Three mistakes small business owners make

I was asked to come along and speak to a weekly mastermind group of small business owners at a mate’s place on Monday night. Before showing up I was reflecting on some of the mistakes I’ve made in business along the way, and seen other make. WFP 20131218

Here’s three pretty common ones that I shared with the group:

  1. Focussing on growth, not financial independence. I think the focus of your business or practice should be getting you financially independent, within a decade at the most. Growing the business doesn’t necessarily forward that game.
  2. Focussing on turnover, not on take-home (with thanks to Matt Church for that phrase). This links to the first mistake – more revenue to the business doesn’t mean more money in your pocket. And interestingly most of the people in the mastermind group knew what their businesses turned over, but not what they were taking home.
  3. Focussing on looking good, not on lifestyle. When I was running a business coaching business, it looked good. Beautiful office, great team, etc. But I was working six days a week and couldn’t leave for more than a week without everything starting to fall apart. I think it’s important to design your business so it supports the sort of lifestyle you truly want to live.

Love to hear your thoughts – do you agree that these are mistakes? Have you made any of these? You can leave them below (with our brand new Facebook comments plugin – thanks Vic).

The unlimited marketing budget

Jeff Bezos famously had an unlimited marketing budget in the early days of Amazon. He knew that what was make or break for Amazon was their number of customers (that was his “does it make the boat go faster question”, he knew how many customers he needed, and when the money would run out. WFP 20131211

He told his marketing team they could spend $38.50 per customer, and as long as they were achieving that, their budget was unlimited.

In any business, that’s a beautiful place to be. Where you know what you can afford to spend for a new customer, and you can scale delivery (ie you have the capacity to keep delivering no matter how many sales you make), you can then have an unlimited marketing budget.

Occasionally in a practice a cluster (an offering) will develop to this point. It’s scalable, leveraged, and you know what you can spend to get a new customer. For example if you have an online program that you sell for $1,000 and it costs you $100 to deliver it, you might decide you could spend up to $400 for each new customer.

At that point the thing to do is go hard at it. Think about how much you can afford to spend per lead, or per new customer, not what your total budget is.

Love to hear your thoughts – what do you think about an unlimited marketing budget? You can leave them below.

Professional vs Amateur

If I was teaching maths to a professional - somebody who was actually going to use maths to calculate the velocity of a rocket ship, or build a bridge that doesn’t fall down – I’d teach them calculus. Essential for them, but completely useless for the rest of us. WFP 20131204 If I was teaching maths to an amateur I’d teach people to actually understand probability – something that is incredibly useful and most of us don’t really get. I reckon school teaches maths for professionals, when 90% of its market are actually amateurs.

Likewise when we teach Aikido it takes ten years for it to be useful as a martial art. But 199 out of 200 people who start leave before they get there – and I think we could do a much better job teaching those people.

If you’re a student it’s worth working out whether you’re learning as an amateur or a professional. When I learn cooking, diving, photography, Indonesian, massage, etc etc I’m learning as an amateur. When I’m learning about speaking, or writing, or coaching, or marketing, or selling (in short, how to think, sell and deliver) I’m learning as a professional.

It’s a useful distinction to know when I’m looking for a mentor, or a class, or buying a book.

It’s an even more useful distinction if you’re teaching (and if you are a thought leader, you teach for a living). Are your students (clients) professional or amateur? Are they looking for competence or mastery?

Love to hear your thoughts – where are you an amateur and where are you a pro? You can leave them below.

Where to spend your money

Last week I wrote it's not what you make, it's what you keep.I had an interesting question in a seminar I ran a few weeks back. We were talking about building a thought leaders practice. A participant asked where he should spend his money.

I reckon there are three areas to prioritise spending on when you are building your practice.

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  1. Your energy. If you are the thought leader in a practice, you are far and away the biggest asset (and perhaps the only asset) in the business. Consequently your energy levels are incredibly important. So spend money on anything that improves your energy – yoga classes, personal trainer, a house cleaner, a regular massage etc.
  2. Your support. Your job as the thought leader in your practice is to think, sell and deliver. Spending money on support to free you up to spend more time doing that is money well spent. Engaging a bookkeeper, a virtual assistant, a business manager, etc is intelligent spending.
  3. Your development. If you are the biggest - or only - asset in your business, any thing you can do to get better at your job will give you a huge return. Remember your job is to think, sell and deliver, so invest hard and continually on getting better at these things.

So while I’m more interested in what you keep than what you make, and I want you to “rockstar your income, not your lifestyle,” there are some things that it’s probably smart to spend more money on.

Love to hear your thoughts – where should you spend more rather than less? You can leave them below.

It’s not what you make, it’s what you keep

We all know well paid professionals, business owners or thought leaders who make lots of money, live large, and have very little to show for it all in terms of real assets. AUD Savings Nest

I saw a documentary recently about American athletes. Shockingly, the majority of ex footballers, baseballers and basketballers (all millionaires in their day) end up effectively broke.

In the Millionaire Next Door, Stanley and Danko share their surprising research which shows very little correlation between earnings and net wealth.

Because of course, wealth is not about what you make, it’s about what you keep.

Recently Matt and I ran a series of seminars promoting Thought Leaders Business School. Matt shared a back-of-the-envelope approach to growing wealth, which I love:

 

  1. Get your practice earning at least Blue Belt (~ $500k a year)
  2. Make sure your cost base in your practice is under 25%
  3. Live off half of your post-tax income
  4. Invest the other half

In other words, invest as much as you spend. Keep 50% of what comes into your bank account. Do that for ten years, and it’s all good.

Love to hear your thoughts – are you creating a gap between what you earn and what you spend? You can leave them below.