005 Wealth Building and Failure in Business

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This is the affluent Entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money, and scale your life while creating a deeper impact and living with complete freedom, because that's what it really means to be an affluent entrepreneur.

Hey there, Mel Abraham here, and welcome to this episode of the Affluent Entrepreneur show. And in this episode, we're going to talk about wealth building, entrepreneurship and why businesses fail. And I know this is a big deal because here's the interesting thing. You know, you talk about entrepreneurship and it's this mix of envy. Some people looking at you and saying, oh, my God, you're an entrepreneur. You get to do things your way. You get to be your own boss. You get to decide how you're going to use your time. You get to make a lot of money. You get to do all these things. And then there's a whole group of folks that are going to look at you and say, wow, is it contagious? I mean, they're looking at you as if it's a disease because they. They don't understand it. They don't get it. They look at it and say, entrepreneurs, they're risk takers. They're daredevils. They're the people that are thrill seekers. They want to go live on the edge. And I guess there's a partial truth to both sides of that, is that they are taking risks. They are putting themselves out in the world. They are putting themselves out in a different way than most people do. They're looking at something new, but it's certainly not a disease. Because if we look around our great country, around our great world, and all of the inventions, all of the luxuries, all of the simplicities that we have were created at the hands and the minds of entrepreneurs just like you. And so what we need to understand is that the entrepreneurial endeavor, the entrepreneurial journey, is born out of need. It is born out of a need in society. A need to solve a problem, a need to simplify a complexity, a need to fill a gap. A need more so than a desire for profit. Now granted, entrepreneurs are in business to make money, but the affluent entrepreneur, as we talked about the affluent entrepreneur having the three critical outcomes of richer lifestyle, deeper impact in complete freedom. The affluent entrepreneur understands that it's not about profit for profit's sake, it's about profit for purpose's sake. Is that we're not driven to directly just focus on profit alone. We are focused on profit. Let's not make any bones about it. Profit is the life sustaining force of your business. Because if we do not have profits, we will fail. If we do not have cash flow, at the end of the day, we can't pay our bills, we can't pay our team, we can't pay our contractors, we can't keep the lights on, we can't keep doing marketing, we can't keep doing all the things we need to do to generate the revenues and more profits to grow and put out the message, to put out the solutions in a bigger way to reach the people that need to be reached with the things that we do. So don't hear me wrong in saying that profit doesn't matter. It does. It absolutely does. But what I have found is that when profit is the sole focus, we lose sight of the purpose of the business. And when we lose sight of the purpose of the business, we start to lose sight of the culture of the business, the dynamic of what it is that attracts customers to us, attracts team members to us. That creates loyalty and cohesiveness, that creates connection, that creates that the long term success of a brand. And so what I want to make sure that we understand is to realize that entrepreneurship's born out of a need. Now that need is fueled and funded by the profit that comes out of solving that problem. And the other side of this is that. Yeah. Do entrepreneurs take on risks? Absolutely. Are they daredevils? Are they thrill seekers? Yeah, maybe adrenaline junkies, maybe some are. But by and large, they aren't. By and large, the entrepreneurs that I work with, the entrepreneurs that I see, they take the time to figure out how to mitigate the risks before they take the risks, in other words, or to eliminate them completely. Fact of the matter is, is that entrepreneurs are really good at Anticipating problems and solving them before they come real. Okay, let me say that again. They're really good at anticipating problems and solving them before they become real. This is why when I work with, with some companies, they say, we want, we want your help to help us with a strategic business plan. I said, great, let's do it. And we'll go through the exercise of a strategic business plan. Now, the plan itself, the document, the spiral bound, the PowerPoint, the keynote, the whatever form it takes is less important than the process we go through to get there. And so when we look at it in that construct, when we look at it in that context, the deal is that we have them build a business plan. One of the things that I do with them is I said, let's create the business plan. So we create this business plan, we get it done and we go, that's the business plan. I say, great. And we take the document and we put it aside. I said, now let's recreate it, not using the same strategies and the same tactics that we used in the first one. In other words, let's go back to zero based thinking. As my friend Brian Tracy says, zero based thinking. Let's baseline and let's start all again. And the purpose behind this is to understand that when we create a plan, inevitably once the plan is created and once it sees the light of day, once it sees the thrust of battle, once