The Best Mistakes - Part One

All right, well, you know, 250 episodes of the Small Business show here, and we've learned about a lot of things, and we've made a lot of mistakes, including not recording this episode the first time that we thought we did.

Yeah.

But we thought, you know, visiting mistakes is actually how we learn, isn't it?

It is. It's kind of like, I call them tuition as well.

Right.

Because they cost you something either in time, often money, often lots of money. But you learn a tremendous lessons that I think help you become a better business person as well as just a better person. And so I'm excited to share some of the best mistakes from some of the best guests that we've had in the last few years with our listeners today.

Yeah, yeah, yeah. Some good stuff in here. Some accounting stuff at the end, but I don't think it's boring accounting stuff, so.

No, no, no.

Yeah, yeah. I know sometimes accounting stuff causes people's eyes to gloss over, but. But no, no. And the beginning is. I mean, we've got some partnership stuff and, and ways to not throw money away. So. Yeah, I think it's good.

Good stuff, man. Yeah, me too.

Yeah. Well, he is Shannon Jean. I'm Dave Hamilton. This is the Small Business Show.

All right, team, so let's jump into these mistakes. You know, this is. This is going to be a great show because as I was prepping all this, I kept laughing going, oh, I've made this mistake. Yeah, this was a really good one. So up first is Tyler Merritt from Field Harmony, and I call this the I thought other people would think like me mistake. So let's hear it.

Here we go.

The biggest mistake, I think, is I was naive to believe other people are me. They think like me. They see the world like me. And I thought this particularly about my partner. I love him. He is a brother to me. We've, you know, we've been fast friends for. For many years, and we're not the kind of people that's going to let a business break us. I would walk away from it if it would cost me my friendship, because he's more important to me as a friend. But I, I. Because we're so close, I thought he could naturally get inside my head and just see the world the way I see the world. And, you know, even after over a decade of friendship, we're different people, you know, And I think every business owner needs to know that the other things are driving the people that you're working with and the customers that come and find and use Your service or, you know, do business with you, and you have to suspend what you want and really get inside their head. What does he want? How do I motivate this person to either, you know, pay me money for my service or to keep working hard when there is no money, you know, building this business? And for a long time, I just kept saying, come on, man, you can do this. You know, it's so easy. It's so obvious. And he was just like, you're a sucky teacher. Yeah, I was like, I'm not a teacher. I'm building a company. I'm not. You know, it's a different job.

So anyway, I am a sucky teacher, Shannon. I. I definitely have lived this. I live this all the time. And, you know, the first place where I noticed this and actually corrected for it after a while was with my employees, assuming that they wanted the same thing that I would want if I were in their shoes. Right, And I'm not in their shoes.

Yeah, because you're not an employee.

Right, Correct. I am intentionally not in those shoes. In fact, if I felt comfort in those shoes, I would stay there. And I don't say that to disparage anyone that wants to be an employee. It all works. But that's the thing, is it took me a long time to be like, oh, I should be okay with this. What they want is different than what I want. And I failed spectacularly with employees that I just assumed wanted what I would have wanted. And. Yeah, but I. I find this all the time. I'm. I'm in the middle of a. I'll call it a project with my extended family. There's a lot of things that were going on, and we're all sort of working on together and other things that are driving other people. Like, that boy, did that resonate with me when he said that.

Yeah, I heard you gasp if you go back and listen to that. One of the favorite things when I listened to this clip, to include it on the show was as soon as he said that, you went like, oh, you know, that's. You know, that kind of thing. And I thought, that's good. And that's a common thread when you hear these mistakes is you and I both going, oh, totally. I totally do this. And especially this one. And I thought it was good to start the show with, because from a serial entrepreneur, business owner perspective, it's hard to imagine people, oh, why wouldn't you think, like me? Or, you know, why wouldn't you want this change that I love? Or why don't I don't understand how your comfort level with this type of risk isn't the same as me, especially to your point, with employees. And I went through a period where, you know, and I didn't really know it, but I was really kind of scaring the heck out of some of our employees because I would say things like, hey, all right, so you got this new job. As soon as you can, you need to start thinking, you know, who would you train to take your job? You know, how would you replace yourself? And from my perspective, well, when once you replace yourself, it frees you up to do something else, right. And to move up in your organization. And even though I would explain it like that, you could kind of see the look on their face be like, oh, am I already getting replaced?

