Momentum Podcast: 315
Making Money Makes Sense
by Alex Charfen
There is an entire generation of entrepreneurs out there that has been taught growing a business that doesn't make money is the way to create the most value.
I think this is incredibly crazy, and I can't wait to share one of the most bizarre conversations I've ever had with you from my trip to Canada last week.
Here’s how I coach building businesses, build a business around who you are, make it self-funded, build your team and then live the dream! The only logical way to build your business is to make money. If you’re running a business that isn’t profitable it’s near impossible to make the right decisions. If you’re not making decisions based on what creates profitability, then what are you making decisions on?
Full Audio Transcript
There is an entire generation of entrepreneurs out there that has been taught growing a business that doesn't make money is the way to create the most value. I think this is incredibly crazy, and I can't wait to share one of the most bizarre conversations I've ever had with you from my trip to Canada last week.
Making money in your business just makes sense. I would tell you it's the only logical way to build your business. That's why the conversation I had on my flight to Canada last week was so incredibly bizarre. Let me set it up for you. I'm going to Canada to meet with Giovanni [Marsico 00:00:45]. I'm on of the Archangel Council, part of the team that's helping him grow him company. I actually coached Giovanni. I coach his girlfriend Stephanie [Asteema 00:00:54]. Her chiropractic functional medicine practice and Archangels are both clients. I was getting on the flight, and I looked at my flight in first class, and the person sitting next to me is someone I know. It's actually the person who runs the coaching and growth and consulting department for a very prominent grow and scale speaker. In fact, someone who speaks on scaling up a lot, and talks about Rockefeller habits, and other types of things.
And so, I was sitting next to his partner in his coaching and consulting company. Someone that I've known for a while, and of course I'm not gonna use names because it's not necessary. But, it was so bizarre that we were sitting next to each other because we pretty much compete head-to-head on what type of clients we want, until we started talking, and then I realized that might not actually be true because as we started talking he started telling me about his business. Here's what was really interesting, as he was explaining his business he was telling me how they coach, and what type of stuff that they do. He had collateral for everything. He pulled out one of the nicest org charts I've ever seen. He pulled out another organizational chart that was really pretty. He had all this collateral, and then I realized, oh this is one of those entrepreneurs that's just building a company to sell.
The only thing he's doing is creating a company to sell. I turned to him, and I said, "How big is the company right now?" He said, "Well, we have 33 people." I'm like, "Man, for a coaching company that's a lot. What is your annual revenue?" 4.3 million. To give you perspective Cadey and I started the company we have now in July of last year. It's now September, so from July to September we're just over a 2 million dollar run rate with about six people. The guy who I was talking to on the plane has been doing this now for seven or eight years. He's at 4.3 million, 33 people, and then I asked the magic question, "Are you profitable?" And he said, "No." Let's just let that percolate for a second.
One of the largest companies out there that is known for scaling up and getting people's businesses to grow, and they aren't profitable. In fact, they're running a 4.3 million dollar company with 33 people, and I can't tell you how they're making decisions. Here's why. Now before I get a bunch of emails and messages about how, oh this is how you create a valuation, and you have to have a team, and blah, blah, blah, let me just tell you something about running a company that isn't profitable. It's near impossible to make the right decisions because here's the bet that these guys are taking. The bet is they will work like crazy, build a company not following what creates profitability, but following some other set of questions that I couldn't even tell you what it is, and then they're gonna be able to sell it and make a bunch of money.
Here's how I coach building businesses instead. Build a business around who you are. Make it self funded. Build your team. And then live the dream. Have every thing you ever wanted. Here's the problem. When You're going down the route of taking on financing, going out and selling your company, you're not in control anymore. Heres' the biggest issue. This is why I feel like it's so crazy that not only is this guy losing money, but he's coaching other people to scale their business because, ready, here's the foundational issue, the biggest challenge, if you're not making decisions based on what creates profitability then what are you making decisions on?
