As an entrepreneur who’s made 6-figure losses and multi-7-figure life-changing “bets” (wins) with my strategic investments.
If you’ve ever come into a large sum of money in a short period of time, you may fall victim to the temptation to celebrate your riches with a splurge, or a slightly excessive, not always necessary, perhaps even overpriced purchase. I still recall the summer of my first finance internship, when I splurged on a $4k designer jacket off the runway.
I’ve since worn it approximately twice: when I tried it on that day in the store and when I tried it on again once they shipped it home to ensure it wasn’t damaged in transit. If you’re questioning the ROI on that purchase, I don’t blame you; I can only take solace in the fact that it’s somewhat of a collector’s item, so perhaps its held or increased its value if I were to auction it online.
Lucky for me, I started to grasp the concept of depreciating items and return on investment swiftly after that first summer internship, so I promptly curtailed my splurges in lieu of more reasonable spending. That said, when it comes to business expenses, I still cave in to a few outsized investments here and there, some of which pay off, others which don’t. Here are the 5 biggest entrepreneurial splurges I regret, contrasted against 5 I’d repeat 100x over.
These five splurges are among the five biggest lessons that have since saved me multiple 6-figures (if not millions) in my subsequent entrepreneurial decisions; I hope these anecdotal warnings serve you well, too.
1. Instant ad spend
I’ve spent more money on ads than I’d like to admit over the past ten years; however, advertising costs itself are not the inherent evil. Instead, it’s the timing, objective, and order in which I used these ads. In my earliest startups, I leveraged digital ads as the first and primary method to begin our marketing. In other words, I spent money on ads with zero organic marketing, no word-of-mouth referrals or testimonials, and nothing tangible or credible to even prove the concept.
If your goal with ad spend it to pay, spray, and pray, you’re likely in for a rude awakening. My suggestion? Defer paid advertising until after you’ve built up at least one channel of organic lead generation and conversions, have proven the concept, and have a critical mass of enough diverse customer outcomes, reviews, or testimonials to hypercharge any ads you do run. Ads are not a silver bullet, and it’s 100% possible to lose your shirt to no profits — even if you’re throwing tens of thousands of dollars at them.
2. The best bespoke developers in the business
If you’re even toying with the idea of taking a second mortgage on your house or going into tens — or hundreds — of thousands of dollars of credit card debt to fund some fancy development team for some complex new site, app, or technology, I’d urge you to halt everything. When I was in my early 20s and a freshly minted Wall Street banker with a 6-figure salary and 6-figures in my bank account already, I decided the best way to deploy that capital for my brilliant tech startup was to fund it myself. Thus, I found an ex-cofounder who’d transitioned into web development and hired him and his team.
The complexity of dealing with friends — especially for high 5- and 6-figure transactions — is that you never really know if they’re working in your best interest or theirs. Sure, this friend may have believed his team could help me, but he cared a lot more about cashing those 5-figure checks that resulted in a total 6-figure deal for his fledgling web development agency.
In retrospect, hiring anyone at the stage I did was utterly foolish and a huge risk I didn’t need to take. If you’re embarking on building a tech company or app, your first step should be to either attempt to build things yourself or find a more technical cofounder who can help scope out that first version. These days, there’s no excuse to avoiding all of the free or very affordable, low-code and no-code platforms available. Until you’ve scoped out that first version, presented it for beta user feedback, and possibly gotten some encouraging traction, I would hold out on making any crazy 5- or 6-figure splurges.
3. When no code, no limits, and planning ahead backfires
After nearly going broke on that custom-coding development team, you’d think I’d play things cheap and simple going forward, right? Well, you’d be partially right, as was I. I was smart enough — also known as nearly broke enough — to seek out an alternate, more affordable, and more efficient option for my next tech startup. I didn’t have another 18 months and 6-figures to burn, so I turned to a low-cost team skilled in an affordable, no-code builder.
Unfortunately, the low cost and increased efficiency (in comparison to my prior failed startup project) got me excited; too excited. I decided that within my remaining budget, we should give this project every function, feature, and capability to set it apart and up for success. This is how I came to build the first Patreon-Cameo-Masterclass hybrid — years before those ventures were a thing. The problem? I was too early; way too early. I was so early that the audience and the talent with whom we partnered were not yet educated on or convinced of the utility of all those cool features we added. In fact, some of them straight-up told us they didn’t want them.