You know, am I fired?

Yeah. Is my job in jeopardy? And I wanted it to have the exact opposite impact, in effect, in the sense that, hey, this is a unique place to work, and we give you all kinds of autonomy, and no one's really gonna tell you what to do with once you figure it out. And it took me a long time to have it, and I actually had to have someone point it out to me. It's like, hey, you can't do that because you're really yanking people around, and it doesn't make them excited and motivated. It, you know, it dislodges them, Right?

Yeah.

And you don't want that. And I think especially we've talked about this a number of times on the show. There are people that often want to be partners with you, or maybe you want to be partners with them, but there are tells, certain little indicators that you need to keep an eye out for that that person may be a better employee than a partner with you.

That is. That's a lesson I would love to go back and tell myself, you know, 30 years ago or whatever, I failed at this. Especially in the early days when I didn't, you know, if I didn't have the capital, you know, you come into a business, sometimes you come in and it's like, well, nobody's investing any capital because nobody has any. And so. But you've got somebody that can do the work that you need done. So I would make them a partner, be like, all right, man. You know, and I'd convince them to be a business partner, and they would be excited. They would tell me they were my partner. They would believe it, like, there was no malice or anything involved in this.

Right?

And then, you know, five months or sometimes five years down the Road. You look and you're like, why am I having so much friction with this person? Why are they acting like an employee? Aren't they my partner? No, that was my idea, not theirs. Like, yeah, they're my. They're my employee that I've paid with equity in the company. And. And I've. I've. I've bought some of those people out over the years. Right. You know, and that's. I mean, what else are you going to do at that point? You've given them a stake in the company. They. They did the work, presumably in the beginning for no pay. Because that's why you. That's why you were partners. Right? You know, everybody. And. But. But invariably it. It runs into that. Yeah, yeah, yeah.

It's something to really be aware of and, you know, come up with your own kind of, you know, checklist of. Okay, does this person meet these partner type? You know, you shouldn't have to tell them what to do.

Right.

You should be dividing up duties. Hey, this is how we launch this. Whether we're launching a new company or new product. But if you see yourself telling them over and over, hey, this is what we should do. This is how we should do it. This is the person you should contact. That person's working for you. Maybe the other way around.

I had a senior partner in that. This person had a larger stake in the business than me. And at one point, several of us were saying to this person, like, hey, you're not carrying your weight in terms of the workload here. And the response that we got back was, well, no one has told me what to do. I don't get why you're so upset. It's like. Right, I understand now.

Yes, you just made your point.

You just made your. Yeah, you just made our point. But you don't understand that you made our point like that. You made our point times two. Oh, we have a much bigger problem because now we have to show you this new way of looking at things, and you're already on the defensive. That's not good. Like, oh, crap.

That's right.

Yeah, yeah, it happens. It happens. Yeah.

Yeah. So thanks for that one, Tyler. So up next is Sarah Bisnicki with a company. They're jewelry designers and manufacturers. They're in. In Manhattan in New York City. And I love this one because I'm in there again, something that I've done a lot. I call it the don't panic and throw money at things you believe are gonna quickly, quickly accelerate your business to another level. So let's hear it.

All right, here we go.

I think when you start a company, you go through this panic mode when you're not getting customers.

Panic what?

Oh my God, what can I do? And then you start throwing money at these weird places.

Yeah.

To get, you know, to be, you know, get yourself out there, your name out there. And they have so many things that are so attractive, like paying $5 and then you get, you know, a thousand people to your website or something like that. And. But that doesn't convert into sales. And I think that was like a mistake because I think I would never do those things again because I know that they're like robots or they're not.

It's tempting, all right. Yeah, it's tempting because you're looking for any kind of help you can get. And all this stuff comes up when you're searching. And I've, I've definitely.

Because you think you're going to get real conversions, real people coming to your place, you know, because this person says they have a following and it doesn't really work that way. And I think you really have to do your research on the people who are actually have followers contacting them and, you know, hoping that they'll work with you.

Sure. Yeah.

Don't blindly do it in a panic.