The single most important thing in your business is driving profitability. You can argue all kinds of other things, but I would tell you it's driving profitability. And if you're making decisions on how to build a team, what infrastructure to have, where to spend money, but you're not driving profitability then it just doesn't make sense. You end up with weird organizations that have infrastructure they don't need. They have people they don't need like a 4.3 million dollar coaching company with 33 people. I can tell you having owned information products organizations since 2007 that, that is crazy. I don't know how you could possibly use 33 people in a 4.3 million dollar coaching company, and so what that means is that company, that organization is a massive cluster. I guarantee you.
The dramatic irony that they help other people scale up is a complete joke because how are they driving the productivity of the team? Here's how it really works. If you want to drive your team and grow your business you look at, you ask a simple question. What's is going to make us more money? What's gonna move us forward the farthest? What's gonna increase gross revenue and net revenues? What's gonna make our organization most successful? And you build around it. When you don't have money, or you're chasing VC, or you're not profitable I mean I'm sure there's consultants out there, maybe this guy can help you, but I don't know how to help you do that.
See, what I know how to help you do is to grow a business that makes a tremendous amount of money and is self funded and the fastest way to build value, real value, is to build a profitable company. At one point he even said to me on the flight, he said, "Well, building profitability is not the fastest way to build value. And I said, "You know, I completely and totally disagree with you." I said, "All due respect, I know you've been doing this for a long time, but that's a crazy statement.' And I told him, "I've been working with organizations for over 20 years that have been growing towards a sale, or an exit of some type, and I can tell you in my experience the ones that had massive profitability were the ones that had the biggest deals and the biggest checks."
Were there anomalies, were there companies that weren't profitable that sold, were there companies that didn't make a lot of money and sold, sure. But you want to go back to a consistency of a 25 year career as a consult, having seen hundreds of exit deals. The ones that were making money were the ones where the owners had the most leverage, got the most out of it, and got the deal that they wanted. And so, it was crazy for me to think that one, not is this person out coaching other people to scale up, but they can't even run a profitable business themselves, two, what are you making decisions based off?
If it's not profitability it must be image because man, I'm telling you there was a lot of money spent on image. Everything I asked about his company he pulled out some cool sheet from a slide deck. That's where they're really spending the money. He has an entire team creating the image of the company to sell it along with the actual functional operations of the company, which just doesn't make sense to me. You have these two outcomes. The reason that I don't work with entrepreneurs that are chasing venture capital or aren't profitable is because I don't understand how to do it. I build businesses that make money. I build businesses that are profitable.
I help my clients build businesses that make a ton of money because here's the math this guy's looking at. He's like, "Hey, if I have this 4.3 million dollar coaching company and I can grow it to 10 million, and I get a multiple of three I'll make 30 million dollars. Well, he's already been doing this for about six years. Let's say he has another 10 years doing it, or another five years doing it that's 10 years to make 30 million dollars and it's only the percentage that he keeps because he already has venture capital in the deal. Oh, why don't you do it the other way? Cadey and I in 2007 started this certified distress property expert designation. From 2007 to about 2015 we did over 70 million dollars in that product with margins around 35 to 45%. We pulled over 10 million dollars out of that product ourselves, net, walked about with. But, that's about the same as what he's gonna get trying to sell his company.
Today so many entrepreneurs are chasing this dream of the big payday when the big payday is right there waiting for you right now. Run a lean company, sell an incredible product, get a huge following, and you'll make money right out of the gate. So, there's sometimes were making money just makes sense. When I sit down with somebody who's helping other people, and they aren't even making money in their business it blows me away. And if there was one thing I took away from our conversation it was this. I am so much more confident in the solutions and the product we provide to business owners now knowing all of the details of the conversation I had with that person because honestly they're probably one of our top two business competitors.
