Fixing the Biggest Mistakes that Startups Make – Episode 212

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[00:03] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have bestselling financial author and the president and founder of Partners for Prosperity, Kim Butler. She’s also our co-host. She’s got a lot of titles today. How are you, Kim? Very fine. Thank you, Todd. I think it should just be Kim. Well, just, just, just be Kim. We’re going to talk today about starting up a business and, uh, you know, interestingly enough, in one of the previous podcasts, we, uh, noted some statistics that small

[00:57] businesses are actually declining, not increasing, which surprises me because of the tools that are available now for little companies to really operate like a big company pretty much out of the gate. What do you think? Absolutely. You know, our own company is evidence of it. The fact that we can help people in all 50 states over the phone and the web is totally normal today. And when we started doing that, which has been, I want to say it was right around 2000, maybe even 1999, something like that, it was highly unusual. So in less than 20 years, the landscape has completely shifted and people have so much more capacity for reach. But the other thing that’s really exciting to me is that people have the

[01:51] capacity to just focus on what they’re good at. At Strategic Coach, we call this unique ability. We use Colby to identify it. That’s something we’ve done some podcasts on colby.com and when you can just do what you’re good at and then you can bring in a virtual team that can also just do what they’re good at, then you’ve got so much more power. In other words, you don’t have to hire a 40 hour assistant and have them do bookkeeping and marketing and client service and et cetera, et cetera, et cetera. You can have a specialist do marketing and then another specialist do bookkeeping so that everybody gets their love, their own work, their own area of unique ability. And when you’re serving people with your unique ability, you love work

[02:45] and then you don’t want to retire. And our listeners know what we think about the idea of retirement and how much of a dead end road that is. And your other motto, which I’ve now modified a little bit for my own benefit, I say expire healthy. Ah, that’s better than die healthy. Isn’t it a little nicer touch. All right. Well, we’re going to be talking today about an article that I pulled up. It’s actually out of a book called running a business 101 by an author by the name of David Ehrenberg, E H R E N B E R G. And he talks about, in his opinion, the five giant financial mistakes that startups make. So we’ll jump into that and see if we can kind of look in his number one. I’m kind of a big fan of already.

[03:39] And that’s miscalculating or not calculating your cash burn rate. It’s amazing what my perspective does as a business owner, because if I’m worried about paying the bills in the next 30 days, it’s very difficult to try to get my head up out of that muck, if you will, and look at anything long term. I mean, I’m talking even six to 12 months down the road, where is even if there’s just a little bit of extra cashflow where you can see 30 days, 60 days, 90 days down the road. Okay. These bills are taken care of. You can have so much better of a perspective on your business. And it’s one of the reasons why we like the whole life insurance, because if you can start to store up extra cash value, then that can add to

[04:27] that long-term perspective as well and help even out some of the bumps in the business. But of course it’s even better if you can project sales out like, okay, this, the work that we did this month, you know, many businesses operate where they’re not going to get paid maybe for 30, 60, 90 days, depending on what their structure is. And so the sales this month might actually be revenue for two or three months out. It’s amazing. The confidence and the capability and the courage that you get from having some clarity around those sales that are going to provide that future cashflow. Now that brings up another topic that he mentions in here too. And that would be, you know, I’m not sure what your opinion would

[05:07] be on this, but to borrow money or have financing in place, even if you don’t need it. Ah, interesting. Well, the have financing in place, even if you don’t need it is fabulous. And you can do that in a couple of different ways. You can do that as a home equity line of credit, which then just sits there and is available to you. There’s even business lines of credits. Typically a line of credit will be something that you don’t pay for unless you use it. Whereas an actual loan is something that you start to pay for right away, regardless of whether you did anything with the money or not. So line of credit in some format is fabulous. And again, back to my earlier statement, you can use your whole

[05:48] life insurance cash value as that. Having finance in place, ready to go spot. Of course, this sometimes takes two or three years to get to that place, but you can start small. You can go slow. You can build that up. And in the meantime, even having something like a completely empty credit card can do the job in terms of giving you confidence that you’ve got money to pay the bills for 30 days, if the sales are not coming in super. The number two is not completely understanding your marketplace. Yeah. So there’s a fabulous book called ask by Ryan Levesque. We’ve talked about it before, and it talks about how important it is to ask your marketplace what they want. And we learned this with our own clients.