Yeah, I'm guilty of this one too, man. Well, it's too easy. Especially if you are in that panic mode where you have to generate revenue quickly. It's hard to remind yourself what you already know, which is take a moment, breathe, and do the hard work. Now you can cut out that the thing that you should be doing in those scenarios is looking at all the stuff you do and very quickly eliminating the things that are not making you money. Don't look for something new to make you money. Look at the things that you've already done to make money and cut out everything else, all the extraneous crap you might. Which might mean like some growth things that you would do the. The working in your business versus working on your business. At that point, you might put the in on your business on the back burner and work in your business for a little bit. That's fine. But picking up those, you know, get rich quick. Or at worst, hiring somebody that says, like she said, you know, I've got all these followers. We can, we can make this happen. It's like, yeah, prob's not.

Yeah, yeah, yeah. I think the key thing I liked that that Sarah said was, you know, it's all about conversions, so it doesn't matter, you know, like, especially now, and, you know, there's social media and all this stuff, and you. You want to build and this kind of thing. But I would argue that you're better off with 300 core people that want to be connected with your business, want to buy your product and service, are interested in your company and your story than you are with 30,000. And out of that 30,000, there's only 300. Right?

It's totally true.

Yeah. Yeah. And you got to track conversions. And I go back to this question I ask myself often is, you know, what can I be doing today, right now, to generate revenue? You know, not. Not. You have to kind of, especially when you're getting started because you. You're trying to build customers and how do I create sales? And. And when you're bootstrapping it, you know, what. What can I do right now to, you know, generate revenue? What are the things that I could do? And it just takes. It's going to take time. To your point, you got to do the hard work, and it has to be authentic and kind of transparent, and you got to there and push your content. All that stuff takes time. And you need to think about it when you're starting, you know, how are we going to survive until we start to get traction?

Right, right.

And there just is no shortcut, you know. Yes, there's things you can do and, you know, connecting with influencers and this kind of thing and getting involved in groups. But authenticity really carries the day and the hard work over time.

So it is just. Hard work is easy to do. I mean, because you don't have to slow, Dave.

It's slow.

Oh, I know. It's not that slow. You know, that's the thing I have to tell myself is like, okay, let's go do the hard work. And then, you know, you get finished with it. And sometimes the hard work is something that you can actually get done in a day, but you've just been procrastinating, and sometimes it takes weeks or longer. But things always take less time and effort than I tell myself they will take before I start them. Yeah, I definitely suffer from, you know, the. The procrastination temptation and. But so it's just like, well, just get it done, you know, it's easier that way. And I've learned, I've hacked my brain to know that I'm less stressed once I start a project than I am, you know, before I started. And so it's just like, okay, well, I know how to relieve my stress. I'll just start doing It. That's it.

Yeah.

Action.

Action. Right?

Action. Yeah, yeah.

And then, you know, Sarah's thing, you know, following the data, you know, not your emotions, not letting your emotions get out in front of you to, oh, we have to do this. We got to do. You know, it's like, well, what's working? Well, how did you get your first. How did you get your first 10 sales? How did you get your first 50 sales? Where did they come from? Or what kind of customer really looking at the. The data and the demographic. And then go do it. Yeah, yeah. And do it right. So it's good stuff. It is, yeah.

So I want to take a minute. Speaking of conversions.

Absolutely.

