Episode #010 – Smart Risk: How to move forward and get rich – even when you’re scared

You're listening to the REI Marketing Nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of Ad Words Nerds, a high tech digital agency focusing exclusively on helping real estate investors like you get more leads in deals online. Outsmart your competition and live a freer, more awesome life. And now, your host, Dan Barrett.

Dan: Hello everybody, welcome to the REI Marketing Nerds podcast. As always, I am Daniel Barrett here from Ad Words Nerds. Yeah, super happy to have you. This week's episode is going to be an interesting one, and before we get into it I want to talk a little bit about some of the feedback I've gotten on this podcast. So first of all, thank you so much to everyone who has subscribed, who has left to review, who's left the positive comments in the REI Marketing Nerds Facebook group, the people who sent me an email, Facebook message. We got a ton of feedback on this show and the vast majority of it was super positive and that means the world to me, and I definitely want to encourage you if you're out there you're listening you want to let me know what you think, leave us review, good, bad, indifferent, I want to know what you think. Go on wherever you get your podcast, subscribe if you dig the show, leave us a review, yatta, yatta. But we certainly got some feedback that wasn't so positive, just like anything else. And that's absolutely what I would expect, because I think if you are going out there and you're trying to do something a little bit different, which we are trying to do with this show, this is not your average real estate show where I interview a million people, we're trying to do something a little bit different here, you get some feedback that's not super positive.

I got some feedback from someone that I've done some work with in the past, really good investor, really smart person. That's a shorthand way of me saying I respect their feedback. She was saying, "Hey, I downloaded the podcast, I checked it out, and got to be honest, I was a little disappointed. I thought it was going to be more tactical. I thought I was going to get more kind of specific, technical information how to do XYZ." I want to save right off the bat that's absolutely valid feedback, I get it, and there's absolutely places in which we try to put out that kind of information. The Facebook group is one, we put out trainings all the time. With this podcast of trying to do something a little bit different, and that is create a marketing podcast for investors that's going to be just as valuable today as it's going to be ten years from now and really view this this way, that this podcast for however long we do it is going to have the capacity to change the way that you market, change your business, change your income, change your lifestyle, just as much today as it will ten years from now. That's hard to do in the online marketing space, I'm going to be honest. AdWords has changed so much even since I started doing this whatever it is, six or seven years ago now. Facebook is changed so much. In the future who even knows what we're going to be doing, whether it's YouTube ads or virtual reality ads, who knows what it's going to be. It's going to be different than it is today.

So if I make a podcast that says, "Cool, I'm going to walk you through for example the top 800 Keywords.", which is a guide we did with investor care a little while ago. "Top 800 keywords for AdWords." Well that's awesome and it's valuable right. Not saying it's not valuable, but it's going to change. It changes over time, it changes based on what's happening in the marketplace, it changes based on people's perception, it changes based on the housing market, it changes and we have to constantly keep that stuff up to date, but there are parts of the marketing process and parts of the process of building your business that are never going to change. Ever. As long as we are in a capitalist society, it is going to be true that if you can develop a way of delivering more value to people than anyone else you are going to be successful. That is going to be as true today as it's going to be ten years from now, as it's going to be 50 years from now. What I want to do is establish this little corner of the internet for me to speak to you directly and rather than giving you, the top five hottest tips for AdWords this week, which by the way, those are still valuable, come to the group we talk about that stuff all the time, but this little corner of the internet is really for me to speak directly to you and give you the knowledge you need to be successful long-term. And the fact is that the tips and the tricks and everybody gets those, everybody has those. Those are not a long-term advantage for you. What is a long term advantage is improving the way that you think, improving the way that you handle risk, improving the way that you view and process and deal with the world. That is what is going to be most valuable to you long-term. And it's absolutely true that I would probably make more money short-term by giving you tips and tricks and stuff because that's what everybody wants, I'd probably have more listeners on this podcast, that's probably true, but it's not going to have as big an effect on the world, and it certainly wouldn't have as big an effect on your life.

