
Even the best innovators are subject to the fickle’s of finance. Let’s not forget that any time we take on debt it is a bet on the future. Any bet has unknown risks that come with it, but some bets are more risky (like horses and football scores) than others. In business there are some economic environments where debt carries more risk than others and it pays to carefully consider what kind of environment we are in before crafting your strategy for the future. For instance, the iconic investor Warren Buffet will only invest in companies whose products have long term predictable demand, such as Dairy Queen or Coke or shoes etc. But even those products had a drop in demand in the last economic downturn, which wasn’t so predictable. Unfortunately, much of our societal demand is driven by debt and there are very few people that can purchase with their own saved money. Even demand for the most stable of staple products is highly uncertain when banks cut credit. There was a time decades ago in many industries, when demand was so stable and predictable that more debt was the safest bet in order to win the market share and production war. But now markets have definitely turned boisterous and unpredictable and debt can leave you imprisoned by an old and obsolete business model or product.
The deceptive lure of low interest rates can make it almost impossible to convince yourself to stay out of debt, because we say “it’s so cheap to borrow.” Unfortunately, when investors are willing invest trillions of dollars in a negative interest rate bond to lock in a loss, it is sending a red flag that even though loans are cheap, all is not right in the economy….borrower beware! Your investment in business or personal debt may also have a negative return whether you like it or not and now may be the worst time to be in debt. Even the smallest payment can bankrupt a company when there is no money coming in! So, be careful keeping your dream alive and don’t bet your future on debt. Being debt free is just that, freedom to move and adapt to market wiggles unencumbered by debt.
By: Kevin Minne
InnovationGrowthSystems.com
720-354-0291