Despite my good intentions and spot-on foresight, I do regret spending the time and money to build in so much advanced functionality ahead of its time. Sometimes you have to educate the market, and sometimes you have to wait for the audience to catch up; I did neither and suffered the consequences.
4. The scariest bosses I’ve ever hired
Typically, you don’t think of people you hire as your own boss, but I most certainly hired some of the scariest bosses I’ve ever experienced when I retained an outsourced marketing team to run one of my company’s digital marketing. To say I overpaid and they underdelivered would be a huge understatement, but that isn’t the worst part.
Once I realized this team was causing my company to bleed thousands each month on experimental marketing that never covered their costs and probed the idea of parting ways, they intimidated me into prolonging the engagement with threats of what would happen if we stopped the bleed. They claimed our months of “progress” would be erased overnight, and my company would swiftly fade into obscurity.
Ultimately, these employees became my authorities, using threats and scare tactics to steer the ship and bully me into paying their bills. I thought I was splurging by outsourcing marketing to a “team of experts”; in reality, I was taking the lazy way, and it backfired big time. Before you outsource marketing, attempt to master it yourself to ensure you’re knowledgeable enough to prevent an unscrupulous team from manipulating you.
5. Even my lawyer couldn’t save me from this one
We all know how valuable audiences can be these days; that’s why I figured renting access to them would be easier and faster than building from scratch. I did just that with one of my earlier ventures, as we paid advances and revenue splits to mini celebrities with whom we partnered on product launches. Unfortunately, just because someone is a celebrity, gets tons of views, or has millions of followers doesn’t excuse them from bad or criminal behavior.
Suffice it to say, among the fruitful celebs with whom we partnered, there was one bad apple in the bunch, and he turned criminal, real fast. Once his advance had been paid and his deliverables were due, the communications slowed, then ceased. Though I didn’t want to assume the worst, the facts were pretty bleak when he fled the country with not only my, but many other companies’ tens of thousands as a wanted felon. He is currently in jail, but I never recovered a dime of the money he stole.
In short, we were a small blip on the radar of businesses he’d wronged and robbed. My lawyer advised it would cost more to track him down and attempt to claw back the funds (at her hourly rate) than we’d likely get back, and there was a great chance he’d avoid coughing up a dime, even with those strongly-worded legal letters.
Moral of the story? I regret paying someone I didn’t 100% trust so much up front, despite taking every legal precaution. Don’t allow big numbers, flashy management, or viral views to cloud your trust or lack thereof.
While there are some splurges I’d give anything to rewind and undo, there are others I’d repeat 100x over and then some, and these have made up for the bad ones by tenfold at least.
1. The only thing that can’t get lost, go out of style, or go to zero
If you’re going to commit to sink millions into an investment, you’d better be pretty darn sure it’s a good one, right? Of course, we all hope that every genius business idea we dream up will return 200x our input or more, but we can’t always be certain. There’s always the odd chance things go sideways — or south altogether — and the capital we’ve sunk in turns to a big, fat zero.
With businesses, that can actually happen. In fact, a lot of “investments” can go to zero, despite the best of intentions or growth indicators. However, there’s one that rarely ever does: I’m talking good old fashioned dirt, also known as a property (real estate).
There’s something refreshingly tangible about owning not only a functional and beautiful structure but one anchored to a scarce, highly valued and historically perpetually appreciating piece of coastal land. It still baffles me that some people view buying real estate as an expense, rather than an investment; I’d almost be tempted to suggest perhaps they’re buying the wrong piece of property if they truly feel that way.