[06:42] We continually heard, well, I really just want a place for my money to grow. Well, I really just want something that will create income. Well, I need liquidity. And that helped us boil down our three offerings to be specifically directed at those areas that clients really wanted. And it’s also interesting when we look at our business, sometimes clients really want that holistic picture where we’re taking a look at everything, their car insurance and their wills and their trust and their mortgage and their 401k and their life insurance and et cetera, et cetera, et cetera. And then other clients don’t want all that help. They’ve got that handled in their minds and they just want something where their assets are going to grow or something where they’re forced

[07:29] to save so that they can build up some liquidity or something like that. And so it’s been fun as we continue to listen to our clients and our clients will know, like my favorite question is what questions do you have? And those questions help me know what it is that our clients want. And yet I’ve made the mistake that I know a lot of business owners make of just creating some product or creating some service that I think our clients are going to want and shoving it out there in the marketplace and hoping that there’s interest. It’s backwards. We’re so much better if we can ask what people want and then develop the product or the service. And I think that along with that, the ability to price your

[08:18] product is important as well. You know, I can remember back when I first got into retail, you used a margin, it just took cost plus margin was what you determined the sales price to be. And I think when you clearly identify your market, you find sections of the marketplace that are willing to pay a premium for premium services and sections of the marketplace that there are services already better and cheaper than what you’re about to create. So you need to avoid them. Absolutely. And I think pricing is a real toughie. There’s another book it’s called Confessions of a Pricing Man. I think Confessions of a Pricing, can’t remember the exact title. Maybe we’ll grab it and put it in the show notes.

[09:07] And it’s got some amazing information about what’s out there. And I remember arguing with our content writer about something that we were going to price at $500, let’s say. And she wanted it to be $499. And I said, really? Like you really think that matters in today’s world? And she was able to pull some statistics that proved that yes, it did matter. The $499 or the $497 is going to get picked up. Whereas the $500 even might not, which really surprised me. You know, I want to throw the question back to you. You’ve got a lot of experience in that realm. Like if somebody created a service, what would be your first steps in figuring out how to price something? Like, how would you go about that?

[09:57] Well, again, I think it all has to, I like the ability to scale. So in other words, if you could take the same product and sort of have like a deluxe version and then maybe a little bit more of a stripped down version, and the version would be priced according to the actual amount of time that you were participating in it. In other words, if somebody could consume content that was created digitally would be a lot less expensive than if they needed a custom solution that required one-on-one time. Absolutely. Yeah. That’s a good distinction to put into it. And something that strategic coach has us working on all the time is your multiplier effect. And so clearly we totally enjoy our one-on-one service that we provide

[10:47] our clients, and yet you and I do multiplier work when we do our podcast because those are able to benefit many, many people, even though we only spend one time having the conversation. So lots of good in both directions there. What else has he got? Number three is hiring and expanding too quickly. This is my favorite mistake. Yeah. And back to my suggestion about going virtual. I mean, there’s just so many opportunities. There’s a book called leverage that I love by Ari Maizel. Of course there’s Fiverr, there’s LinkedIn, there’s all kinds of places where you can get part-time help and then you don’t have to hire a full-time person. And it’s always tricky because you absolutely as a business owner

[11:37] do not want to expand too quickly. That’s to me, the scariest thing in the world. And yet at the same time, the work’s got to get done and you make promises and commitments to clients and you must absolutely fulfill those. And so, especially if you live in a decent sized city, which, okay, I’ll admit we don’t. And so consequently things like Fiverr don’t work very well if we needed physical work done. But if you need technological work done or anything that would be web oriented or able to be done virtually, there are just fabulous places where you can get the jobs done without hiring. In other words, all you’re going to do is hire for the specific job, not any type of long-term commitment makes a world of difference.

[12:21] Couldn’t agree more. And number four goes right along with that. And that’s making bad hires. And I know this is one of your favorite areas to talk about. Absolutely. So a bad hire can, I think hit in two ways. One, it can be culturally bad. And so you look at companies like Zappos, my sister and I’ve toured Zappos and Zappos, the shoe provider that’s out of Las Vegas, they just have an amazing culture and they hire for culture. And if you hire somebody that doesn’t fit your culture, then that can create a lot of problems. And then of course, you’ve also got wrong matches where the person’s just not a right fit for the job at hand. And that’s fairly easily solved up front. And it’s so worth spending a little bit of time and a little bit of money

[13:11] up front to figure out if somebody is a good match for you. And of course, our favorite tool to do that is the Colby profile. Again, that’s KOLB is in boy E dot coms, 50 bucks. You’re not going to want to do this with every single person that you’re interviewing, but once you get it narrowed down to two or three, it’s so valuable to have that information because what the Colby tells you is how that person get results. So if you’re hiring for a role that is very research oriented, as an example, you want to have a particular Colby profile to fit that role. And a lot of people, I think, especially newer businesses, they don’t really know what they’re hiring for. They just know they need help. And so it’s worth taking a little bit of time and not maybe focusing so

[13:56] much on a formal job description, but get clear on the skillset that you’re looking for. All right. And then finally, the fifth, biggest problem is doing your own finances. If you have no training. Ah, yeah, that’s a toughie. And of course every business owner is going to start out doing their own finances. Um, you know, I think that’s okay. And yet we do have to get some training. So if you have to take a tax class and there’s a fabulous tax class that Tom Willwright is going to be offering fairly soon from provision wealth. If you have to just do some Googling, if you have to sit with a part-time bookkeeper again, like we talked about, this can be virtual. We’ve worked with a virtual bookkeeper for 25 years.