I want to. I want to talk about our two sponsors here. Yeah. Our first sponsor for today is Linode. With your business, one mistake you don't want to make is not having a server when you need one. This is an easy problem to solve, and it's inexpensive, too. The way Linode has put together their infrastructure, everything, everything that you get there runs on these super fast SSDs. Not hard drives, but these SSDs. The things that we now have in our laptops and even our desktop computers, the things that make them run so much faster. Replacing the hard disks with SSDs, no problem. They've done it on everything, 100% of their infrastructure, which means that even their nanode server, which will run you just $5 a month, runs on SSDs. And then of course, you can scale up CPUs and things like that and storage space and all of that. But so much of what you need is just, I need a server that's always on over there in the cloud. That's where you can start with Linode. And they can take you all the way up to dedicated boxes and everything. And it's easy to use. You don't have to use the command line. Their cloud manager interface is fantastic. And I've got a $20 credit for you. So go to linode.com SBS and then use code SBS2019. You get a $20 credit, and that way you can have that Nanode server for what, four months? Because it's 5 and 4 is 20, and it's just yours because you're a listener here. Our thanks to Linode for sponsoring this episode. Our next sponsor is textexpander. Man, talk about a mistake you don't want to make. You don't want to make the mistake of not having textexpander for your business. Because with textexpander, the first thing you do is take all of those customer service responses and things that you type all the time. They might be addresses or email addresses, all of that stuff, and you put them into textexpander and you get them right. Once you go crazy, you meticulously look at it. You make sure the formatting is the way you want. You make sure the spelling and the grammar, of course, is correct, and then they're in there. And the next time that you need to use that same piece of information or that same response, you just invoke it from textexpander, either by clicking or by using a shortcut. And the shortcut of text expands into this longer snippet that you have. And then you don't have to proofread it because it's ready to go. You just say send. You don't have to look for it because it's right there. You're not digging through your sent folder. You want to do this, and you can get 20% off your first year@textexpander.com podcast. Go there now. Textexpander.com podcast. Make sure you let them know the small business show sent. You get 20% off your first year. Our thanks to Textexpander for sponsoring this episode. All right, Shannon, who's our next victim here on the mistakes thing? Actually, we're all the victims is really what it turns out to be.

Be. But, yeah, they're beneficiaries.

Right.

Helping each other out, the way you look at it.

Yeah.

So one of the common themes we've heard over the last five years of doing this show, when we talk about mistakes and what things, you know, business owners could, could have done better, we hear about accounting issues over and over and over. So I, I, I pulled a couple out that look at this issue, but in a different way. And the first one is Justin Sisley from DigiDern Bookkeeping. And it's the I call it I've got time to do the accounting later mistake. So let's hear this one, Dave.

All right. Yeah, here we go.

I think it's that they put it off for so long that it's just. Oh, by the time they get to it, it's so overwhelmingly backed up that there's just, it becomes such a huge stressor. There's just no end in sight for it, you know? Can you do it yourself? Yes. I'm not going to sit here and say, nope, you need to hire me. You can't do it. You can do it yourself. There's software out there. I like Xero. But QuickBooks Online works too. You can do it yourself, but you need to keep up with it is really what it comes down to. If you're, if you're putting it off because you don't know what you're doing, you're just making the problem multiply on itself until tax time rolls around and then you've got two weeks to catch up on a year's worth of bookkeeping. It's not going to be fun for you. So, yeah, the biggest thing is just, just getting going. Take the time up front to just figure out how the software works. You know, you're probably not going to know the answer to every question of, you know, where do I book this? But, you know, there's forums out there and QuickBooks has a big forum where you can ask questions, that sort of thing. Just get on top of it right away. Get a routine going. You don't have to do it every day, but set aside an hour a week or maybe two hours a week to just sit down and just do it. I mean, you're going to put it off otherwise. And once you put it off for a week, you're going to put it off for a month and it's going to end up April 15th rolls around and you're in an unhappy spot.

Yeah.

Yep. My advice with this, I have not. Well, I guess I did suffer from this in the early days, but I very quickly made it so that I like accounting and.

Oh, that's good.

Yeah. It's just the numbers. Right. Because it's a thing you can actually control. There's no humans involved, so the numbers should work out. And learning that double entry accounting where you put something in one ledger and also another, so it's categorized as, well as in say your bank account. That whole thing can be very calming, I find, other than when you don't have any, when you're spending more than you're making, there's times when it's not all that calming. But to his point, I recommend taking advice, folks from the esteemed Mr. Shannon Jean here. Look at your bank balance every single day. And you can do that if your accounting software, you know, links with your bank. Do it from inside your accounting software and that way you're in there every day. You won't be putting this off because you're right there. That's, that's my advice on this one.

Yeah, and I do, I do look at the bank balance. And my problem is I'm such a top line guy. If you've listened to the show for any period of time. I'm always sales driven. So I don't mind doing the accounting either once I'm into it. And it's a good point you make. You know, you just kind of sitting there moving the numbers in there, but, or working with the bookkeeper or the accountant to do it. What really causes problems for me is I don't like to give up the time to do it because I'm always so focused on, okay, how do I drive sales, how do I drive this, you know, how do I do that? And stopping to track everything that I've already done, it drives me crazy. And so it constantly causes me problems, you know, but if, if you can't do it, you know, get with a good bookkeeper that can keep track of those results for you or have an employee do it or you know, something along those, those lines. Because it quickly turns into a monster, right?

