Wealth-building Secret: Always Protect the Downside (The Richard Branson Story)

When Richard Branson was planning on creating Virgin Airlines, he recognized an enormous potential, but he also had substantial personal risk if his airline failed. An airline has a ridiculous amount of overhead…..airplanes costs tens of millions of dollars.

EACH.

And you can’t start an airline with just 1 plane. You need a whole fleet. You need to create reliability and predictability for your passengers and employees.

Obviously if you create a successful airline, there is a TON of upside potential. Richard Branson certainly recognized the potential of a new airline, or he wouldn’t have even considered the project.

But, his chief concern was in protecting himself from exposure to risk that might creatively be averted.

When opportunities are presented we often focus on the possibilities; the opportunities for expansion, the immediate financial rewards and even the excitement of a new venture.

I am the master at this.

When I see an opportunity with potential I become the best salesman in the world. I can convince myself of its viability. No matter what. I can see nothing but opportunities and possibilities.

This is a great quality to possess and I know many people who share this opportunistic mindset with me. However, I learned a very important lesson a few years ago. And that lesson is:

It is 100x more important to protect yourself from loss than it is to gain.

This means that in business, defense is 100 times more important than offense.

This has been unanimously expressed by 50 of the top investors in the history of the world, but this principle extends far beyond financial markets.

Any time you are looking at making a large transaction, a huge acquisition, or even forming a partnership, you must figure a way to ensure that you CAN’T LOSE.

Now, I brought up Richard Branson earlier for a very specific reason. Maybe you have heard this story and maybe not. But, in forming Virgin Airlines he negotiated one of the most amazing contracts I’ve ever heard of.

He ensured that no matter what happened in his new venture, there was no way that he could lose.

He completely protected himself from any downside.

He made victory, a certainty.

He negotiated terms with Boeing that allowed him to utilize their jets for a 2-year period while he started up his airline.

But, the real magic was that if his venture failed, he was able to return the jets, risk-free, owing absolutely no money!

Is that not absolutely ridiculous?!

Imagine playing a basketball game where your opponent doesn’t have a basket to shoot at. I mean come on, you wouldn’t have to even be good at basketball to put a W on the board.

Well that’s exactly what Richard Branson did in creating Virgin Airlines. He made it impossible to lose.

Now I’m not a billionaire like Branson and no offense, you’re probably not either. Not yet, at least. But, that doesn’t mean you can’t start thinking along the same lines as the billionaires of the world.

This thought-process is the exact same one that Warren Buffet has followed his entire career to ensure that he never loses money. What a lot of people don’t realize is that if you lose 50% of your wealth in an investment, it takes a 100% gain to get back to even….(let that sink in)!!!

Too many people are focused on hitting homeruns in business, and in making perfect investments that provide a 20% annual rate of return, but that’s not what the billionaires do.

In fact, they do quite the opposite.

They simply expend most of their energy looking for ways to protect the downside. Or, as Tony Robbins puts it, they look for “asymmetrical risk/reward” opportunities.

This simply means that successful people look for opportunities that offer substantially more reward than risk.

In fact, they are willing to pay BIG MONEY to mitigate risk and protect their investments from loss.

I bring this up because years ago I found myself in a situation that made this principle very apparent.

I began negotiating the purchase of a very successful and potentially lucrative business. The business had been around for almost 100 years, it had a proven track-record of sales, and positive cash-flow.

Of course, I became very excited, thinking of all of the possibilities to grow this company and expand its operations into new markets, but after spending several weeks pouring over financial statements, I recognized something. Buying out a company, even if financed through its own operations, still had a ton of risk.

I didn’t realize this on my own, however.

Upon first look, I saw absolutely no downside. I didn’t see a single way that I could lose in the deal. It wasn’t until talking to my father, who purchased a business 20 years ago that I began to see the potential downsides.

It took insight from somebody who had a lot more experience, and a lot more success in business (than me at the time), to help me recognize the areas that I would need to protect myself in…

The truth is that it’s easy to see opportunity, but it’s not always easy to pull back the curtains and see the potential risks.

This doesn’t mean thinking negatively, it simply means dedicating your mind to seeing and protecting yourself from things that could potentially devastate you.

It means protecting yourself from the downside, so that you can focus on building the upside!

If you liked this story, you’ll probably like this one too: Do you really need $15 million to retire!?