[14:51] And the only check that I write is to church. And it’s not anything that we ever worry about. You know, that didn’t happen overnight. It was a slow process in developing trust and systems, et cetera. But it’s so valuable to have a bookkeeper. And yet if you don’t have money to hire one, then you got to do your own finances. So for those that have the capability, I love having both a bookkeeper and the CPA because it enables us to really hone in on paying attention to the reports, the monthly information, et cetera, with the bookkeeper. And then the CPA is more that bigger picture, longer-term annual tax strategy work, et cetera. That’s a really good combination for us. And if people want a reference to a bookkeeper, happy to do that.

[15:36] You can also ask around locally. You can ask your CPA. A lot of CPAs know who the bookkeepers are. So I am absolutely all for getting help. And, you know, it might seem kind of funny here. We are a financial firm, but we get bookkeeper help. Well, that’s because my unique ability is not balancing the checkbooks, checking to make sure all the visa statements match up, looking at Amazon and separating out this, that, and the other, though we do have different credit cards in there that we try to use to keep things straight. But it’s wonderful being able to have somebody that’s really skilled at that and really enjoys that kind of work to do our bookkeeping. And I’ve had both personal and business bookkeeping help from as long

[16:19] as I can remember. And it’s super, super valuable. So I see both sides of the coin on that one, but, boy, if you can get to the point where you can get keeping help, it’s totally worth it. Superb. How do you think of, you know, especially if it’s your first small business, somebody to give you like a perspective of a CFO? Oh yeah, that’s a great idea too. And again, there’s just so much capacity out there. You can get a CFO to come in one day a month if you want to, and have their expertise and wisdom and all of their experience brought into your company without having to have them on full time. And so it’s going to depend on the business. Sometimes it’s a CFO’s perspective that you want. Sometimes maybe it’s more of a marketing expert or maybe it’s

[17:06] more of a operations expert. But absolutely, if you feel like you’re not up to speed in a particular area and can’t get that way via reading and self discovery, or even if you can get that way via reading and self discovery, it’s so valuable to have somebody with experience and wisdom from being in the trenches. That’s I think often way more valuable than quote book expertise. I think it was Wayne Gretzky, the hockey player who said a good hockey player knows where the puck is. A great hockey player knows where the puck is going to be. Yeah, that’s a very worthwhile quote to recreate and apply to business because when you can have the wisdom and the experience to pay attention to what is in the future, you can get so much better results.

[18:03] Super. Well, I hope we’ve maybe encouraged some people out there that, you know, one of the things I think is so easy to do today is to, you know, maybe even start that. I would, I would have 20 years ago, not been for starting a business unless you could put everything into it. I would have said that probably wasn’t the best idea to go in partway, but now I think there’s great opportunities to do that. So I think that might kind of change my mind. Well, I totally agree with you. I think having a business is fabulous. I think if you just have a regular day job, that’s a great thing to have. But in addition to that, I think everybody should play around with some kind of business. And it’s so easy to start with some of the network marketing

[18:46] firms that are out there, you know, find a product that you love, that you could share with others. You could start your business that way. So easy to start with service that you would provide over the web or locally as well, and just having that entrepreneurial mindset, that ownership mentality. It’ll do you wonders for your own life, but it’ll also actually help you at your day job. So I’m a big believer in everybody needs to have some experience starting and running and, and giving a good shot at the business environment. For some, it will take off and, you know, just really outstrip their own day job. And then they can go on and do that full time, et cetera. And for others, it won’t. And that’s okay, too.

[19:28] I think there’s still a lot of good that comes from the learning. Super. Well, this has been an enjoyable one for me. Somebody comes up with a really, really reliable internet provider. We’re definitely in the market. Sorry, had to throw that in there. This is No BS Money Guy for the Prosperity Podcast. They take care. We’ll see y’all again real soon. We’re listening to the Prosperity Podcast to take control of your money and have it work for you. Visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review. No complications. If Shopify was a cycling equipment, I would say it would be the bike itself. That’s what allows us to get where we want.

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