Life Changing Money Beliefs Ep 286

Summary Notes


In this episode, the speaker, who had experienced significant financial setbacks, including near bankruptcy and substantial business losses, shares insights on the importance of making money while growing a business. The speaker recounts the challenges faced when scaling his gym launch company, including high refund rates that led to a "death spiral" of revenue loss. The turning point came when he shifted focus to his partner Layla's online fitness business, which quickly became profitable. The speaker emphasizes the necessity of paying oneself and thinking about profit generation, rather than solely business growth. Drawing from personal lessons and referencing Warren Buffett's concept of owner earnings, the speaker encourages entrepreneurs to prioritize profitability and sustainable business practices to avoid relying on the unlikely event of a lucrative business sale.

Summary Notes

Introduction to Speaker's Business Journey

  • Speaker A recounts their personal experience of financial hardship following bankruptcy and the challenges faced while building their business.
  • They discuss the initial concept of their company, which involved flying out to gyms to help them grow.
  • The speaker highlights the mindset shift from building gyms for passion to building a business for profit.
  • Despite financial challenges, Speaker A emphasizes their resilience in never missing payroll or rent.

"So just imagine losing everything you have in a week. It was horrible. And this is just after I had kind of come out of my barely getting out of bankruptcy situations." "When I was doing gym launch, which is when I started the original gym launch version of my company, this is after I had my chain, I would fly out to facilities and fill them up, right?"

These quotes underscore the speaker's experience with financial adversity and the early business model of Gym Launch, which involved personal involvement in client gyms to drive growth.

Scaling the Business and Challenges

  • Speaker A discusses the process of scaling Gym Launch by hiring sales teams to fly out to gyms.
  • They faced issues with gym owners who undermined the sales process by encouraging clients to refund and repurchase memberships.
  • This deceit led to substantial financial losses for Speaker A, compounding the difficulties they faced post-bankruptcy.

"But then as I scaled up and then I had sales guys flying out and doing the sales at these facilities, right, for 30 days, we'd fill their gym up." "Some of the gym owners told all of the clients that we had sold to refund and then buy it again through them, which you might be thinking, that sounds dishonest, and the answer is, you are right, it is dishonest."

These quotes illustrate the challenges of scaling the business, specifically the negative impact of dishonest gym owners on the company's finances and the integrity of the sales process.

Financial Crisis and Recovery

  • The speaker experienced a significant financial crisis due to the dishonest actions of two gym owners.
  • Despite rebuilding their savings to $150,000 after overcoming bankruptcy, Speaker A faced nearly complete financial loss again.
  • The speaker shares their story to resonate with others who have faced similar losses.

"And so I think in a matter of a week, I had, like, two gyms do that, and I think I had, like, 100 or $150,000 in refunds." "That money had disappeared because a partner had taken it out. And then I was basically left with $100, and I started gym launch."

These quotes detail the financial devastation Speaker A faced when gym owners acted dishonestly, leading to a massive wave of refunds that wiped out their savings.

Satisfaction Guarantee and Lack of Control

  • Speaker A explains that the high refund rate was partly due to a satisfaction guarantee they offered.
  • The lack of control over how gym owners fulfilled the program led to dissatisfaction and increased refunds.
  • This situation highlights the importance of control and oversight in business offerings.

"But what's interesting, though, is that when that happened, the reason this got worse and worse is that even before I had those two gyms that told everyone to refund, there was still a high percentage of people that were refunding, like, an egregious amount. We were at, like, 25%." "And the reason was because we had a satisfaction guarantee with the program, but I had no control over the fulfillment."

These quotes reveal the challenges faced with a satisfaction guarantee when fulfillment is out of the company's control, leading to a high rate of customer refunds and financial strain.

Business Challenges and the Death Spiral

  • The speaker experienced significant challenges in their business model due to high refund rates.
  • The refunds were largely due to the poor fulfillment capabilities of their partner gyms.
  • The refund rate exceeded the business's profit margin, leading to a financial deficit.
  • To cover the deficit, the speaker had to continuously sell more, creating a cycle known as a "death spiral."
  • The speaker felt trapped by the situation, experiencing stress and negative financial consequences.

