Eggs and Baskets

Eggs and Baskets

Stories differ on whether it was Mark Twain or Andrew Carnegie who said: “Put all your eggs in one basket – and then watch that basket!” That was a tongue-in-cheek twist on the old saying about not putting all your eggs in one basket – or in other words, diversifying your assets to reduce your risk. That’s not necessarily bad advice, but for entrepreneurial couples, reducing risk also reduces reward. And that can lead to a different kind of risk altogether.

If you’re a couple in business, the reality is that right now, all your eggs are in one basket – both of your salaries, all of your benefits, your paid time off (ha!), health insurance for the two of you and maybe your children… every bit of the compensation and benefits that an “employee” expects is all produced by one company and one source of profits.  You’re relying on the business exclusively for your livelihood and for your future.

That can be scary. And you might be tempted to diversify your assets away from the business. But if you give in to those fears and take cash out of the business or otherwise divert your hard earned profits into another investment, you’ll weaken your ability to weather temporary reversals. And you will undermine your ability to take advantage of unexpected opportunities for growth.

There will come a time when it’s appropriate to diversify your investments. But that time is probably further into the future than you think.

The lesson here for Copreneurs is two-fold. First, don’t be too quick to take resources out of your business to invest in other assets like real estate for the business, other non-related businesses, or personal assets. Those can be important pieces of your overall long-range financial planning, but not at the expense of the business that generates the profits to fund those investments.

Second, make sure you know how to “watch the basket” effectively. When all your eggs are in one basket, you must watch the basket like the eggs were made of gold.

This Week:

Take a few minutes to reflect on your feelings about the risk associated with having all your eggs in one basket. If you’re itching to make outside investments, is it coming from fear? Or a well designed plan?

For Copreneurs, reducing risk reduces reward, which leads to a different kind of risk altogether.