Oh yeah.

And, and you to your detriment, right, because you can't remember everything. And even though if you think you're keeping track of things, if you're not getting it into your, you're missing things, you're missing things that you can write off that, your expenses that you're not tracking correctly. And, and I would argue that it, it, it hurts you more often than not because you know, there's a ton of things you can be writing off, tracking, enriching your life without having to take income that's very expensive, tax wise. Get with a good bookkeeper if, if you don't want to do it. They're not very expensive. They'll pay for themselves in the long run.

Oh, very.

Get a good. Yeah, right, yeah. Get with a good accountant that can then take all that data and then also look at your overall picture and say, hey, this is what I would do. This is, this is the mistakes we made last year we should do. So. You know, Justin is absolutely correct. And what I like about it, excuse me, is that, you know, he's a bookkeeping company for small businesses, but he also recommends, hey, if you don't want to hire somebody, go do it yourself and get QuickBooks and stuff.

But get it done one way or another. That's right.

Get it done.

I will share a piece of advice that my father in law gave me years and years ago. And he is, he's got the Midas touch, this guy. Whenever he just, he knows how to make businesses run very, very smoothly. But it doesn't matter how big the business is, he never changes one policy and that is manage to Cash flow first. Don't get lost in your profits. Your P and LS are fine and they are valuable things to have, but only like, look at cash flow first. I do not let myself launch the P and L report in my accounting software until I've looked at the cash flow. There is a path and it forces me to see where the cash is and where it's going. And when I have not done that, I've been caught by surprise. And it's not a good surprise to have necessarily. It's nice when you find you've got extra cash. Don't get me wrong, that's not usually what happens.

Right. It's the other way.

It's the other way.

So because this is such an important topic, we've got a second mistake in, and this is a little different point on it. This is Bob Gruel from Seapoint Business Advisors. And Bob. I've met Bob when we were doing some negotiations with one of our business and he helps people sell their companies. So his take on it, I call it the keep your books clean mistake. And let's hear what Bob has to say about this.

All right, take it away, Bob.

Yeah. So for small business owner, what do you think the biggest misconception is when they start thinking about selling their company? Is there something that you kind of hear over and over again or something commonality in the thought process that's not correct.

Boy, about a misconception. I think sometimes when sellers are on the inside running their business, they forget that somebody on the outside looking in or even if it's a different company, they're not going to have the same comfort level that the seller is that the seller has today. So, you know, maybe they don't realize the importance of having really good books and records and having really good profit and loss and balance sheets and showing them in such a clean way that anyone that's looking at them will clearly see how much profit the business generates. So sometimes they run it in such a casual way they think, oh, this is. This is so easy. Somebody else is just going to be able to come in and just be just as comfortable and be as successful as me when they really won't. Because, for example, there's probably no operations manual. Maybe they're running a lot of personal expenses through the business. All those things make it harder to sell. And it's not that easy to sell a business. There's a lot of scrutinizing of the books and records that happen when you sell a business. So oftentimes, I think sellers don't realize it is an arduous process. There is this due diligence period where buyers go in and they want to really make sure that they're getting what they're paying for. So during that process, they're going to be going through a lot of records, and it seems very tedious for sellers. So sometimes sellers are not prepared, you know, emotionally or even physically ready to sell the business. They don't have a lot of their records and in good shape.

It. All right, yeah.

Good points.

It's all great points. Yeah. You know, when it comes time to sell your business, I think you need to have, and it could be your accountant for sure, but you need to have somebody else look at your books. I, I like his advice, but I'm not convinced that it's practical, to be perfectly honest. You are going to wind up running things through your business that, to a. That are totally legitimate with the IRS and all of that. Right. The way I look at the tax code is it's not my rules, so I'm just going to follow the rules you guys wrote. However, there are going to be some things in there that a prospective buyer is going to look at and say, well, those are personal expenses. They're not. They're legitimate business write offs. But they are not write offs that every owner of the business would take. They are write offs that you as the owner of this business would take. Right. And so therefore, those are considered profit. And you want to, you want to reflect them as profit. Perhaps not on your tax return. If you can, if you can find a way not to, that's a good thing. Right. But to a prospective buyer, that should be highlighted as profit. And so I think you need to have someone go through your books with you. Your accountant's a perfect person to do that because they probably know how you think and how you've been doing things for a while, at least they should. And that person can help you filter through those and sort of recast things in a way that looks correct to a prospective buyer. In a perfect world, sure, you keep your books clean, you keep your balance sheet clean and all that stuff, but there's a difference between what's clean for the IRS and what's clean for a buyer. And I think those are two different things.

