What Interviewing 100+ Investors on Failure Taught Me About Losing Money

by | BiggerPockets.com

In a recent BiggerPockets post, I told the story of how and why we launched our wealth-building podcast called How to Lose Money. It’s been a lot of fun along the way, and in the course of recording over 140 weekly episodes, we’ve gotten quite a few questions from listeners and others who are curious about the topic of lessons learned in the process of failure.

The most common question we get is:

“What is the #1 lesson you’ve learned as a result of hosting this podcast for these few years?”

I’ve enjoyed a lot of lessons from the podcast, and I learn more every week. But the lessons I’ve enjoyed most have dealt with the issue of knowing when to give up and walk away. Learning to cut my losses. Throw in the towel. Wave the white flag.

Thesaurus.com has 32 synonyms and 12 related phrases for quitting. The list includes desert, retire, surrender, vacate, bow out, and yield.

But the site also lists over a dozen antonyms—opposites of quitting. And this brief post deals with both.

So what are some of the greatest lessons I’ve learned as cohost of the How to Lose Money podcast? Here are two:

“You’ve gotta know when to quit and throw in the towel!”

AND

“Make sure you don’t quit. Never throw in the towel!”

Let me explain.

You’ve Paid the Tuition. Don’t Quit Now!

One of our guests, J. Massey, talked about paying the tuition when we fail. And I thought it was one of the most insightful things anyone has said on our show.

He said, “This problem was given to you so you can become more than you are, to make you a better person. Stick around and don’t run to something new. You just paid full price for that lesson. Now go and apply it!”

J. was effectively saying that once you pay your tuition, it is a shame not to benefit from what you learned.

And that makes a ton of sense, doesn’t it? If you’ve gone through the trials and tribulations of failure, and you, like Thomas Edison, have learned 1,000 ways not to do something, then you owe it to yourself and your company to:

  • Get back in there and utilize those lessons to build a better company.
  • Make a better investment next time.
  • Teach others to avoid the landmines you stepped in.

Illustrations courtesy of Paul Moore’s daughter.

My friend bought a single family rental that, at some point in the process, ended up with no plumbing. I mean, the copper was missing. (I can’t imagine how that happened.)

He had a big price tag on fixing that one. But he didn’t quit. In-place plumbing is something he takes a second look at before closing on new deals now, though.

I know of a builder who built a house that straddled a property line. “The lines were obvious. The owner said we didn’t need a survey.”

He didn’t quit. But I’m guessing he learned a lesson he’ll never forget. And some local surveyors are getting some new business (and hopefully not a few laughs) now.

So this is one of the great life lessons from our podcast: Don’t quit!

Gary Keller Defined Success as Failing Over and Over Without Giving Up

This truth about perseverance is on motivational posters in offices far and wide. And we’ve all seen that poster of the pelican swallowing the frog. At first glance, the frog seems to be a goner, until you look closer and see the frog’s got a grip on the pelican’s throat.

 

Illustrations courtesy of Paul Moore’s daughter.

I recently saw Darkest Hour, the outstanding film about Winston Churchill and the gut-wrenching trauma he went through in taking a stand against the King and British Parliament to take on Hitler. I thought about the consequences of him failing. It could have resulted in all of us speaking German right now. A terrifying thought.

 

Illustrations courtesy of Paul Moore’s daughter.

 

In that film—and on a number of other occasions—Churchill resolutely declared that England would never give up its struggle. I’m so glad for the stand he took, and so grateful for the hundreds of thousands, including my dear honored father, who mobilized to make that declaration a reality.

But There’s Another Side to This Coin

There is a time and a place to throw in the towel. A time to quit. And one of the lessons I’ve learned from our podcast guests is that, in many cases…

The sooner you quit, the better.

 Confused yet? I can imagine you wonder if I’m bipolar or baffled myself, or if I’ve consumed way too much semi-boneless ham.

This is confusing, so let’s talk about it.

Many of our podcast guests have told us that they should have cut their losses long before they did. They said they should have recognized they were in a bad business, or with a bad partner, or were in the wrong market, or had the wrong product offering, long before they did.

