Are you one bad week away from a financial crisis?

Brent Neely: I was doing $30,000 to $40,000 a day in sales on Amazon. And then, one Tuesday morning, my account got suspended. Not because I did something wrong. Not because of a customer complaint. Not because of a product issue. Because I didn't verify a phone number within 24 hours of Amazon sending an email about a new policy. An email that got buried in the hundreds of other emails they send every week. It took me a week to get my account reactivated. Seven days. No sales, no revenue, no cash coming in. Icing on the cake, listen to this. During that week, I owed my key supplier over $2 million and my CPA had just forecasted a $1.5 million tax bill. I had very little in the bank compared to those kinds of numbers. So as long as the system kept running, everything was fine. It was great. But the system stopped running over a phone number. This is the Wealth Cockpit, and I'm Brent Neely. Today we're talking about the concentration trap, the thing that makes successful business owners more financially fragile than they even realize. If you listened to episode one, you may know my story. I left a fourth generation family business. built e-commerce companies on Amazon, designed them to be scalable, had a lot of success. I had real income, real freedom. I was living exactly the life that I had planned and designed. But here's what I didn't tell you in that episode. That same year my CPA forecasted that million and a half dollar tax bill, I was also carrying over $2 million in payables to my primary supplier. My cost of goods was about 45%. I was making 15 to 20 % net margins, which is very strong. But every dollar of growth ate cash. Inventory, taxes, more inventory. Almost all of it ran through one channel, Amazon. One marketplace, one account, one set of rules that I didn't write. I couldn't even negotiate. And those rules could change at any time without my permission. In this case, without me even knowing. Now, as long as everything kept moving, it worked great. It was fantastic. Cash in, cash out, margins were solid, business was growing. But I was standing on a very narrow ledge. I just didn't feel it because the wind hadn't blown yet. And then it blew. That account suspension, a week of zero revenue over a phone number verification, that was my wake-up call. I got the account back, the business recovered, but I sat there afterward and thought, what if it had been 30 days instead of seven? What if they'd changed a policy that actually affected my entire product category? What if my supplier... had changed the rules or chose to stop selling to me. So I had a massively successful business and I was one bad week away from a crisis. That is a concentration trap. So now here's why I'm telling you this. Not because my story is unique, but because it isn't. If you're a business owner listening to this, there's a very good chance you're in the same position I was, maybe not with Amazon. Maybe it's your business yourself, your practice, your firm, your agency, whatever you've built. Let me ask you a few questions and I want you to actually answer them honestly, just in your head. What's the percentage of your net worth that's tied up in your business? If you had to guess, and most people know this number intuitively, even if they've never written it down, what percentage of everything you're worth lives inside one asset? For a lot of business owners, that number is 70, 80. 90%. Some of you, it's basically 100. Your business is your net worth. Everything else, your house, your retirement accounts, maybe some stocks, that's the margin. The business is basically the whole thing. Second question, if your business stopped generating revenue tomorrow, not forever, just for 90 days, how long could you maintain your lifestyle? Most business owners I talk to, if they're doing really well, get uncomfortable at about 60 days. A lot would get uncomfortable at 30. Third question, how many income streams do you have that don't require your presence? So maybe you are the concentration. Your activity, your contribution to your business is the concentration. What if you got sick and you had a major health issue and you weren't able to show up to your business for 90 days? So if you answered one or zero from that last one, how many income streams do you have? That's the trap. That's exactly where I was. I was making great money. I was feeling successful. I was so smart and completely concentrated in one thing that I didn't control. So here's what changed my thinking, and it wasn't another business book. It was data. I started looking at how family offices allocate, not individual investors, not retail financial advisors, family offices, the organizations that manage wealth for the ultra high net worth, families with 50 million, 100 million, $500 million. And their main goals are to protect and preserve capital and then grow it. But what I found was striking. So organizations like Tiger 21, UBS, KKR, they publish data on how the wealthiest families in the world structure their portfolios. And there's a consistent pattern. No single asset class ever exceeds 40 % of total net worth. Ever. Let me say that again. The wealthiest families in the world, people who could put everything in one thing and probably be fine, they never let any single asset represent more than 40 % of their wealth. So here's what a typical family office allocation looks like. Public equities and stocks, 20 to 30%. Not 50, not 70. 20 to 30. Real estate total 25 to 35 percent and within that private real estate syndications, direct ownership or funds represent 15 to 20 percent on its own. Alternatives, which is venture, head funds, 15 to 25%, fixed income, bonds, five to 15, cash, five to 10%. So now compare that to the average successful business owner. 