Yeah, yeah, they are. And after talking with Bob and learning about the process that he goes through is that's a big part of what, you know, a business broker or advisor helps you with, is restating those financials. And so it, I think, think it comes down to just kind of keeping things up to date more than anything else. If you get approached by someone that wants to buy your company and I've had this happen and you don't have, and your books are months and months behind, it's going to take you a long time to get up to date enough to where they could actually look in and get a clear financial picture of how business is.

Yeah, that's different. You definitely want to keep things up to date at all times. It's just the recasting of them. But that's the thing is they need to be fully up to date before.

You can start the, before you can restate them. That's right. Yeah. Because, because you and, and buyers understand this, right? Especially sophisticated buyers. They know, okay, well, what do we got? No, yeah, you've got these company vehicles that we're not going to need and we're gonna, but those things help you because most purchases are, are multiples of something. Right. Typically earnings and that kind of thing. So if, if you are restating or recasting your, you know, financials to present to someone else, well, you're going to look better because you've pulled out what I call lifestyle expenses. Right. Which are perfectly legal to your point. But I'm a huge fan of, you know, like George Washington. Hey, he didn't want a salary, he just wanted an unlimited expense account. Right? That's a big, big benefit because you're, it's, it's pre tax benefit, right? Your, your travel, your vehicles, your whatever your accountant advises you that you can put real, run through your business. That stuff needs to be restated so the buyers know what's going on. So I think the main point I was trying to make on this one was keeping things up to date not just because it keeps your business healthy, but you never know when someone's going to approach you and say, hey, I want to buy your company. And the sooner you can respond, you know that strike while the, what does he say? While the iron's hot. Yeah, you don't want to have to go, hey, I'm going to need a few months to go through all my financials and this time kills all deals. Yeah.

As you and I have proven to one another many times.

Yes, yes, it's happened to us. So, you know, that's, that's where I think, you know, keeping things up to date as much as you can and be ready for when these things happen is, is the way to go. But, but I think you're a valid point, Dave. You're not going to keep everything perfect at all times. You can't do it. You'll. You will be an accountant, Right? Well, and you'll be, you'll keep two.

Sets of books is what you will you keep the, and not in the, you know, back kind of way, in just the way that it has to be. Because if you aren't taking advantage of all of the things that the tax code allows you to, you are literally giving away your profits.

You are.

And, and there's no reason to do that. And look, if someone comes in to buy your business and sees that you're not taking advantage of. Of some of the perhaps more obvious things they might question. Okay. Like, that might actually be a red flag for them. What are you doing here? Like, is this business really something we want to get involved in or has this not been run well? Although that could be, you know, I mean, it could go both ways, but, you know. Yeah. Take advantage of it.

But it is. It is. Yeah. So the accounting stuff is real important. That's why we had, you know, two guests on here today that were talking about this. And, you know, I really like listening to these comments and, you know, we call them mistakes, but they're really, you know, learning experiences and advice. Right. And I've got to a few more that I think are really worth listening to. What I'd like to do is bump those into a part two episode that we can hear run during the Thanksgiving break That's, that's coming up next week. What do you think?

I like it. And yeah, absolutely.

I think that's great.

Works for me.

Yeah. And so we'll, we'll come back to you the next episode. We'll have a few more of these, some of which, and one in particular has stuck with me for years and really goes to the heart of many, many mistakes that we make that I think you will really benefit from hearing.

Oh, well, now I can't wait to wait to listen to next week's episodes and I get to hear it before everybody else. So let's. Yeah, let's do it. All right, folks, thanks so much for listening. Feedbackus show co Share your thoughts on these mistakes with us. Visit our sponsors, Lino.com SBS of course. Text expander.com podcast Keep Living that charmed life and we'll see you next week.