There's just not that many people who help organizations grow in scale, or get traction in growth, and this one that helps ... This is just one of them that helps people scale up. And fundamentally I don't think anybody should be working with a business coach has a 33 person, 4.3 million dollar company that isn't making money because if he can't coach his own business to be profitable as he grows value, how would he possibly coach yours? Making money just makes sense. And if you're working with a coach or a consultant, or anybody else who doesn't have the same values you are, and here's another big one, isn't getting the same results you want, you have an issue. You should get out of it because the challenge is you will become more like the person coaching you in every way. I guarantee you a very high percentage of that person's clients aren't making money, and need to go get funding because that's what he knows. That's the world he lives in, and he's looking for this big payoff.
Here's how I would suggest you do it. I'm gonna go back through it just one more time. This big payoff that everybody wants it's not gonna work because the VC route, the sell the company route is working like crazy. Put everything you can into the company, and by the way, he was doing it. We're on this flight ... I can't remember where we were flying, but I was flying to Toronto. I pulled out a movie and started watching it and made some notes in my phone, and I looked over, and he pulled out his computer, got online, got into his inbox. He had over 90 emails. He's completely sweating because he's already taking investment money. When you take investment money in your company here's the things you will never ask. You're never gonna ask what's in this for me? How does this make my life better? How does my life get easier? How do I get more of what I want? How do I get to be fulfilled as a human being?
What you have to ask all the time is how do I get the venture capitalists off my backs? How do I perform for the investors? How do I meet all the mile markers I have to? He's was aggressively going through email for about 35 minutes and I couldn't help but watch. And then he switched over to Facebook, and played on Facebook for an hour. Do you know why? Because when you're in the world of losing money, and 100 emails in your inbox, and venture capitalists climbing up your back, you go on Facebook because you have to waste some time. You go on Facebook because the 100 emails is just starring you down, and you do anything you can to get out of that feeling.
Here's the right way to do it, or here's the way I would suggest you do it. Think about what it is you want in your life? What it is that you actually want today? How do you want to live? Who do you want to have around you? What's the type of time that you want to have available to you? Who do you want to spend time with? Then build a self funded company around that and live your dream everyday with your business. You can do this. I have clients that are doing this everyday, Wallace and Ashland Nelson, and [Emily Hirsch 00:12:16], and Alex and [Leila Hormozy 00:12:18], and Matt [Frupinships 00:12:19]. Building a business that supports the lifestyle you want every single day, so you're not sacrificing now, so that you can work like crazy, sell the company if you're lucky, and then go out and buy your perfect life.
Here's the reality of that plan, the whole sell the company plan. The sale of your company will be the biggest hit to your momentum in the history of your entire life. That exchange of a big paycheck it ends up feeling like everything in the world came to a screeching halt. Take it from someone who knows. I sold the business that I started in my 20s and the day that I was out of it, the day that nobody was calling anymore, the day that there was no energy towards me anymore because I had just gotten rid of this company, it was one of the most unsettling days of my entire life. I retired. I retired in my early 30s. I wasn't going to work anymore. It was the longest six weeks of my life. I almost died. I was going crazy. And so, if you are in a position where you've been talked into this whole kill yourself, and maybe some day you'll make money by selling the company, but there's a different way to do it.
Build the life you want. Build a business around who you are. Ask questions like how does this make my life easier? How does this business make things easier for me? How do I do more of what I want without having to do what I don't want? Stay in control of your business by self funding it, letting it grow organically, and you'll see a massive change in how you react to your business, how you live, and how you grow because when all you're doing is chasing company valuations you're making decisions based on a set of rules that are very obscure. When you're making decisions based on profitability and having the life you want, you can have ultimate clarity and build the business that is actually going to support you.
If you're interested in understanding more about how to do exactly that go to billionairecode.com. Fill out a few questions. We'll give you your exact results on where you are on the Billionaire Code. The proven paths from zero to 100 million from entrepreneurial success. You'll know which of the nine levels you fall in right now, where you should focus, and if you'd like you can set up a call with my team, billionairecode.com.