Myth 4: You need to take big risks
Make the most of your failures, learning valuable lessons. But if you don't have deep pockets, risk-management may just be your most valuable tool.
NEW YORK (Money Magazine) -- When Viacom chief Sumner Redstone was trying to console investors after what looked like a career crushing acquisition - the pickup of Blockbuster in 1994 - he insisted, "Success isn't built on success; success is built on failure." He held on, and his big risk paid off.
And Ray Kroc was down to his last two good customers as a milkshake-mixer salesman; once he saw the operations of those customers, who happened to be two brothers named McDonald, his career turned golden.
REALITY: The world offers plenty of options for those looking to live recklessly: Join a hedge fund, take up heliskiing, make plans with somebody you've just met in a sudoku chat room. But if you're out to make a big score, you'll want to control risk any way you can.
"If you know your skills, you can manage the parameters of the risk," says Kinnear. "Invest in what you know" served as the mantra of former Fidelity fund manager Peter Lynch.
And Warren Buffett has become the world's greatest investor by buying companies whose businesses he says he can understand.
They have avoided the wealth-draining trap, says Reynolds, of thinking that their expertise in one area is easily transferable to another.
Remember Trump Airlines? Probably not. "Successful people can forget how much they knew about a niche before they got rich in it," Reynolds notes. Redstone and Kroc, in fact, knew what they were getting into.
Now 28, Geoff Cook was 19 when he started EssayEdge, an online service that helped students with their college applications. "Editing seemed like a natural thing for me to do," he says. "I'm a good writer."
The cost of starting up: a whopping $600 to cover computer servers and bank fees. Five years later he sold the business (which had grown to include ResumeEdge) to Thomson Corp. for a figure of around $10 million. In early 2005 he left his well-paid post at Thomson to follow his $250,000 investment in MyYearbook, a social-networking start-up targeted toward high schoolers. His brother and sister, both teenagers, had come up with the idea.
Cook studied MySpace and Facebook, concluding that there was room for a niche player aimed squarely at teens.
Having raised $1.1 million earlier this year, he's hoping to add another $6 million in funding before 2006 is out.
"We've got what we need to compete, which is ideas for cool features," says Cook, who is based in New Hope, Pa. "This is either a $100 million idea or it's worthless. Either way, I know this isn't the only shot I'll have. It's just the shot I'm taking now."