80 to 100 % of net worth inside their business. Maybe some equity in a house, maybe a retirement account they haven't looked at in a couple years, maybe some stocks in a brokerage account their brother-in-law recommended. The gap between how the wealthiest people in the world allocate capital and how most business owners allocate capital is enormous. And it's not because business owners are dumb. It's because they're busy. They're focused on the one thing that's working. They're reinvesting in growth. They're paying down debt and they're doing all the things that feel responsible. But they're building a and bigger tower on a single foundation. and they don't realize how fragile that tower might be until the wind starts blowing. I didn't realize it until Amazon suspended my account over a phone number. So let me make this concrete. Let's walk through a hypothetical and I'll tell you right now, this hypothetical is based on real conversations that I have with business owners. So let's say you're a business owner. You build a company doing three to five million dollars a year in revenue. You're taking home 500,000, maybe 700,000. By any measure, you're killing it. Your net worth is about three million dollars. Here's how it breaks down. Two and a half million of that is the value of your business. Inventory, equipment, goodwill, receivables, it's real value, but it's locked inside the business. You've got 300,000 in equity in your house, you've got a couple hundred thousand in retirement accounts and maybe some stocks. So in this example, that means that 83 % of your net worth lives inside one asset, one business, one industry, one set of customers, one set of risks that are all correlated. If the business has a bad year, it all goes down together. Compare that to the family office benchmark, maximum 40 % in a single asset, and you're at 83. Now let's stress test it. What happens if your industry has a downturn? What happens if you lose a key client that represents 20 % of your revenue? What happens if a competitor enters your market and compresses your margins? What happens if you have a health issue and you can't show up for three months? Your business value drops, your income drops, your lifestyle is at risk, and you have almost nothing outside the business to fall back on. because you've been reinvesting everything back into the thing that's now under stress. This is not a failure of ambition. That's a failure of allocation. And it's fixable, but only if you see it. So, what did I do? I started moving capital out of my concentrated position and into real assets. Specifically, commercial real estate. Initially, it was government leased office buildings, which I still own several of. But multifamily apartment buildings are where I currently think the best opportunity is. Assets that generate cash flow, independent of my business, that benefit from inflation instead of being hurt by it, and that come with tax advantages that actually reduce the tax bill that was crushing me. That year, with a million and half dollar tax forecast, commercial real estate brought it to zero. I talked about that in episode one. But here's the bigger picture, the one I want you to take away from this episode. Today, my portfolio looks completely different than it did during my e-commerce days. I have ownership in 12 different large multifamily projects. Today my portfolio looks completely different than it did during my e-commerce days. I have ownership in 12 different large commercial real estate projects, multi-family apartments, government leased office buildings, mixed use buildings. I have some stocks, I have some precious metals, still make income from my business, but my wealth is distributed. Here's the test. If any single one of those income streams totally disappear tomorrow, I wouldn't really notice. That's the goal, not make more money. Make it so that no single thing can hurt you. No single thing can take away that freedom. So that's how the wealthiest families in the world think, not how do I maximize returns, how do I build a position where I'm resilient no matter what happens. And look, most people listening to this aren't as over-concentrated as I was, or maybe you are, and you're just comfortable with it because you're used to it. That's normal. When the business is working, concentration doesn't feel like risk, it feels like focus, it feels like commitment. But commitment and concentration are not the same thing. You can be fully committed to your business and still build a wealth. But committed and concentration are not the same thing. You can be fully committed to your business and still build a second wealth engine outside of it. In fact, that's exactly what the smartest operators do. So here's what I want you to do after this episode. And it's not a sales pitch, it's diagnostic. Sit down for 10 minutes, write down everything you own, everything you owe, add it up, then ask yourself, what percentage of my net worth lives inside one asset? If the answer is over 40%, you're more concentrated than the wealthiest families in the world are comfortable with. That doesn't mean you're in trouble today, it means you have a gap. and gaps are fixable, but only if you measure them and act intentionally. I didn't see my gap until Amazon showed it to me. I'd rather you see yours on a spreadsheet than learn it the hard way. If you want help running that math, go to freedom.neelypi.com. Freedom.neelypi.com. It's a free calculator that models out when your passive income could make work optional. There's also a attached spreadsheet that goes through all of your net worth and shows you the allocation compared to family So it'll show you the gap between where you are and where you could be. And that gap is the whole point. It takes two minutes, no pitch, no sales call, just math. And if this episode made you think of someone, a business partner, a friend who's running hard and hasn't looked up yet, send it to him. That's who this is for. Once you've done that, if you wanna jump on a call with me and talk about this story or anything else, I'm open. So I'm Brent Neely, this is the Wealth Cockpit, and I'll see you on the next episode.