The Danger of Debt-driven Growth

Entrepreneurs are always looking for capital to grow their business or build the foundation of their venture. Most people raise money from family and friends, then borrow against their house or use credit cards.

That is not always bad but the current crisis on Wall Street is a great example of why building your house on sand aka debt can lead to tremendous blowback.

"Therefore, everyone who hears these words of Mine and acts on them will be like a sensible man who built his house on the rock.

The rain fell, the rivers rose, and the winds blew and pounded that house. Yet it didn’t collapse, because its foundation was on the rock.

But everyone who hears these words of Mine and doesn’t act on them will be like a foolish man who built his house on the sand.

The rain fell, the rivers rose, the winds blew and pounded that house, and it collapsed.

And its collapse was great!"

This is not a quote from some billionaire like Warren Buffett - this is a parable from Jesus (Matthew 7:24 - 27 to be exact).

Building a business on debt is exactly like building a house on sand. You can use debt to grow, but you must first have a sound foundation of rock - capital that is not accruing interest payable but instead investors who are prepared to lose their money if the venture fails.

Leveraging is great at amplifying returns but a knife can cut anybody.

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