You will never make it... a back of napkin breakdown Ep 109

Summary Notes


In a candid discussion, the host explores the elusive nature of "making it" in entrepreneurship, drawing on insights from Leila, Grant Cardone, and personal experiences. They dissect the fallacy that desiring more money equates to greed, instead attributing it to a quest for security and the perpetual growth of business overheads. Despite achieving financial milestones, the host reveals that entrepreneurs often feel vulnerable due to increasing responsibilities and operational costs. They highlight Bill Gates' goal of having a year's worth of company expenses saved, emphasizing the stress that comes with maintaining a business and the illusion of security. The advice given includes focusing on profit margins to reduce operational drag and recognizing that the entrepreneurial drive to recreate stress may stem from a chaotic upbringing. Ultimately, the host accepts the futility of ever feeling "enough" and encourages embracing the entrepreneurial journey, despite its inherent pressures and irrational fears.

Summary Notes

Concept of Making It

  • The discussion revolves around the idea of "making it" and the continuous pursuit of financial security.
  • Leila and the host reflect on Grant Cardone's thoughts about the elusive feeling of having made it.
  • The host shares a personal experience about the ever-increasing financial targets despite surpassing previous goals.

"One of the things that Leila and I were talking about this morning was the concept of making it. And Grant Cardone was talking about this in one of his videos, I think, a year ago, about how they're like, we're just like, when do we really make it?"

This quote introduces the central theme of the conversation, which is the concept of "making it" in life, particularly in a financial sense. It sets the stage for a deeper exploration of why people often feel like they haven't truly achieved success.

Financial Security and Greed

  • The host challenges the notion that the desire for more money is rooted in greed.
  • It is suggested that the perpetual feeling of insufficiency is due to a sense of vulnerability and exposure.
  • The host identifies as security-driven and risk-averse with regard to preserving wealth.

"But the reality is that you never feel like you have enough. You always feel like you're exposed. You always feel like you're vulnerable."

This quote emphasizes the psychological aspect behind the need for financial accumulation, distinguishing it from simple greed. It reveals a deeper fear of exposure and vulnerability that drives the desire for more financial security.

Growth and Comfort Levels

  • The host explains that as the business grows, the financial comfort level also increases, leading to a never-ending cycle.
  • An initial financial target is set based on the yearly revenue of the host's gyms, aiming for three times that amount in the bank.
  • After reaching the initial financial goal, the business had grown significantly, thus raising the bar for what was considered financially comfortable.

"Now, I got to that first number, right? But the business that I had at that point, in order to get me to that number was ten times larger."

This quote describes the phenomenon where achieving a financial goal can lead to the expansion of a business, which in turn increases the financial target. It illustrates the moving goalpost of what is considered enough for comfort.

Stress and Responsibility

  • The host discusses the stress related to the growth of the business and the associated costs and responsibilities.
  • The burden of overhead and the responsibility towards employees and their families contribute to the ongoing pressure.
  • A reference is made to an interview with Bill Gates and Warren Buffett discussing similar themes.

"And so what ends up happening is that although you make more money and although you put more away, the burden, the cost, like, the stress cost of what that business could do because of the overhead, et cetera, and because you're responsible for so many employees, so many families by extension, like, you have all this pressure, and it just doesn't go away."

This quote captures the essence of the stress and responsibility that come with running a growing business. It acknowledges the weight of having to manage not just the financial aspects but also the well-being of employees and their dependents.

Financial Planning and Sustainability

  • Bill Gates aimed to have one year of company costs in savings, even as the richest man in the world.
  • Achieving this goal was difficult, as indicated by Gates' statement about just reaching the savings target.
  • The concept of never feeling financially free can be both stressful and liberating, as it removes the expectation of ever having "enough."
  • The speaker encourages listeners to shift their focus away from financial inadequacy to other aspects of life.
  • A business with a 20% profit margin on $1 million in revenue would earn $200,000, but with $800,000 in costs, it would take five years to save enough to cover one year's expenses.
  • Even a business earning $2 million a year with the same profit margin faces significant stress due to high overhead costs.
  • The speaker uses "back of napkin math" to illustrate that $2 million a year only covers three months of overhead at $666,000 a month.
  • The speaker feels like they are only twelve weeks away from bankruptcy, highlighting the constant pressure of financial management.