it sees that the plan is no longer workable, and in other words, that not everything goes as planned. And when we understand that, that's great. The problem is, is that when we create a plan that says here's the one way to have success in the business, and I don't know if this is you, but if you're looking at your business, say here's the one through line, here's the one path that's going to give me success in my business. Well, what happens if there's a, a pebble in the path? What happens if there's a boulder or a pothole in the path? What happens if there's a detour in the path? Here's the thing, I remember back in the day, it was before we had GPS on phones. And so I was flying in to speak in kind of a suburb of Dallas now. So I rented a car and I got a MapQuest map. So I had these printed out maps and it told me how to get to where I was going to go. And as I'm driving, lo and behold, I get on a road that it tells me to get on, but it's blocked because of road construction. Well, now I have a plan or a map that's taking me to a destination I want to get to. But the route I created in the map doesn't work anymore. It's the same thing with your plan, it's the same thing with your business. And so the idea behind creating multiple plans is to anticipate the obstacles, to anticipate what could happen, to anticipate the possible challenges that you're going to run up against and solve them before they become real. Because then if we've evaluated the alternatives and we have ourselves a whole set of options before we get in the game, then when the game changes, because it will, you're not surprised, you're not taken back, you're not freaked out because you say, I got this. We thought about some of this. And so too many people don't realize what it takes to be successful in business. And what it takes is a lot of guts, a lot of forethought, strategic thinking, certainly a whole heck of a lot of persistence and discipline. So it's really easy for an outsider to look at an entrepreneur such as yourself and say, oh, you're a risk taker. I'm more of a risk mitigator. I look for the things that can go wrong and say, how do I fix it? How do I make sure that if it goes wrong or when it goes wrong, I'm good, I'm good. So hopefully you're doing the same thing with that. Now let's move down to something else that I think is an issue and a challenge to think about when we start talking about businesses. Because again, I am a lover and obsessed with the entrepreneurial journey. I have been since age 11, basically is when I first had my first entrepreneurial endeavor. And my point is, is that I truly believe that when you give problems into the hands of entrepreneurs, their, their creative, innovative minds will find the solutions. They'll find the ways to solve those problems. Let's put it in front of entrepreneurs. When you look at, at what Elon Musk has done with SpaceX and having now, now folks that have the ability to turn around and go to space, that aren't necessarily NASA astronauts. So when we put problems in the hands of entrepreneurs, problems get solved and they get solved in an efficient and effective way. That's my belief and that's why I love the entrepreneurial journey. Because when we do that, we are bettering people's lives. When we do that, we are changing the human condition. We are improving the human condition. Now the challenge is this is many entrepreneurs come to their entrepreneurial endeavor with an idealistic view of it. They sit back and they say, I'm going to one, I'm going to take control of my life. And when I take control of my life, I am going to have the freedom that I always wanted. I'm no longer going to report to a boss, I'm no longer going to have to worry about punching a time card. I'm no longer going to be beholden to someone else. You might be looking at it yourself, you might sit back and say, oh, that's me, that's me. And fact of the matter is that. So you get on the treadmill, you get on this treadmill of entrepreneurship just to find out that in order for the business to go as an entrepreneur, you gotta run on the treadmill. It's not self powered, it's powered by you. That means that in order to create sales, you gotta start running. In order to create more sales, you gotta start running. So you're on this treadmill of sales, customer acquisition, marketing, building, scaling, operations and sales, customer billing, marketing, operations, billing, scaling. You're just doing that. And all of a sudden you realize that instead of giving you the freedom that you wanted, you are imprisoned, you are entrapped, you are stuck on a treadmill, what I call the treadmill entrepreneur. You're running, running, running. And you're realizing in order to have more in your life, in order to do what more you think that the, the solution to it is to run faster or run longer on that treadmill. I got news for you. At some point you will break down. At some point it becomes a challenge. Here's what I know. There are studies that have been been done over the years and you hear these statistics. Fact is, is this, is that 50% of all businesses that get started fail within the first five years. 