I wasn't going to talk about that at all, but I wanted to get into that as sort of a prequel to this week's episode, because this week's episode is not going to get specifically into like, "Hey, here's what you do in AdWords this week." This week's episode is about risk. Risk is obviously incredibly important for investors. I think as real estate investors, you people have a unique way of viewing risk, you really need that in order to be involved in this industry. I think that's fair to say. But many real estate investors will leave that mindset behind when it comes to marketing or online marketing, and that's a permanent weakness. That becomes a long standing problem. If you don't understand how to evaluate the risk associated with marketing, it's either going to cause you to underestimate that risk and over commit and run into a potentially catastrophic problem, or it's going to cause you to overestimate the amount of risk involved with marketing and that's going to cause you to spend less in marketing than you probably should, and that's going to cause you to grow significantly less over time. It's going to cost you growth. It's going to cost you income, it's going to cost you freedom. I really believe this by the way, this is something that I've thought a lot about, I apply it very directly to my own business, to my own private life. This is really important.

I want to give you five steps to looking at risk. And you're going to be able to apply these five steps directly to your marketing and your business, you're going to be able to use this to directly judge your own marketing processes online or otherwise, but you're also going to be able to use this in your personal life when you are thinking of taking on a new project or going in a new direction. So this is a broad topic, but it's an important one. It's one you can apply immediately, but like I said in the beginning, it's also going to be one that you can use ten years from now. This is all about what I call smart risk, and taking smart risks is what gives you long term growth. But of course, the question is like how you decide which risks are smart and which risks are dumb, because we've all taken dumb risks. If you've ever been a teenager, I'm sure you've done something incredibly dangerous and stupid because you thought it would be cool and for very little other reason. So we've all taken risks that are not smart. The question is always how do you separate them, how do you tell which is which, and that's easier said than done, of course. I have a process I run through a little checklist, I run all my decisions through, and I think it's going to be really helpful for you to go through. It's five simple questions I ask myself whenever I'm deciding whether to take on a risk or not. Here are the five questions, we're going to go through them in order, I'm going to break them each down, and when you have these are going to be able to really make far smarter decisions over a long period of time, and that is going to be huge for you. Alright? So let's get into it.

First question when we're dealing with a risk situation, we're dealing with a decision we have to make, we don't know if it's a good decision, bad decision we don't know if it's smart risk or dumb risk, here's the first question we have to ask ourselves, "What do I have to gain?" "What do I have to gain?" This is probably the easiest one for most people. And by the way, this is where most people stop, when most people are put in a situation where they have to weigh a certain risk they primarily look at the upside. They say, "What do I have to win?" If I was sitting at the roulette table, "What do I have to win if I put $100 down? I win a million dollars." They focus on the upside. Now this is not necessarily a bad thing, you have to think about the upside. But I want you to get really specific, "What do I have to win? What's the potential upside of making this decision? If I make this decision and it goes well, what do I have to win?" That's question number one, that's where most people stop. We still got four more to go, though. Alright? Question number one, "What do I have to win?"

Question number two, "What do I have to lose and what's the worst that could happen?" Now most people when they are weighing the downsides of a potential risk, they fundamentally unbalance this equation right in the beginning, because when they think about the upside, they think about the maximum potential upside. "If I win in the most defining, huge way what do I have to gain? If I hit it big what am I going to win?" But when they weighed their risks, when they weighed the potential downside, they think about what's likely to happen. So they say like, "Okay, I could win a million dollars, but maybe I'll lose a thousand bucks." They're not thinking about what's the worst that could happen. Right from the beginning it's unbalanced. You've got what's the best thing that could happen and what's the worst thing that's likely to happen. The way we do this correctly is by weighing what's the best that could happen versus what's the worst that could happen. And you really get into this, and I want you to when you go through this process you really visualize, "What do I have to lose? What do I have to lose?" So a classic example of someone who is thinking of engaging in an affair, they are cheating on their spouse. What do they have to win? Well they get all the fun and the danger and the intrigue and it's very exciting, and then what's likely to happen, "I might get caught, and whatever, it will be bad but we'll patch things up." That's kind of what's going on in their head. They're not thinking about what is the absolute worst that could happen. Yeah, you've got the danger and the intrigue and the fun of the affair. By the way, I have never had an affair, my wife is listening to this, I have nothing about this at all, it's just a good example. So you've got all the exciting pieces of the affair, but what's the worst that could happen? Well the worst that can happen is you go through a really traumatic divorce, you lose half your income, you lose access to your kids, your friends cast you out. There's an extensive downside, and when weighed against the worst possible scenario, the upside looks very different then when you weigh it against something that you just think it's likely to happen. So go back over this, step one, "What do I have to win? What's the potential upside?" Step two is, "What's the worst that could happen?" Really getting into the downside.