"Mind you, Bill Gates at this point was the richest man in the world. Okay? In the interview, he was like, we just barely got there. He's like, yeah, I think it's like 17 billion, right?"

This quote emphasizes the challenge of financial planning, even for the wealthiest individuals. It shows that reaching a financial safety net is not easy, even with significant resources.

"But your business costs $800,000 a year, which means it would take five years of stockpiling to be able to have enough money to cover the cost of that business if something happened, right?"

This quote highlights the importance of saving and how long it can take for a business to secure a financial buffer to protect against unforeseen events.

"Okay, so you're looking at $666,000 a month in overhead, right? And so if you feel stressed because people are like, hey, man, you're making $2 million a year, in your mind, you're like, that's only three months of overhead."

The quote illustrates the stress of managing a business with significant overhead costs, demonstrating that a high income does not necessarily equate to financial comfort or security.

"I'm like, twelve weeks from being bankrupt. At least that's how I think."

This quote conveys the speaker's personal financial anxiety, reflecting the precarious nature of business finance and the psychological impact of high overhead costs.

Audience Engagement and Word of Mouth

  • The speaker does not use ads, sponsorships, or sales to promote the podcast, relying solely on word of mouth.
  • Listeners are encouraged to share the podcast as a way to support its growth and spread positive karma among entrepreneurs.
  • The speaker's request for audience engagement is a call to action, emphasizing the importance of community support in the success of the podcast.

"The only way this grows is through word of mouth. And so I don't run ads, I don't do sponsorships, I don't sell anything."

This quote underscores the speaker's reliance on organic growth through listener engagement and the value placed on authentic audience relationships over traditional advertising methods.

"My only ask is that you continue to pay it forward to whoever showed you or however you found out about this podcast, that you do the exact same thing."

The speaker is advocating for reciprocity and the sharing of valuable content within the entrepreneurial community, suggesting that this generosity can lead to positive outcomes for everyone involved.

Importance of Profit Margins

  • High profit margins are crucial for business sustainability and reducing operational drag.
  • Low margin businesses can be extremely stressful due to the financial pressures they bring.
  • Increasing profit margins can provide more financial security and cover operational costs in times of crisis.
  • A significant increase in profit margins can drastically reduce the time needed to save for operational expenses.

"having low margin businesses is really, really hard, because you really never feel like you make it in general."

This quote emphasizes the difficulty and constant financial pressure that comes with operating a business with low profit margins, making it challenging to ever feel successful or secure.

"always try and increase your margin and increase your prices. Be mindful of the profit, not just making money."

Leila advises that businesses should focus on increasing their profit margins and pricing, rather than just generating revenue, to ensure greater financial stability.

"if you sell something for $1,000 and it costs you 900, it's really stressful, because if something happens, you still have that 900 that weighs on you."

The quote explains the stress of having a small profit margin ($100 on a $1,000 sale), as the cost ($900) remains a significant liability.

"If you make a million dollars a year, but you're making a 50% margin right now, you're making half a million a year. In one year, you have enough to cover the next year."

Leila illustrates how a 50% profit margin on a million-dollar revenue can provide enough profit to cover an entire year's operational expenses, highlighting the comfort of having high margins.

"we increased it by two and a half x going from 20 to 50."

This quote clarifies that increasing the profit margin from 20% to 50% actually represents a 150% increase in margin, not just 30%, demonstrating the impact of margin increases on profit.

The Reality of Entrepreneurial Finances

  • Entrepreneurs often do not feel like they have "made it" due to increasing operational costs as the business grows.
  • Higher revenue does not equate to personal wealth due to business expenses and operational overhead.
  • Public perception of entrepreneurs' financial success may be misleading due to a lack of understanding of business margins.

"as entrepreneurs make more money, they never feel like they've made it. It's because you always have more."

Grant Cardone explains the paradox of entrepreneurial success, where increased earnings are accompanied by increased operational costs, preventing a sense of financial security.