While I know the real estate market has experienced an unprecedented growth spurt in the past few years, I didn’t have to see historically low interest rates or 30% year-over-year appreciation to convince me my house was a splurge worth making. The brilliance of buying a property is threefold:
- It can’t typically go to zero (unless you don’t own the land underneath or a catastrophic natural disaster abolishes the entire area)
- Barring any horrific and long-term detrimental changes to the area or property, they typically appreciate in value over years and decades, even if you don’t put a dime into upgrades or renovations
- You can either gain utility from the property everyday while its value increases or rent it out for cash flow
A few other factors that impact my real estate investment choices greatly:
- Scarcity: I aim to only buy properties in scarce areas with historically high and growing demand (for example, along a pristine coastline)
- Activity: I aim to buy properties in close proximity to significant economic activity, be that tourism, a job center, or new retail or office developments
- Miscellaneous: The miscellaneous factors are things like the uniqueness of the property (which can be a pro or a con), the price and seller motivation (if it’s severely undervalued because a seller simply needs to cash out fast), and any strategic work or industry connections; for example, my neighborhood is home to an impressive network who can directly help impact my current and future ventures
2. The thing that saved me from $30k+ in refund requests
Imagine you’re a performer, about to go on stage to put on a show for hundreds of people who’ve paid $30k+ to see you, but then the power goes out. Do you refund them? Reschedule? Wait, hope, and pray it returns in time to put on a slightly delayed show? If I were you, I’d rather swap in my backup power source. This isn’t just about the power; this could be any and every situation in which a backup can save you in the nick of time.
Backup drives, devices, and alternate power sources have literally saved me tens if not hundreds of thousands of dollars simply by preventing disasters as they were unfolding. If you don’t have some backup computers, alternate phone numbers or cellular devices, hard drives, digital clouds, alternate power sources, power chords, ethernet cables, and the like, I’d suggest you load up ASAP. I may have gone a little overboard with my backups, but that’s a splurge I never regret when I actually need them.
3. The thing that saved my mental health, boosted my connections, and gave me an entrepreneur-in-paradise existence
As an entrepreneur — or just a person in general — I think it’s incredibly important to know your non-negotiables. At the top of my list is location, and if you’ve ever experienced Seasonal Affective Disorder, you’d understand just how crucial it is. While some people believe living by the ocean in a perpetually moderate climate is a multi-million-dollar luxury — and it can be — I prioritized this non-negotiable long before I had millions to splurge on it. How? Strategic rent.
When I first flew to Southern Coastal California from North Carolina, the sticker shock was real, and I had a choice: Compromise on location or compromise on space, luxury, and newness. I chose the latter; here’s why:
- Mental health: Flailing and failing at my first solo-founded startup was a stressful struggle, but the mental health benefits of doing it in a paradise-like utopia — and one full of similarly struggling aspiring creatives and entrepreneurs — made it a lot less depressing.
- Connections: I didn’t just pick my favorite city out of a hat — though there’s nothing wrong with doing so! That said, there was a bit of strategy in my chosen location: My early ventures tied into the tech, entertainment, and digital influencer / user-generated content space, and my chosen location was optimal for industry connections and partnerships. In fact, many of the people I met while living in that first 457-square-foot asbestos-filled apartment became friends, partners, employees, and part of my network I still leverage to this day.
4. The thing that proved how good my competitors were — or weren’t
You know that gnawing curiosity when you see a high price tag and wonder what in the world is behind the curtain of that product driving customers to purchase? When the seller of that multi-4- or 5+ figure product is your competitor, you can’t really afford to keep wondering. Thus, I took the plunge and purchased a then-direct-competitor’s top-of-the-line expensive product, simply to peek behind that curtain.
Sure, I could have just read the reviews, stalked their marketing content, or interviewed their customers, but I know that wouldn’t have satisfied my itch. I needed to see for myself why their product was worthy of such a high price and what my company would have to do to offer a comparative service.
This splurge was 100% worth it because it saved me from wondering, doubting myself, and overspending to compensate for what I assumed I didn’t know, but had to have. Instead, I learned exactly what they did well, what they didn’t, and what customers in their niche expect for that hefty price tag.
5. The brilliant reason my 6-figure losses became giant financial wins
If there is one splurge I never wanted to pay for, yet am beyond thankful I did, it’s a proper startup-focused accounting team who could turn my losses into wins. While TurboTax or your accounting major brother might work for regular people with regular jobs, those of us with startups — especially those of us who’ve ever suffered financially devastating losses — stand to reap some serious rewards if we play our cards right. By cards, I mean NOLs (Net Operating Losses), which can — and should — be counted against future gains (profits) to down-adjust the remaining taxable income.
If you’re losing hundreds of thousands of dollars for years, then strike it big with a new venture, please don’t let those losses be in vain.
Author: Rachel Greenberg