What’s the Worst Case Scenario?

About 8 months ago I was tossing around a business idea with my friend who was a pro poker player.  Pro poker players see everything in black and white, mathematics and EV.   So his insight on business ventures is very revealing when it comes down to risk vs reward.

So my dilemma was to start a new product line and sell it online.  Until then I had been a retailer, buying products from wholesalers and dropshippers.  I wanted to move up the food chain to be the wholesaler or dropshipper.

So here was the analysis of my business dilemma.

I would wire $5,000 to a factory in China and those would begin to produce a product for me.  I would sell this product to dropshippers, wholesalers and also sell them retail online.  Obviously, sending $5k to China to someone you’ve only conversed with by email was a little scary.

One thought was to fly to China and meet the people there.  But during the analysis, the trip to China would cost $3k, and it still didn’t mean I wouldn’t get ripped off once I returned.  All that would do is increase my risk by $3k.

When you step back and look at it.  The worst case scenario is that I am ripped off and I lose $5,000.

The best case scenario is that my product sells like crazy and I make $60,000 a year on it.  The more realistic scenario is that I make about $30,000 per year, based on market numbers.  I assigned a 80% probability that I would hit my number based on my experience.  Based on these numbers it was a real no brainer.

Many people don’t take these types of risks.  When you look at worst case vs. best case scenarios, many times it would be dumb to not take the risk.  However, you also need to be realistic about your chances of success.

So here it is 8 months later and I can say that it’s definitely been a success.  My last shipment arrived on Sept. 24th and I have sold out of them today.  A whole new world of importing and supply chain management has been opened up to me.

About Kenric

My blog about living life to the fullest by generating passive income through real estate, business and online investments.
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