"And so people would just say, like, just give me a refund, I don't want to do this. Right? And the thing is, they had no skin in the game, because it was all my money, not theirs, right? And so they were like, yeah, whatever, refund. And so we still had a huge refund rate."

This quote explains the root cause of the refund issue: the partner gyms had no financial stake in the game, leading them to easily agree to refunds, which caused a significant financial strain on the speaker's business.

"Basically every month I had to sell more to cover the refunds from the last month. And so this is what is called a death spiral, right?"

The quote describes the unsustainable cycle of having to outpace refunds with increased sales, a situation the speaker refers to as a "death spiral."

Pivoting Business Strategy

  • The speaker decided to pivot their business strategy by focusing on a different business model.
  • They chose to direct their marketing and sales efforts towards an online fitness business run by Layla.
  • This decision was made to eliminate the middleman and sell directly to consumers.
  • The pivot quickly showed positive results, generating significant daily revenue.
  • Despite the success, there was still a substantial financial deficit to address.

"And so what was interesting is I made the shift and, you know, and this is where Layla, she had a little side business selling fitness online. And I said, why don't I put all my marketing and sales efforts towards your business instead of this business?"

The speaker identifies a strategic pivot to a more profitable business model, which involves focusing on Layla's online fitness business, suggesting a solution to overcome the challenges faced in the previous business model.

"But I still needed to cover this huge deficit, which at this point was probably like $100,000 that was going to have to come up with."

This quote highlights the urgency and the scale of the financial challenge that the speaker was facing, even after the pivot to a more successful business model.

Innovative Solution and Entrepreneurial Mindset

  • The speaker came up with an innovative solution to address the financial deficit by leveraging their expertise.
  • They proposed to sell their knowledge to the gyms they previously partnered with.
  • This approach was based on the idea of bundling their services and providing value through information.
  • The speaker emphasizes the importance of having a mindset focused on making money when in a tight situation.
  • The experience taught the speaker a profound lesson about the entrepreneurial mindset.

"I'll just bundle all this stuff. I'll call all those gyms back up and say, hey, you remember how I put all those people in your gym? Want me to just show you how to do it? And then you can just buy the information from me."

The speaker devised a creative solution to their financial problem by offering to sell their knowledge and expertise to the gyms, thus creating a new revenue stream to tackle the deficit.

"When I thought from the perspective, man, I really just need to make money. I made the money real quick, guys."

This quote captures the speaker's realization that a focused mindset on generating revenue can lead to quick financial results, demonstrating the power of an entrepreneurial mindset in overcoming business challenges.

Call to Action and Entrepreneurial Lessons

  • The speaker requests the audience to help spread the word about the podcast.
  • They emphasize the importance of reviews and sharing for reaching more entrepreneurs.
  • The speaker shares the belief that helping entrepreneurs can lead to better products, experiences, and livelihoods.
  • The speaker reflects on the lesson learned that many entrepreneurs do not always focus on the necessity to make money.

"The only ask that I can ever have of you guys is that you help me spread the word so we can help more entrepreneurs make more money, feed their families, make better products, and have better experiences for their employees and customers."

The speaker encourages the audience to take action by sharing and reviewing the podcast, highlighting the potential impact on other entrepreneurs and the broader community.

"And it was one of the most profound lessons that I've learned as an entrepreneur is that most entrepreneurs don't think about it like that."

This quote reflects on the speaker's key takeaway from their experiences, which is the realization of the importance of a money-making mindset for entrepreneurs, a lesson they consider profound and worth sharing with others.

Mindset of Successful People

  • Successful individuals maintain a constant mindset focused on generating more income from their businesses.
  • They prioritize value creation as a fundamental aspect of their business operations.
  • These individuals are proactive in implementing strategies such as regular sales or promotions to increase revenue.
  • They systematically analyze and repeat successful business strategies to maximize profits.

"What I can tell you, between the people who I think, who I've observed, who are very successful, who have lots of money, and people who have businesses but don't make that much money, is that the people who are really successful always are in that mindset."