And if they would have gotten out, they would have saved themselves a lot of money and a world of hurt.

Like my friend, Wade Myers, the first guest on our podcast. Wade had raised over $75 million from some major Wall Street players for his tech startup in the late ’90s/early 2000s. The tech bubble was ballooning up, and investors could hardly find enough places to throw capital.

At some point in the process, as other tech companies were imploding all around, Wade realized that things were going south and they weren’t going to recover. He consulted with one of his investor/mentors, Michael Dell, and that helped him clarify the situation: Things were bad.

About that time, another firm offered them about $75 million to acquire them, and Wade thought it would be great to get out. Unfortunately, his board saw it differently.

A few members of the board had recently injected the last $45 million in capital, and their firms were looking for at least a 2-3x return on their money. Not a breakeven proposition.  So Wade, the founder and chairman, who had been diluted to very low ownership, was out-voted.

Too bad for them all. After continuing down a long dark spiral, they eventually sold the firm for about $4 million. A 95% or so loss. Ouch.

Wade should have walked away sooner.

I have some of my own stories, and I’ve witnessed a few firsthand. One time I was helping my business partner build a high-end hotel in North Dakota. There were a plethora of problems, errors, setbacks, and disappointments in the early stages of the project.

The general contractor went bankrupt with over a million of our proceeds and a long line of unpaid sub-contractors. We were facing the most grueling winter in a century in North Dakota with a building that was not closed in on schedule.

The Bakken oil boom was still in full swing, and irrationality was still in vogue. There were potential buyers. My friend could have sold the project and plans in a semi-complete stage and walked away whole. But the opportunity was too great.

He held on, finished the hotel, operated it for two years—and it was a financial disaster. This caused him years of pain, time, lost opportunities, and millions of dollars. He had his own capital that he had made over years in other successful investments, so this was a particularly painful loss for him on many fronts.

He should have walked away sooner.

And speaking of North Dakota, there was the time when I was riding high from a successful multifamily/hotel operation I had co-founded and operated successfully for a number of years during the Bakken oil boom. We were charging $3,900 per month for 300 square feet of beautifully furnished units and staying almost full with happy oil and gas workers eager to get out of their RVs or pickups where many were sleeping during the brutal ND weather.

Someone said we needed to start a wireless internet company to serve the various RV parks, motels, and man camps that were springing up across the previously desolate plains of Northwest North Dakota. We pulled together $390,000 (my friends and I were the major investors), put a team on the ground, and started growing the company.

Without giving all the painful details, I’ll tell you that we ran into a wide array of problems from the start. No one told us the wireless radios may have trouble in negative 40-degree temperatures. (We’re not sure they’d ever been tested in those conditions.) We didn’t anticipate how hard it would be to recruit and maintain great staff there. No one believed oil prices would plummet from over $100 a barrel (“We’ll never see double digit oil again in our lifetimes!”) down to the low $30s two years later (“Everyone should have seen this coming!”).

Our Bakken Wireless logo.

We could have cut our losses and paid ourselves back about half of the money. If we’d only known when to walk away. But we didn’t. We held on for several more years and drained the team of uncountable time, resources, and cash.

A Frequent Enemy: the Fallacy of Sunk Cost

As I hear and recount stories of people who have faced the question of quitting or trudging on, I think the fallacy of sunk cost is a frequent culprit in causing them to persevere too long.

This means that people are far more likely to persevere in a failing endeavor if they have already invested significant time, money, and emotional energy into the project. Rather than just look at the future prospects, which is all that should matter, people tend to weigh their past unchangeable decisions as part of the mix. Which can result in bad decisions.

For example, suppose you spent $100 million and five years of your team’s efforts building a factory to make a great new product. The plan is to spend only $10 million and one more year outfitting the factory with the machinery and people to open for business. But you learn from your marketing team that the product just became obsolete.

What do you do now?

I can assure you that someone at the table will argue that you can’t quit now. Too much time and money have already been invested.

Bad answer.

If you’re not aware of this potential hazard, I recommend you Google it and learn all you can. And think about how it has and could affect you in your decision-making process.

