$1.2M Avoidable Mistake Ep 281

Summary Notes


In a candid discussion about entrepreneurial pitfalls, the host reflects on a costly mistake from his own experience—investing $1 million into developing a CRM for gyms without having the necessary software expertise. He emphasizes the importance of data tracking for gym owners and his initial intent to provide a comprehensive solution. However, he acknowledges the error of taking on more than he could handle, the value of having a committed software partner, and the distraction it caused his team. He advises fellow entrepreneurs to focus on expanding their current successful ventures rather than starting new ones, stressing the need to keep businesses simple for scalability and the discipline required to say no to tempting new opportunities.

Summary Notes

Entrepreneurial Responsibility

  • Entrepreneurs are accountable for all outcomes and decisions within their business.
  • The ultimate responsibility lies with the entrepreneur, especially in the context of hiring decisions and their consequences.
  • The speaker emphasizes the personal acceptance of fault in business mistakes.

"Everything is always our fault as entrepreneurs, because we're the ones who make the decisions and ultimately the buck stops with us."

This quote underlines the concept of entrepreneurial accountability, highlighting that all decisions and their repercussions fall on the entrepreneur.

Importance of Data Tracking in Gym Ownership

  • Gym owners often lack proper data tracking systems.
  • The absence of effective tracking leads to ignorance about important metrics like churn, revenue, and net profit.
  • System disorganization is common, leading to reliance on basic tools like Google Docs and Sheets.

"One of the biggest issues is that gym owners don't have good tracking for their data, right? They don't know what their churn is, they don't know what their revenue is, they don't know what their net profit is."

This quote emphasizes the problem of inadequate data tracking in the gym industry, highlighting the lack of knowledge about critical business metrics.

CRM Development for Gyms

  • Speaker A identifies a gap in the market for a comprehensive CRM system tailored for gyms.
  • Existing CRM solutions are described as partial and insufficient for the needs of gym owners.
  • The speaker expresses a commitment to creating the "best CRM for gyms."

"So I was like, you know what? I'm going to build the best CRM for gyms. That's what I'm going to do."

This quote reflects the speaker's decision to address the market gap by committing to develop an optimal CRM solution for gym owners.

Series on Mistakes

  • The speaker continues a series of discussions on personal entrepreneurial mistakes.
  • The emphasis is on learning from these mistakes as a natural part of the entrepreneurial journey.

"Want to make this video to continue the series on mistakes. I have many, many of them, and this one is, is a hard one because everything is always our fault as entrepreneurs."

This quote introduces the context of the discussion, which is a series on mistakes made by the speaker, reinforcing the theme of entrepreneurial responsibility and learning.

Entrepreneurial Focus and Capacity

  • The speaker discusses the challenge of managing multiple business ventures simultaneously.
  • They emphasize the importance of not overextending oneself and the risks of entering an unfamiliar industry.
  • The speaker reflects on the personal mistake of investing in a CRM development for a potential third business.
  • The lesson highlighted is to avoid starting multiple businesses at the same time and to not venture into areas beyond one's expertise.

"And so I spent the next nine months building out a CRM, and I spent about a million dollars in development and way more than that in time and labor on my own team and really my own time, because this is what I put all my time and effort into, is because this was going to be the next thing."

This quote explains the speaker's significant investment in time and money into CRM development, which was intended to be their next business venture.

"I realized that I could not open a third company. I was like, I can't do this. I've already got too much stuff on my plate."

The speaker recognizes their limitations and the impracticality of opening another company given their current commitments.

"And to this day, I have a fully functioning gym CRM that's about nine weeks from being done in development, and it cost me a million dollars."

The speaker reveals the near-completion of the CRM project and the substantial financial cost it incurred.

Software Development Insights

  • The speaker offers advice based on their experience with software development.
  • They stress the importance of having a committed software partner with ownership interest rather than hiring third-party developers.
  • The necessity of a Chief Technology Officer (CTO) with equity stake for a software company is underscored.

"Don't get into a space that you don't understand. So, like, I'm not a software developer. I should have had a software partner, not a third party developer, making these things, because that person, you need somebody who owns it, you know what I mean?"

The quote advises against venturing into industries where one lacks expertise and highlights the need for an invested partner in software development.

"And if you are going to ever start a software company, you need to have a CTO, you need to somebody who has an equity stake, who knows a ton about software."

This quote emphasizes the critical role of a knowledgeable and invested CTO in the success of a software company.

Financial Consequences and Lessons Learned

  • The speaker reflects on the financial impact of their investment in the CRM project.
  • They articulate the opportunity cost of the investment, with the funds being diverted from potential personal profit.
  • The overarching lesson is to be cautious with business investments and to understand the potential distractions for the team.

"But I spent, I think, 1.1 or $1.2 million on this software, and that's profit money, right? That's money. That was money that would have gone into my pocket, and I spent it there, right?"

The speaker quantifies the financial loss from the CRM investment and acknowledges that this was money that could have been personal profit.

"And I don't have anything to show for it except for this one lesson, right, which is don't bite off more than you can chew."

The speaker concludes with the key takeaway from their experience, which is to avoid taking on more than one can manage effectively.