"as the business grows, you will always have more operational overhead that grows with you."

This quote highlights the reality that business growth leads to increased operational expenses, which can offset the perceived benefits of higher revenue.

"not all the revenue that comes in goes into my pocket as much as I love that."

Leila points out the common misconception that all revenue generated by a business translates directly into personal income for the entrepreneur, which is not the case due to expenses.

"If they're making 10 million a year, it probably means that they have an operational drag that's really high and they probably still don't feel comfortable and they probably never will."

Grant Cardone suggests that even entrepreneurs with high revenues face substantial operational costs, which can prevent them from feeling financially secure.

Exit Strategy for Entrepreneurs

  • Selling the business is presented as a potential way for entrepreneurs to escape the cycle of operational drag and achieve financial freedom.

"I think the only way that entrepreneurs end up getting out and escaping that is actually by selling."

Leila mentions selling the business as a possible solution for entrepreneurs to finally realize financial gains and escape the continuous burden of operational costs.

Entrepreneurial Drive and Childhood Influence

  • Entrepreneurs often come from challenging childhoods and seek to recreate the pressure and chaos they're accustomed to.
  • Despite the desire to escape stress, entrepreneurs may find themselves missing the pressure once it's gone.
  • The cycle of seeking pressure is seen as an inherent part of the entrepreneurial journey.

"I've noticed that a lot of entrepreneurs come from really messed up childhoods and whatnot, really stressful childhoods. He's like, and I think what we do as entrepreneurs is we try and recreate the environment that we had by creating chaos in our own lives and creating the pressure and creating the stress for ourselves."

This quote highlights the speaker's observation that entrepreneurs often have difficult childhoods and unconsciously replicate the stressful environments they grew up in through their business ventures.

The Illusion of 'Making It'

  • The concept of "making it" is seen as an illusion, with the journey being the most significant aspect.
  • Entrepreneurs are encouraged to accept that they will never truly "make it" and to be okay with that reality.

"You will never make it and be okay with that because it's all part of the ride."

The speaker is conveying the idea that the notion of "making it" is not the end goal but rather embracing the ongoing process is what's important.

Selling the Business and Its Aftermath

  • Selling a business can provide financial rewards and remove operational burdens.
  • Entrepreneurs may struggle with their purpose post-sale and often return to the entrepreneurial lifestyle.

"And then you take away the operational drag, you have your big lump sum, but then at that point you're like, well, shit, what am I here for? And then you go back and start doing it again."

This quote explains that after selling a business and reaping the benefits, entrepreneurs may feel a loss of purpose and be drawn back into starting or running businesses again.

The Reality of Business Operations

  • Entrepreneurs often worry about sustaining their business financially for extended periods.
  • In practice, businesses make significant operational changes to manage cash flow and avoid maintaining unnecessary expenses.

"The reality is that it's very rare that you would actually ever float your business for a year because you would probably end up dramatically cutting down on things and decreasing people to cover cash burn."

The speaker is addressing the common fear among entrepreneurs about having to financially support their business without income, explaining that in reality, businesses would make drastic changes to avoid this situation.

Rational vs. Irrational Fears in Business

  • Entrepreneurs may have irrational fears about their business's financial security.
  • Rational decision-making often prevails during cash flow challenges, leading to cost-cutting measures.

"But I know that it's irrational because rationally, if we started being cash flow negative, I'd be making really drastic decisions."

This quote acknowledges the irrational fears entrepreneurs have about their business finances while also recognizing that practical and rational decisions would be made if necessary.

Encouragement and Perspective

  • Entrepreneurs are encouraged to focus on aspects other than just "making it."
  • Acknowledging the continuous nature of the entrepreneurial game can provide comfort and a different perspective.

"Hope this message made you feel good, knowing that you will never make it. But that way you can at least put your attention on other stuff and realizing that no matter what, you're going to end up playing the game again, even if you do end up selling your business, because we're crazy."

The speaker offers encouragement by reframing the entrepreneurial experience as a never-ending game, suggesting that this perspective can lead to a healthier focus on other aspects of life and business.

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