The quote emphasizes the importance of a success-oriented mindset in distinguishing between very successful individuals and those who are less successful in business.

Strategic Business Growth

  • Business owners should regularly question how they can increase their income, as if they had an urgent need to generate funds.
  • Differentiating between growing a business and making money can lead to unique strategies, though they are interconnected.
  • Focusing on what one would do if making money was crucial can provide clarity and direct actions toward profitable outcomes.
  • Systematizing successful strategies can significantly increase business revenue.

"But simply making the extra effort, right? So this is like, if you have a business and you run a flash sale or something like that, and it works well. Well, why aren't we doing this once a quarter? Why isn't this systematized?"

This quote suggests that businesses should not only make an effort but also systematize successful strategies like flash sales to consistently enhance revenue.

Operational Risk and Wealth Creation

  • Building a business does not equate to personal wealth due to operational risks.
  • Unforeseen risks can jeopardize the business and personal finances.
  • The speaker shifted from reinvesting everything back into the business to ensuring personal financial growth alongside business expansion.
  • Learning from past experiences, such as the loss incurred after running a chain of gyms, the speaker now emphasizes the importance of balancing business growth with personal financial security.

"What was ironic to me was that when I started gym launch, I had learned the lessons from my gym business and from the first version of the gym launch business, which was building a business does not make you wealthy."

The quote reflects the speaker's realization that business growth and personal wealth are not synonymous, highlighting the importance of managing operational risk and securing personal financial gains.

Importance of Paying Yourself as a Business Owner

  • Understanding the value of paying oneself while growing a business.
  • Learning from past failures to build a sustainable business model.
  • Recognizing the low probability of selling a business for profit.
  • Emphasizing the need to generate owner earnings.

"I should pay myself and I should think from that perspective, how can I actually make money from this thing rather than just building this thing."

This quote highlights the lesson learned about the importance of business owners compensating themselves, not just focusing on building the business without personal financial gain.

"I'm going to grow this thing, but this thing has to feed me, too."

The speaker emphasizes that while growing a business, it's crucial to ensure it also provides for the owner's personal financial needs.

"Hoping and dreaming that you're going to sell your business as your way of profiting, less than 1% of businesses sell."

The speaker points out the unrealistic expectation of profiting solely from the sale of a business, given the very low percentage of businesses that actually sell.

Warren Buffett's Concept of Owner Earnings

  • Warren Buffett's investment philosophy on owner earnings.
  • The importance of calculating profit after reinvestment to maintain competitive advantage.
  • Valuation of a business based on its ability to produce owner earnings indefinitely.

"Owner earnings, which is how much money, after reinvesting in the business to keep its competitive advantage, can I take home its profit?"

This quote defines Warren Buffett's concept of owner earnings as the profit that remains after reinvesting in the business to sustain its competitiveness.

"Charlie Munger and Buffett talk about this extensively."

The speaker notes that Charlie Munger, alongside Buffett, discusses the significance of owner earnings, highlighting its importance in investment strategy.

Shifting Beliefs to Achieve Profitability

  • The impact of changing beliefs on a business owner's ability to make money.
  • The speaker's personal experience of a belief shift leading to significant profit.
  • Encouragement for business owners to adopt a mindset of consistent profitability.

"It wasn't like I became more skilled. Literally. I started going from launching gyms in person to showing gym owners how to launch their gyms within a week or two."

The speaker illustrates that their ability to generate profit came from a change in mindset, not necessarily an increase in skill or expertise.

"I guarantee you'll be significantly more profitable because the dream exit, you have a 1% chance of doing it. But you taking a profit this month, you can absolutely do it because you already know how to do it because you already have."

This quote serves as a motivational statement, assuring business owners that prioritizing monthly profitability is achievable and more realistic than hoping for a 'dream exit'.

Closing Encouragement for Business Owners

  • The speaker's message of empowerment for business owners.
  • Encouraging consistent profitability over chasing rare exit opportunities.
  • Concluding with a positive note and farewell.

"All right, so anyways, lots of love, keep being awesome, and I'll catch you guys soon. Bye."

The speaker ends the message on an uplifting note, expressing affection and encouragement for the audience's continued success.

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