So how do you know when to persevere—and when to cut your losses and walk away?

This is where wisdom comes in. And often that wisdom is gained through years of experience and pain. Frequent discussion points on our podcast. Experience and pain build a strong frame in your life on which future success can be supported.

This also a reminder of another lesson we’ve learned on our podcast: Surround yourself with great counselors. I am part of a mastermind with a great group of syndicators, and it is great to not be the smartest guy in the room. I plan to expand my membership into at least one or two other mastermind groups in the next year.

This dilemma of knowing when to persevere and when to lick your wounds and walk away—this need for wisdom and discernment—is an invitation to personal/spiritual disciplines. I’m a frequent guest on other podcasts, and I get asked about this surprisingly often. “Tell us about your personal morning routine.”

One of my most important personal habits is morning meditation. This practice puts me in touch with a divine spark of creativity and wisdom.

And I hope that as I continue to grow in this joyful discipline, I will be better equipped to discern answers to the potential dilemma I’ve outlined here as well as a thousand other challenges that face me as a real estate investor and syndicator.

As King Solomon, one of history’s wisest men, stated, “There is a time for everything under the sun.”

There is a time to persevere—and a time to quit. I hope and pray that you and I know the difference in our lives, businesses, and investments.

What about you? How do you know when to persevere and when to call it quits? Do you have any personal stories to recount?

Leave your comments below!

About Author

Paul Moore

Paul is author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing, which you should probably get if you want to learn to invest in multifamily. He is a Managing Partner at Wellings Capital, a multifamily and self-storage investment firm, and hosts the How to Lose Money podcast. Paul was 2-time Finalist for MI Entrepreneur of the Year, has flipped 60 homes and 30 waterfront lots, developed a subdivision, and appeared on HGTV. Paul’s firm invests heavily to fight human trafficking and rescue its victims.

23 Comments

  1. Jared Stasch

    Going through a similar experience on a property and one night I opened Think and Grow Rich and this quote hit me like a ton of bricks: “Remember that all who succeed in life get off to a bad start and pass through many heartbreaking struggles before they “arrive”. The turning point in the lives of those who succeed usually comes at the moment of crisis, through which they are introduced to their “other selves””

  2. Robert Caturano

    This is a great post. The wisdom and discernment that produces good outcomes are often counterintuitive or don’t seem natural. I admire those who display the humility to objectively evaluate a situation and hear (and act upon) what they don’t want to hear. I think you’re one of those guys Paul Moore. Have a great Christmas season.

  3. Alaina Donofrio

    Another way of putting it:

    The first thing to do when you find yourself in a hole is to stop digging!

    I found myself in a situation where there were some issues with a house I had bought as a primary residence. I had sunk probably 30K into it (doing most of the work myself but still) when I realized I hadn’t done as much due diligence as I should have and the house had some major issues. I won’t go into details but I was looking at close to 6 figures worth of fix. So I sold. In this up-market I did end up making a (small) profit as my remodeling paid off, but it was still a costly lesson with all the fees that go into buying and selling, and I wouldn’t have put in the higher-end finishes and so much of my time and energy if I was going to just turn around and sell it.

    Great article! Hopefully I’ve learned enough through the years to not get burned again so badly.

    • Paul Moore

      Hi Alaina, I like the sound of that phrase “stop digging”. Thanks so much for sharing your story. Sounds like you were lucky to walk away with a profit of any kind. Many I know were in similar situations and they were not as fortunate.

  4. Nic DeAngelo

    Great post Paul! Especially on the sunk costs and leaving the table early. I learned both of those the hard way!

    How did you find your syndicator mastermind group? I am part of a mastermind but also looking for something real estate specific!

    Any advice on how to find a real estate mastermind would be greatly appreciated!

    • Paul Moore

      Nic.

      Thanks for the kind words. I would highly recommend that you join up with Michael Blank’s network if you are doing multifamily. If it is self storage, Scott Meyers group. If it is other real estate, I would check out The Collective Genius. If you reach out to me, I can connect you to individuals at any group.

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