much as you do. So, you know, as all of us you know, we're all small business owners or been small business owners and and sometimes that's a small business just because that's what we want and that fits in with our goals, which is great. But I know that there's a lot of small business owners out there that would like to be a lot larger. And I guess my only suggestion would be look at yourself and ask, What can I do for myself to expand my skill sets and to push myself in ways that then the business can follow along? behind me? Good point. Yeah,
Spencer Powell 55:12
I like that. And it was interesting listening to both of your answers, you answered it differently, but really at the core of, of that it was knowledge, you know, because Brooke, she said, Well, I would have looked for other ways or look to other people to maybe like get some capital or something. And really, it was expanding your knowledge base of how do you do deals, can you do it differently versus I just know this one way and I'm just repeating it and you can only goes so fast. But if you have the expanded knowledge, suddenly, you know, you can go faster But to your point risk was lowered. And same with what you were talking about West which was if you continue to put yourself in these uncomfortable situations now. You've had more life experience, you have experience across different aspects and channels. And so suddenly, you may be looking to other people like you're taking more risk, but to you it doesn't feel as risky because you have the knowledge and the experience or the skills. So interesting that you guys both both said that. But any any final thoughts on risk as we wrap up for today? I think this has been pretty, pretty awesome. I guess the only thing I'd say is, you know, don't put it all on black
Wes Powell 56:19
bag Vegas. But certainly do go out and risk something, you know, go out there and play the game. You only got one shot to do it. So yeah, I would I would agree. It's the, you know, take the risk. ask the hard questions about, hey, how can I mitigate the risk? How can I make sure this is even if it's a failure, it's not, you know, a business any failure, but continue to honor your risk, so you can see some rewards.
Spencer Powell 56:46
Very cool. Cool. Well, good, good thoughts to end on. And thanks again, everybody, for tuning in. We'll see you next week for another episode of building a family business here on builder funnel radio. Hey guys, thanks again for listening to building A family business here on builder funnel radio. Again, I always like to hit you guys with some takeaways. So today was all about risk. And I think a couple of good takeaways are one being what we just talked about right at the very end. And that was basically expanding your knowledge base. So Brooks's example is, Hey, I wish I would have known about more ways to do deals that would have allowed him to go faster, but it also would have allowed him to minimize some of that risk. So I think as you expand your knowledge base, your skill set, you can actually capitalize on higher reward opportunities that come with higher risk, but you're actually minimizing the risk involved. And then what Wes said was basically forcing yourself to grow and and basically the business not being able to grow until you as an individual grow and so looking for those ways to get uncomfortable. And so I like as a good action item, thinking about things that make you uncomfortable and trying to take a step into that zone. This week, something that can put you in that uncomfortable situation. And that immediately starts to force, that personal growth because ultimately, as you do things that that are uncomfortable, you start to get more comfortable with them. And then you can push to the next level. And so that by definition is how you grows, becoming uncomfortable and putting yourself in those situations. And then the second big takeaway was really around communication. And so figuring out what your risk tolerances, what your business partners risk tolerances, people that are in your personal lives, and if you're involved in taking risks, it's important to have these conversations, see where people are, and getting buy in when you make different moves and make these you know, decisions. And so I think those two takeaways were really big from this week's episode and really appreciate you guys tuning in. We'd love your feedback on this new show. Again, thanks for listening and we'll see you next week on building a family business here on builder funnel radio.