Vishesh Raisinghani
7 min read
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Celebrities and athletes often aim to turn fame into fortune, but billionaire investor Mark Cuban warns they often mismanage their earnings.
During a podcast interview, Cuban shared blunt advice for those who suddenly come into wealth: “Don’t invest in the restaurant, don’t invest in the clothing label, don’t invest in the liquor company ... or music,” he said. “That is the death!”
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Here’s why Cuban, a seasoned entrepreneur, avoids these flashy ventures with “no barriers to entry.”
Cuban's advice to people with lots of money to invest is to hire somebody to manage it. "It cannot be your friend," he added. "It's got to be somebody who's done it for big time people."
He warns against investing in industries like clothing, restaurants, or liquor, calling them “too easy to enter…those businesses are hard because there’s no barriers to entry.”
Barriers to entry, as defined by the Corporate Finance Institute, are factors like regulations, licensing, technology, or patents that restrict competition and enhance profitability.
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In contrast to high-barrier opportunities, Cuban’s point is that launching a clothing line or restaurant requires minimal investment or expertise, making it easy for anyone to enter. This flood of competition reduces pricing power and profitability. Indeed reports the average profit margin for a full-service restaurant is just 3% to 5%.