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Alright. So that's first two steps. Step one, step two. Step three is asking ourselves a slightly different question, "What is my acceptable loss?" I do this a lot when I'm talking to online marketing clients and they're saying, "What should I budget? I don't know what to spend." And I say, "What can you afford to lose for six months?" That's kind of a depressing question. People often refer to me as the world's worst salesman. This is why, because we get into sales conversations and I like to ask questions like, "What can you afford to lose for six months?" which dampens people's excitement a little bit. I say like, "Look, it's not like I think you're going to lose money for six months, but what can you afford to lose for six months?" puts us in the realm of what your budget should probably be. "What is your acceptable loss?" If your acceptable loss is significantly less than what you're being asked to risk, well you need to know that. If you can only afford for example to lose $1000 a month for six months and I'm asking you to risk $5000 a month for six months, well guess what? The potential downside is massive, it is catastrophic. If you can afford to lose $1000 and I'm asking you to risk $500, well that's a very different situation. So knowing what you can afford to lose, knowing what your acceptable loss is helps you judge what you should risk. And again, you realize that most people never get this far, and so their risk is permanently kind of imbalanced. They're risking too much or they're not risking enough, honestly. So again, three steps so far. We've got three. Question number one, "What do I have to win? What do I have to gain? What's the potential upside?" Step two, "What's the worst that could happen?" Question number three, "What is my acceptable loss? What can I truly afford to lose?" Be honest with yourself, because if you can't afford to lose something and you lose it, you're out of the game. You've got a stay in the game. So those are the first three questions. We got two more to go.

Question number four, "How can I cap my downside?" This is one of my favorite things to think about. How can I make it so that no matter what happens, no matter if the risk works or doesn't, if I'm successful or not, I make money or I don't, how can I make it so that the downside can't exceed my acceptable level? An easy way of thinking about this is when you're doing AdWords for example or you're doing Facebook Ads, something like that, you set your budget. You set a budget cap, you say, "I don't want to spend more than $30 a day." And so from that point on no matter what happens, no matter if your ads are successful or not, you know you're not going to exceed $30 a day. You're capping your downside. For example, I'm going to give you kind of a non-investing example. When I decided to do this podcast I spent money on the folks, wonderful folks who I'm sure are listening to this that edit this podcast and put it out for me, I have had to invest the money and I certainly had to invest time and effort, I had to plan out the shows, I've got to record it, I've got to outline them beforehand, all that stuff. Right? So significant investment for me, both for time and money. Well how can I cap that downside? The downside for me is like I spend all this money in this time and nobody listens to this thing and we don't get any new clients from it, nobody likes it. That's a potential downside. Well I knew I could cap the downside because even if no one listened to it I can put these episodes in my Facebook group. So it creates content for me that I can use in a different channel. Likewise, I can use these as additional educational materials for my mentorship program, I knew that I could turn these episodes into blog posts after the fact. So I knew that even if the podcast part of this was completely unsuccessful, nobody listened to it, which would be the potential downside, I'm going to get more content for our other channels and that's going to save me time, it's going to save me effort elsewhere. So no matter what, worst case scenario, I still get something out of the podcast. Now it turns out podcast is really popular, people like it, it's awesome. I still get the blog posts and emails and the Facebook group, all that stuff, I still get that stuff, but I knew that if the worst happened it wasn't going to be that bad. So in every situation you say, "How can I cap the downside of this risk? How can I make it so that my potential losses do not exceed a certain point?" It's like the equivalent of you going to the casino to gamble and you bring along a friend and you're like, "If at any points I lose more than a $1000, I want you to knock me out, just like hit me over the head with the bag of pennies and knock me unconscious, drag me to the car and drive me home. So that way you know, look, no matter what happens, no matter how wild I get, no matter how addictive I am, I'm not going to spend more than a $1000. I cap my downside. That's four questions so far, we've got, "What do I have to gain?" We've got, "What's the words that could happen?" We've got, "What's my acceptable loss?" "How can I cap my downside?"

