You probably shouldn’t base your business strategy off of horse racing. “Run fast and eat oats,” might be a good life for a horse. It will only take a business person so far. Still, there are certain parallels.
The biggest of these? Weighing risk and seeking out reward. Anyone who has ever started their own business knows that the process is full of uncertainty. In the beginning, you spend tons of money and see none of it come back in.
That is a risk. Taking out a loan to pay for these expenses is a risk. Reinvesting your first profits back into the business instead of finally drawing a salary is a risk. And yet, the eventual rewards can be pretty sweet.
Applying a horseracing mindset to your business could clarify your thinking and maybe even help you gain traction.
Horse Racing is a Business
Obviously, that goes without saying for the track. They collect money off the bets, as it also happens in online racebooks. You can read more about it here: You can find more information in this article from TwinSpires: https://www.twinspires.com/edge/racing/betting-info/horse-racing/
Plus, the price of admission. The drinks. Anything and everything that you pay for goes through their ledger. The margins can be pretty grim but that’s the topic of a different article. Here’s what might be more relevant to your experience as an entrepreneur: The lives of people who own the horses themselves. Their business model has unique challenges.
Horse ownership may feel like the frivolous hobby of the ultra-wealthy. In some ways, it is. The entry barriers are substantial by design. However, there is also major money in it–provided everything goes right. That, in a nutshell, is the risk-reward proposition.
First, let’s understand the risk. You need to acquire a horse. While a hobby horse that you ride around a local stable might only cost a few thousand dollars–quite possibly less–thoroughbreds are a very different kind of purchase.
The price difference is staggering. They cost somewhere in the upper five-figure to upper six-figure range depending on the pedigree of the horse’s family line. Elite bloodlines command premium prices.
Then, you need to train, board, and insure it. We’re talking about hundreds of thousands of more dollars–all getting paid 2-3 years before the horse is old enough to stud or race.
The investment timeline requires patience and deep pockets. When it is ready to start making money, you’ll need to transport it. That can cost up to $3 a mile.
The logistics expenses add up quickly. In case you’re bad at math, that adds up incredibly fast. Transportation to major races across the country becomes a significant expense.
And even if you do all of that, there is the chance that your almost million-dollar investment will be worthless. The risk never fully disappears. Maybe the horse just doesn’t have it. Maybe it gets injured. The fragility of thoroughbreds is legendary. The people who accept all of this risk are (generally) wealthy enough to afford that possibility. They can absorb significant losses.
But, if things go the other way–if they wind up with a champion in their stables–the rewards are really sweet. Stud fees alone can more than recuperate the investment. A champion stallion can command six-figure fees per breeding. Winnings–particularly from big races, tip the reward proposition even further into the N-Zone. A Kentucky Derby winner instantly becomes worth millions.
It’s The Entrepreneur’s Journey:
Let’s say you want to start a coffee shop. You rent your location. Immediately, the expense clock starts ticking. Commercial leases often require substantial deposits. Then, insurance. Those payments click on right away as well. In fact, for your first payment, you most likely had to put 2-3 months down. Landlords typically demand this security upfront. Then the equipment. A coffee pot at Target might cost $10. The stuff baristas use does not. Commercial espresso machines can cost $15,000-$30,000 alone.
You hire staff and train them. “Train” is code for paying employees to do tasks that don’t immediately translate into revenue. This investment period can last weeks or months.
All of these things are necessary. They also mean that you will have directly spent $10-20K before ever turning on the open sign.
Most entrepreneurs significantly underestimate startup costs. The average small business loan is around $600,000 and, in this scenario, at least, you’ll need every bit of that in the end.
That’s a pretty big risk in its own right. It doesn’t even take into account the fact that for the first 2-3 years you probably won’t even be able to earn a salary. Many business owners live on savings during this critical period.
Are there businesses that don’t involve huge loans? Of course. But no matter how much you spend or borrow, there is always a risk. It’s harder to do it yourself than it is to receive guaranteed pay for your work. Why does anyone do it? Maybe for the same reason a person buys a horse. Passion. An inability to imagine life any other way.
If you are interested in starting your business, understand that, like betting on horses, it is a gamble. Here’s the beautiful thing: You control the odds. Work hard. Research your niche. Maybe more important than anything else–be patient. You’ve got this.