"Don't start multiple business at the same time. And it also ended up being a huge distraction for my team, right?"

This quote highlights the pitfalls of running multiple businesses simultaneously and the negative impact it can have on team focus and productivity.

Distraction from Responsibilities Due to Excitement

  • Excitement about new ventures can lead to neglect of current responsibilities.
  • Personal anecdote of ignoring advice and pursuing an exciting but ill-advised project.
  • Acknowledgment of a million-dollar mistake made due to overpowering a partner's caution.

"So excited, and they're like, they're not paying attention to their normal responsibilities because they're so excited about this new thing." "And that was all me and Layla actually advised against it."

These quotes highlight the danger of letting excitement for a new project distract from existing obligations. The speaker admits to disregarding a partner's advice, which resulted in a costly error.

Financial Management Beyond Business

  • Importance of creating a financial strategy separate from business operations.
  • The concept of a "second game" where money is invested outside of the business.
  • Encouragement to business owners to seek advice on growing their business.

"Take that and figure out what you're going to do with your money that's not business related." "You have to create your second game, which is beyond the scope of this video."

The speaker emphasizes the need for a financial plan that extends beyond the immediate business, suggesting that money should be put to work in ways that do not involve starting another business.

Business Growth and Complexity

  • Reinforcement of reinvesting in current successful business practices.
  • Warning against adding complexity through new ventures.
  • Emphasis on keeping business operations simple for scalability.
  • The increasing difficulty of saying no to new opportunities as the business and funds grow.

"You have to have the game that's making you money, and then you have to have the game that makes your money. Money, uses your money to make more money." "Scale, zero, simple scales."

These quotes underscore the principle of focusing on what is already working in the business and using profits to make more money, rather than complicating the business with additional ventures. The speaker insists on the importance of simplicity for successful scaling.

The Challenge of Saying No

  • The difficulty of rejecting new opportunities correlates with the size and success of the business.
  • Acknowledgment that more money brings more possibilities, making it harder to maintain simplicity.

"And I've said it before, but I'll say it again, like scale, zero, simple scales." "No. And the harder and the bigger you get, the more money you have, the harder it gets to say no."

The speaker reiterates the importance of simplicity in business and acknowledges the challenge of declining new opportunities as the business grows and more funds become available. The repetition of the word "no" emphasizes the need for discipline in maintaining a simple business model.

Importance of Focus in Entrepreneurship

  • Entrepreneurs must learn to say no to increasingly attractive opportunities as they grow.
  • Pursuing seemingly attractive side opportunities can jeopardize the main business.
  • The discipline to decline opportunities is a continuous challenge at every level of success.

I use the story of the woman in the red dress from the Matrix. If you guys have seen the movie the woman in the red dress walks by and neo turns his head or whatever. And the thing is, at every level of entrepreneurship, you have to learn how to say no to a hotter and hotter woman in the red dress.

This quote uses an analogy from "The Matrix" to illustrate the distractions entrepreneurs face. As one's business grows, the distractions (represented by the "woman in the red dress") become more tempting, thus requiring stronger focus and the ability to say no.

But if someone comes to you with another $100,000 a year opportunity, you might be like, man, that sounds pretty cool, too. But by doing that, you'll end up destroying your main thing.

This quote highlights the risk of being swayed by opportunities that seem as lucrative as your main business, emphasizing that such distractions can ultimately harm the primary source of success.

Emotional Discipline and Decision Making

  • Being excited can lead to emotional decisions, which are often not the best for business.
  • The goal should be to remain energized and stimulated by one's work, not just excited by new things.
  • Emotional discipline is a crucial skill that entrepreneurs need to develop over time.

I want to be energized, not excited. If I'm excited, it means I'm emotional, which means I'm about to make a bad decision.

The speaker differentiates between being energized and being excited, suggesting that excitement can cloud judgment and lead to poor decisions. The focus should be on maintaining a steady level of engagement with one's work.

Long-Term Strategy and Investment

  • The advice is to stick to one's chosen path and continue to improve in that area.
  • Entrepreneurs should reinvest their earnings into trusted avenues rather than starting new ventures.
  • Mastery and improvement in one area are preferable to constantly starting new projects.

Find the game, pick the game, do more of the game, take the money out of the game and put it into something that you trust and just continue to play what you're playing and keep getting better at that rather than trying to start yet another thing.

This quote advises to focus on one's chosen business ("the game"), to become better at it, and to reinvest profits wisely. It emphasizes the importance of depth over breadth in entrepreneurial endeavors.

The Value of Experience and Advice

  • The speaker shares lessons from personal experience, aiming to help others avoid similar mistakes.
  • The advice given is intended to save entrepreneurs from costly and unnecessary headaches.
  • Reflecting on past errors is a way to provide valuable insights to others.

I'm giving you the advice I would give myself when I was younger is like, find the game, pick the game, do more of the game, take the money out of the game and put it into something that you trust and just continue to play what you're playing and keep getting better at that rather than trying to start yet another thing.

The speaker offers guidance based on past mistakes, suggesting that the wisdom being shared is both hard-earned and practical. The focus is on consistent improvement and wise investment as a path to entrepreneurial success.

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