The fifth one is, "What systems do I need?" This is a big one because you've heard me talk about systems before, I'm a big systems person. I really believe that it's not goals that really matter, it's not willpower, it's not motivation, it's not really anything other than systems. If you have the right systems you will eventually get the outcome. No matter how badly you want the outcome, no matter how badly you're connected to a goal, you will not reach that goal without systems designed to get you there. So systems are incredibly important. Whenever you are undertaking a risk you need to ask yourself what systems you need in order to make sure that risk turns out. For me, again, let's go back to the example of the podcast, when I launched this podcast I get weekly reports of the downloads and I check them out. I keep track of all the people that call us and become clients that mention the podcast. I keep track of the ROI of this podcast, so I know it's working and I know people like it, and if it wasn't turning out I wouldn't keep paying for it and doing it, I would cut that risk short. Again, I cap my downside. But because it's working, because I have the systems in place to check on it, I know it's fine, I'm going to keep doing it. If you are investing in your online marketing, what systems do you need in order to make sure that money actually does what you want it to do? Maybe a system for you is just hiring a manager, hiring someone to take care of it, that's a system. Maybe your system is you check in every week and you have a checklist that you go through and you check your cost per lead, you check your conversion rate, you check to make sure that things are going okay. Maybe a system for you, for capping your downside is you get a prepaid debit card, you put whatever your budget is on there, you hook that debit card up to Google and you're like, "Look, I know that once Google hits the bottom of this prepaid debit card it's not going to keep going. They're not going to let me keep doing ads without paying for them." I will have to consciously reload that card, and I'm not going to do that without checking my numbers and making sure that it's working. That's a system. Doesn't have to be complicated, doesn't have to be wild. The whole process I just said of, "Hey, I'm going to bring my friends and my friend's going to knock me unconscious at the casino if I gamble too much money.", that's a system.

What systems do you need that are going to make sure you're moving in the right direction that risk works out? It's not enough to just throw the money in there, it's not enough to just trust. You got to have a system. Everybody is a little different, every system is going to be a little different, you're going to have different issues, different obstacles, you are going have different things that you need and that's okay, but if you understand, number one, what you have to gain, number two, what's the worst that could happen, number three what your acceptable loss is, number four, how you can cap the downside, and number five, what systems do you need to do that, the decisions you make to take on risk are going to be far smarter and far more effective and you are going to get a far better return over your lifetime than most people could ever dream of. It doesn't mean you never make bad decisions, I make bad decisions all the time. I think most people can relate to that, we all make bad decisions all the time, you're going to make investments that don't pay off, you're going to take risks that go south, that is the name of the game. We are not eliminating risk, what we are doing is being smart about the risks we take on. That's a process you're going to apply to your online marketing, it's a process you can apply to your investing, it's a process you can apply to your personal life, to your relationships, it's a process you can apply pretty much everywhere.

It's just about making smarter decisions. By the way, smarter decisions, this is something that is not going to change in the next ten years, making smarter decisions is going to be the exact same thing it has been since 1000 years ago, since 500 years from now. It's going to be the same thing. It's going to be about understanding what you have to win, what you could lose and how you rig the game so that you have the best possible chance at success. That's what taking smart risk is all about. Hey, let me know what you thought about this. If you thought this was good and you dig this kind of stuff let me know, I would love if you could leave a review for the podcast. If you like it, subscribe, we put out episodes every week. If you are not in our Facebook group you need to join that, it's oldsite.adwordsnerds.com/group, that's oldsite.adwordsnerds.com/group, and as always, I've got this episode and every other episode, show notes, links, all that fun stuff at oldsite.adwordsnerds.com/podcast, oldsite.adwordsnerds.com/podcast. I hope you're having an awesome day and I hope you have an awesome rest of your week, and I will talk to you very soon. Cheers.