Today, I’m specifically going to talk about business. Now, if you’re not a business owner, just stay tuned, because this could apply to you, or at least you’ll learn a little bit more about the things that you should understand.
Often times, I’m very lucky that I get to see the insides of a lot of businesses. Now, I see them through two different lenses. I see them, one, with my clients. So my coaching clients, what I do is kind of more a business lifestyle coaching, so it’s a one year program where I do a deep dive with the business owner and we go over all their Five to Thrive on a weekly basis, and also long-term visioning. And part of that is I actually get to see inside their financials, and helping them strategize their business to help it grow.
The second lens that I see it through is as an investor. I’m able to invest in businesses, which I’m very fortunate for, and often times that investment is an exchange, as a role or a seat on their advisory board, and I’ll also look at the financial statement. When I look at their financial statement, oftentimes they’ll show, “Hey, look how profitable I am, Doug, I’m love for you to come in as an investor, and kind of act as an advisor or a coach, so to speak, and help us tweak some aspects and see how we can grow this business, and we’ll give you X percentage of the business.” But when I look at their PnL, or I look at what’s going on, and I look at maybe there are three or four business owners is the one I’m thinking of that I just recently talked to, and they’re profitable. They’re making over $300,000 a year. That’s fantastic, except for one problem.
There are four partners in this particular business, and none of them are receiving a paycheck. Okay. This is kind of common, in fact, it’s almost always common, but the problem is, is to replace two of the key members, they would have to bring in somebody at a salary that would be $150,000 a year minimum to replace those two key members, and that covers all their profit. Now, you have two other partners in there that aren’t getting paid that are hoping for some kind of payout, and now they’re willing to give me a large chunk of that business to come in as an advisor and help them grow and help them scale. That doesn’t equate. They’re in an area of what I call No Man’s Land. They need the investment, they need the intellectual capital, and they need what I can bring you with my marketing agency and then my coaching to help them scale their business to get to the next level. They’re at that gap. The problem is that they can’t afford it, and they can’t afford to pay somebody else.
Their dream, of course, as business owners, as most business owners are, is to turn a profit and also to be able to eventually step out, or have an exit of the business. But if they are actually to pay somebody, pay somebody a workable salary, or what we’d look at as a salary that most people would take to cover their spot, so whatever tasks that they do. Remember they have two key members in this business. So to pay somebody, it’s a minimum of $150,000 a year for the two key members. Now the other two, you could probably find somebody at a little bit lower rate, and they’re going to be listening to this, so no offense here, but they know this, but still they would be at a deficit right now, right? If you were actually to take that $300,000, reinvest it into the business by hiring in and replacing those four key workers, you’re in a deficit. You’re at a loss all of a sudden.
When I look at a business, and if you’re an employee and you look at a business, and you look at you’re in a business where your boss is just doing a ton of work, what would it cost to replace that key person, or that key personnel that’s part of the business. That’s what we want to look at as far as what we call No Man’s Land. No Man’s Land again is that point where you’ve built a business, you’ve done your sweat equity, and that’s amazing, and if you’ve done that I applaud you. I’ve been there, I totally understand what you’re going through. However, if you want to replace yourself, and truly be a profitable business, you should be able to at least pay yourself and replace yourself, or at least have the income that you could replace yourself, if you get sick, something happens, God forbid there’s an accident, something along those lines.
In that gap, that gap between start-up phase and then real profitable phase where you can bring in somebody else to come in as an advisor or a key position in your company, you’re in No Man’s Land. You’re in this little space where you really need to figure out how to make that profit, how to make that next turn. Maybe it is bringing in an advisor and then negotiating something with them. But figuring out what that is. Now, if you’re an employee, you want to look at your business or your boss’s business, and see if that’s in No Man’s Land too.
I would guess that almost every business I’ve ever looked at that has gone through the No Man’s Land phase hasn’t thought about it. They haven’t thought about the fact that they’re in a position where it looks profitable, it looks like they’re doing great, but actually when you pencil it out and you add in all the other factors, the sweat equity, and you replace those key people, they’re actually in debt, and they’re actually not profitable at all. This isn’t to despair them because there’s a way around that. You have to come up with an actionable plan to get out of No Man’s Land.
That’s it for me today. Just a quick business tip, something I see all the time, and I hope you don’t get into … Well, I hope you do get into No Man’s Land, recognize it, and then get out. The key to everything, of course, is just recognizing these aspects of it. Again, if you’re an employee and your boss is in there, if you have that kind of relationship, sit them down and talk to them about it, and look at what that is, because not that anybody personally is replaceable, but you need to make sure that a business is able to sustain income revenue in case something happens to somebody, and therefore I can pay the rest of their employees, their staffs, and everybody can have a nice livelihood, and of course be the author of their own story.
Have a great day, and remember, share this with at least three people that you know. Build your tribe. Start the conversation. I love to talk to you about it more in the Author of Your Own Story group, and that’s it for today. Have a great day, and remember, go out and be the author of your own story.
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