The Vampire's Death Spiral
Excerpt from Survival First
Vampire risk is what happens when you take too much money from your business. This doesn’t happen early on when there isn’t enough money to take but later when business takes off.
When your business does better, you do better. Your shitty apartment turns into a nice house. Used cars become new Teslas. Weekend camping trips turn into fancy European vacations. Single-and-thirty turns to married-with-private-school-tuition-kids. This is fine when everything is fine. But when things aren’t fine is when the shit hits the fan.
Enter the Vampire’s Death Spiral
Business stops being fine, but you still live as if things were fine. That’s because it’s easier to go up the hedonic treadmill than it is to go back down. Buying a new house or car is easier than selling it. Putting your kids in fancy school is easier than taking them out. Upgrading to first class is easier than returning to economy class.
Nobody likes going back down. It’s more tempting to reduce business expenses instead. It’s easier to fire employees, freeze marketing budgets, pause new projects, and defer routine maintenance.
To keep your lifestyle, you bleed your business dry and leave it vulnerable. This was the problem for Nora, a prominent real estate investor’s problem, whose story I tell in the beginning of the chapter.
Despite being an investor, she drained enough money from her portfolio to leave it vulnerable. When times got rough in the 2008 financial crisis, her business wasn’t strong enough to weather the storm. She was forced to liquidate nearly 80% of her empire in a few months in a last ditch fire sale.
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