50%. And if we go out a little further, if we go out to 10 years, then it's 66. Two thirds of businesses are started within the first decade, fail. And let's take it back out 15 years. In 15 years, 75% of the businesses fail. Now wait a second. If we truly look at this, if we truly look at this and say that three quarters of businesses fail over a decade and a half, over 15 years, why would we ever go into business? See, I go back to the whole thing. It's to solve a problem, is to improve the human condition, is to serve a need. And that's what drives most entrepreneurs. It's not the profits. In fact, there's another study that was done, it's the Career Explorer study. And I got this really took me by surprise when I saw it and said the average full time salary of an entrepreneur is just slightly above $43,000. So there's a lot of entrepreneurs out there that find themselves as a treadmill entrepreneur with a job, as a treadmill entrepreneur with a job, that they're basically making some level of living wage and that's it. And so often people will look at entrepreneurs and believe that, oh, because you're an entrepreneur, you're wealthy, because you're an entrepreneur, you're rich, because you're entrepreneur, you get to do all these things. That's not necessarily true. It's not always true, but it can be true. So what's the difference? What's the difference between an entrepreneur that truly has the ability to build wealth and an entrepreneur that is a treadmill entrepreneur, stuck on the cycle of running faster and longer on that treadmill and yet have nothing really to show for it but a job? Here's what I think. There are three different mind frames that an entrepreneur needs to have to build wealth to truly be an affluent entrepreneur. Because what happens is that we think that we just need a certain type of mind frame. And I'm using the term mind frame intentionally instead of mindset, because I think there's a frame of mind, a frame of reference we need to have as we approach different stages of our business. The problem is this, is that the entrepreneur that comes to the start of their entrepreneurial journey brings the beginner's mind to it and we'll talk a little bit about it. And their primary focus is, let me get it off the ground. Their primary focus is selling. But that is not the same mind frame we need to be in to build wealth through a business. So there's three mind frames, and I call this the three mind frames of an affluent entrepreneur. And I'm going to walk you through the framework that. That will start to walk through this. Now, if you are listening on the podcast and not watching the show, totally fine. I'll make sure that you get these drawings in the show notes. So make sure that you go to the show notes to download these things. But in the meantime, let's jump to the iPad and let's get some of this thing dialed in and see what we can make happen. What I'm talking about here is this whole idea, the three mind frames of an affluent entrepreneur, in which we start to look at what it takes now, when we first start to Come to an entrepreneurial journey. When we first start our business, when we think about doing the things that, that we want to do, one of the first things that that happen is that we start to look at this idea of income generation. So that's the first mind frame that we need to have in place is this element of income generation. And this is something that most entrepreneurs are really, really good at in the sense that when they started, they go, I know I need to make money, I got to generate sales, I got to do the things that I need to do. I got to figure out how to make that happen and really start to dial that in. Now here's the difference is the income generation mind frame for entrepreneurs requires you to be a visionary, requires you to look at things through the eyes of, of being a visionary, of seeing possibility, having a willingness to take on a little bit of risk, to see things that maybe others can't see, to see opportunities to be opportunistic, to be creative, to be innovative. So when we start the journey, we need to have a different set of skills to make that happen. We need to have a different set of mind frames to have in place. The challenge is that we can do that. We can be innovative, we can be creative, we can kind of have a sales orientation, we can take on a little bit of risk. But that in and of itself doesn't guarantee success, it doesn't guarantee wealth building. And so the second mind frame we need to understand is that the second mind frame is about something that I call profit optimization. So as much as at the beginning, we're trying to just get customers, we're just trying to prove out the concept, we're just trying to build out sales. As we get into business, we need to find our space and place to profit optimization. And what do I mean by that? Let's just talk about it. I'm going to do a whole new session on profits and that type of thing. But too often I see entrepreneurs get so caught up with the top line, they get caught up with, I want to have a $10 million revenue company, I want to have a $20 million revenue company. I want to have a $5 million revenue company. I don't care whatever the number is, revenues are a vanity metric. It doesn't matter. Because here's what matters, Especially when it comes to wealth building, financial liberation, and living an affluent life, it doesn't matter what the top line is. What matters what the bottom line is. So what we need to do is we got to get the sales going during the Income generation, mind frame. We got to think about that. But then what we need to do is look at and say, how do I maximize my bottom line? How do I maximize my profits? Because what I need to do is look at it and say, how am I building an efficient, effective operation that is scalable? Okay, let me say that again. How am I building an efficient, effective operation that is scalable? Okay, that means that you're not on the treadmill all the time. That means that you're not sitting back saying, to grow, I gotta run faster, I gotta run longer. No, that means that we need to put systems, we need to put processes in place and we need to focus on what, what it drops to the bottom line, what is left over at the end of the day when you're operating. We need to maximize our profits. That is a very different mindset than just generating revenues. So this is the second mind frame that we need to have in place. Income generation, profit optimization. The third mind frame, and this is where wealth building comes in, okay, is that we now need to look at things and say, how do I get into what I call asset diversification? What do I mean by that? Asset diversification to me is this. And we could call it income diversification just the same. But the fact of the matter is, is that too often, and this is one of the biggest mistakes and one of the biggest reasons I do the things that I'm doing today and why this show exists, it's why Apple's blueprint exists, it's why I go out and speak, is because I see one of the biggest mistakes that entrepreneurs are making today is that they are solely focused on their business. And I get it, your business is your baby. My business is my baby. It's always been my baby and it will continue to be my baby. But the problem is, is that if it is the only avenue, the only avenue for income generation, if it's the only avenue for my cash flow, if it's the only avenue for that, when that avenue gets shut down or I can't run any longer on the treadmill because I'm tired, because I'm old, because I have a health problem, because I just don't like it anym. More than what. See, too often we put our eggs in one basket and we sit back and say, well, this is what I'm going to do and I'm going to hit that home run and I'm going to look for an exit down the road. I've been part of many, many deals and many, many deals that didn't go through. So if your strategy is let me build it and exit down the road and it's the only strategy you have, I think that it's a mistake. Because what my job is and my desire is to give you peace of mind, to give you the opportunities that you need, but at the same time to give you some foundational elements should those opportunities not not happen because of no reason of yours. It could be because of health, it could be because of legislation. It could be because of a pandemic. It could be because of all whole host of things. Okay? So what we need to understand is that we need to use the profits from the company, some of the profits. That's why we need profit optimization to start building assets, to preserve the cash and to build wealth. Too often we come to business because we expect freedom, the business to give us freedom. It doesn't give us freedom. Then we realize the business is going to give us income. But what we really need is the business to give us cash flow. And through the cash flow, we build assets. And it's the assets that give us freedom. So hopefully you follow that. Okay? Businesses do not give you freedom. They give you cash flow. And it's what you do with the cash flow that gives you the freedom that you're actually looking for. And most entrepreneurs stop and they don't realize they got to do something with the cash flow. Something other than always reinvesting 100% every single dollar back into the business. And I know that you can look at me and we can argue till you're blue in the face that says, but, Mel, I can get a better return reinvesting in my business. Yes, you can. I bet you can. As long as the business can run. But what happens if it can't, for whatever reason, give you a for instance, a client of mine and happens to be Clif Bar, and at one point they had the peanut scare with Clif Bar. Not with Clif Bar, but just in general, the industry. And what did that do to that company? Now, Clif Bar has survived and has thrived. They've done an amazing, amazing job. However, understand that there are things outside of your control that could impact your business. The point being is that if your sole avenue, your sole pathway to wealth is through the business and only the business ever, then we may have a problem. So what we need to do is take the optimized profits that are coming out of the business and start acquiring assets. And we'll talk about the five incomes and that type of thing in another episode. But when you start acquiring assets, that's going to build wealth and create income that is separate and apart and not tied to the business. That's what asset diversification is. So if we do this right, here's a couple things that are going to happen is that when we get income generation right and profit optimization right, we end up in a situation where we create cash flow. Cash flow is the life's blood of your business. It is also the fuel and the funding of your assets and your wealth. And so we want to be able to take that cash flow and carve a little slice off and put it into a wealth fund. Okay, when we have profit optimization right, and we have asset diversification, right, in other words, we're using the profits and some of that cash flow that's coming out and we're building assets on the outside. Then these could be asset based income assets like real estate, equipment, leases, things like that. It could be residual assets where you're licensing or white labeling and doing things like that. Or it could be portfolio assets like stocks, bonds, ETFs, index funds. But you're doing something outside the business. You're creating a portfolio, a financial machine. That is what's going to give you net worth growth, net worth growth, investable net worth growth is what's going to give you the financial liberation you want. We'll talk more in detail about that. But I just want you to start to understand the, the fundamental core concepts. And when we have a pool of assets outside the business that are running and able to generate cash flow outside of you being on a treadmill and running it, that's where we end up with leveraged income. So you remember the idea of this is that leveraged income to me is where we leverage our time back. I get to buy my time back. And so these are the three mind frames that you need to have the ability to do. Now why do businesses fail? Because too often entrepreneurs are stuck in one or two of these mind frames. They don't have all of them. They are stuck in I'm sale, sale, sale, sale, sale. And they're in the income generation mind frame and they don't realize that they have to optimize their profits and build asset diversification. Or you've got some that actually have the income generation mind frame and they understand what comes into play. There's and they're building the profits, but they don't figure out the asset diversification. Now some of these mind frames can be in conflict with each other. Let's look at this income Generation, like I said, we take on a bit of risk. We're visionary, we're opportunistic, we're innovative, we're creative. Well, asset diversification. The job of the asset diversification mind frame is to build the assets, but to preserve the assets. So all of a sudden that mind frame says let's not take on, let's mitigate, let's reduce, let's eliminate the risks. Risk of loss, risk of bad decisions, risk of bad investments. So now you've, you can have these mind frames in direct conflict with each other. So it becomes this challenge for you as an entrepreneur, to truly be a wealthy entrepreneur of sitting back and saying, which mind frame? Which hat do I need to wear at the moment? Am I in the asset diversification part of the business or my life? See, you're a CEO of your business, but above that, you're the CEO of your legacy. And as a CEO of your legacy, you need to have a mind frame that understands all the characteristics necessary to have the income generation mind frame. You need to have all the characteristics that are necessary to have the profit optimization mind frame. And you need to have all the characteristics that are part of the asset diversification mindframe. And you need to know when to wear those hats. And most businesses fail because they get stuck. Entrepreneurs get stuck in one mind frame or two mind frames and they're not able to effectively transition between mind frames when appropriate. So hopefully this helps you understand the idea of why businesses fail. I mean, if we look at it like I said, 75% of businesses fail after 15 years, 50% within five years. So what's the deal? They don't have the right mind frame because everything starts with the mind frame and then the tactics and strategy around it. So here's the three questions I'm going to give to you as I'm closing this episode out. Here's what I'd like to know. First off, do you have a strategy to generate income effectively and is it working on a scale of 1 to 10? If on a scale of 1 to 10, your income generation mind frame and your strategy is, isn't at an a God on a low side, 7 to 10, we need to fix it, otherwise you become a statistic. Okay, now once we know that that's at a scale of 7, 8, 9 or 10, 8, 9 or 10, then do you have a process? Do you have a strategy in place and in play? Not a thought, but a strategy in place and in play to optimize the profits? Profit optimization to make sure that you're maximizing the cash flows that are coming from the operations of the business. Scale of 1 to 10? Tell me it's an 8, 9, or 10, please. Okay. And you can post them in comments. You can send me a dm. I'd love to hear from you on some of this because we need to optimize that cash flow. And then the third question I got for you is, are you being effective? How effective are you being in carving a piece of that cash flow off to create asset diversification? In other words, on a scale of 1 to 10, I want you to be at 8, 9, or 10, that you have a automated system that is taking specific elements of the profit to build wealth outside the business. And if not, let's get it fixed. All right? Because entrepreneurs serve a need and that need should generate a profit so we can serve and reach more that have that need, but at the same time, so you can build the wealth and the financial liberation you want. So you're no longer a treadmill entrepreneur, but an affluent entrepreneur. So I hope that this helped and I look forward to hearing from you and seeing you on the journey and hearing any questions you have. Do me a favor. DM me, Send me a note, let me know. What questions do you have about business, about wealth building, about money? Those things, let's get them answered. All right. In fact, do me a favor. We've got a private community called the Affluent Entrepreneur Community on Facebook. We'll put the link in the show notes. Join that community so we can have frank, honest, sane and savvy conversations around money, wealth and abundance so we can live an affluent life. Because that, to me, is our birthright. So I'll see you in the next episode of the Affluent Entrepreneur Show. Cheers. Bye. Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook Group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building youg Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people because I truly believe that financial freedom your birthright. And I want to help each and every one of you claim it. Thanks so much.