Why Most Startups Fail — and How to Avoid It

Speaker A00:00:32

Running a business isn't easy. It's long hours, tough calls and relentless pressure. No shortcuts, no handouts. Just grit, grind and the will to keep going when most would quit.Welcome to Grit and Growth Business, the show for entrepreneurs who know success is built the hard way. Hosted by Ralph Estep Jr. A seasoned business coach, accountant and fellow fighter in the trenches.Each episode brings you real talk, proven strategies, and the unfiltered truth about what it really takes to build something that lasts. Because if you've got persistence, perseverance and determination, this is the place for you. This is Grit and Growth business. Hello, friends.Welcome back to Grit and Growth Business Live. We skipped a couple weeks, but I'm happy to hear you or see you back here today. My name is Ralph Estep Jr. If you don't know me, and I've spent over three decades in the trenches with small business owners, helping them go from overwhelmed to unstoppable. And every week when I do this show, my goal is to help you take that small business yours and really take it to the next level.And tonight I want to talk specifically about why most startups fail.Now, that could, I could just end there and say, okay, here's what we're going to talk about tonight, but I want to talk about how you can avoid becoming one of them. Because it's one thing to say, well, Ralph, I'm not going to make this work. It's another if you've got the tools to make it work.And this show every week is about real stories. It's about real grit and real growth. I'm not talking about buzzwords or fancy jargon or fluff.I'm just going to tell you about what really works when you're building something from nothing. And if you're a small business owner, a lot of times, man, it's the bleeding edge, as they say. I'm going to introduce something right away.We just launched this. It's called a Patreon community, but we have what's called our Grit and growth business community. I want to encourage you right now to join it.You could be one of the founding. It's absolutely free.There are some added features if you want to do some sponsorship of the show, but the easiest way to get to it is if you go to gritandgrowthbusiness.com join. I'll give you that again and it'll be in the show notes. But it's gritandgrowthbusiness.com join.And the reason I want to send you there, we do an Action sheet for every episode. And tonight's action sheet will be in that private group. Again, it's@gritandgrowthbusiness.com join, so make sure you check it out.All right, well, let's get into it tonight. Here's the reality, and it's a sad reality when you think about it.Half of all startups, half of these people who are starting a new business never make it to their fifth birthday. Now that would be depressing enough. You're like, ralph, wait a second, they're not even making it to their fifth birthday.Well, here's the sadder part. Most people don't even reach their second birthday. They didn't get to that terrible toddler stage.And a lot of people say, well, Ralph, that's just because they're not hard working people. But let me just tell you right now, you might think that's the reason, that it's somehow lack of hard work.But let me just tell you right now, I've been doing this for 30 years and I've seen plenty of hardworking people close their door. It wasn't about the effort they put in. It wasn't about their ability to work hard. Truth is, hard work by itself doesn't build a business.I wish it was that easy. I wish I could say to you, hey, go work your butt off and it'll all work out. But it doesn't work like that.What does work is clarity, understanding what you're doing. I'm gonna talk about that on tonight's show.Another thing you've got to understand, I've talked about this several times on the show and that's cash flow and finally the big C3. The third thing here is consistency. So again, clarity, cash flow and consistency.So tonight on the show, I'm going to unpack the three core reasons why, in my view, some startups fail. And I'm going to share with you some examples of owners who I've worked with over the years who have turned it around.I'm going to give you some great ideas of how to actually make it turn. And then we're going to end the show with five questions that I pulled from people that have asked me questions over the last couple weeks.I do, I have an accounting practice and I get a lot of questions in on our Facebook page.We're not really launched much on the grit and growth private community, but that's where I really want to encourage you to go because you can put your questions right there and actually I'll interact with you directly. But I want to really help you build smarter, not just harder. Because here's the truth.If you're starting or scaling a business, you're going to see yourself somewhere in these stories we're going to talk about tonight.And to be honest with you, the difference between those who make it, I mean, talking about over getting past that fifth birthday, as they say, and those who don't often comes down to one thing. What is that one thing? In my personal view, clarity and execution.So I'm going to encourage you grab a notebook because that could save you years and thousands of dollars of frustration. Or again, you can go to our community. That's@gritandgrowthbusiness.com join and you'll be able to get our action sheet. Let's jump right into it.Why do most startups fail? Number one thing, big takeaway from tonight. Most startups fail because they've got no clear financial plan.I'm going to say something rather bold here. Most founders, most small business entrepreneurs, have a product. They got a great product, in fact. But the problem is they don't have a plan.And you'd be shocked at how many business owners can't answer this simple question. And I stirred up a client a couple weeks ago and I asked them this question. I said, how much do you actually make per hour?And he said, what do you mean, Ralph? He said, I'm a little confused by what I said, no, listen, I'm looking at your financials and I want you to really think about it for a second.I'm looking at your bottom line. How much your business has made this year. How much do you actually make per hour? Because that's the real big key takeaway here.Because in many cases, I just did this with a client not too long ago. And I said to him, okay, I'm looking at your financial statement. Year to date, you've shown a $30,000 profit. Now he's unable to pay himself a salary.He's just getting started. And I said, how many hours a week are you working? And he said, ralph, I gotta be honest with you.Most of the time I'm working 60, 70, 80 hours a week. And I said, okay, well, here's a problem then. Multiply that times 52 weeks.Divide that by how much income you have, and guess what, you're not even making minimum wage. And that's the thing. You really got to understand it. What is the financial plan? Do you have enough to sustain yourself?It reminds me of this contractor I work with named Tom. Now, Tom was great with his Tools. I mean, he was an artist. I mean, he could build beautiful stuff.But like a lot of small business people, he was terrible at tracking his stuff. He had no idea. So he came in during tax season and he's actually the guy I'm talking about right now.We ran his numbers and when I, when I said to him, I said, look, I said, here's how much you've shown in income year to date and here's how many hours you're telling me you're put in. He realized at that point he was making less than minimum wage. And all it took was one simple cash flow system.And we figured out, okay, he had some leaks going on. He wasn't understanding the, where the money was going. He had no idea. So we put together a simple cash flow system.And let me just tell you right now, within six months, working with me, we set him up as what we call a monthly client where we, we started looking at his details of his information on a month to month basis so we can help him make better decisions. Within six months, he doubled that bottom line income. It was no longer working for minimum wage.And here's the thing I want you to understand I'm going to have some key takeaways as we go through this tonight. First key takeaway is you don't need fancy software. A lot of people will try to sell you on the greatest software in this coaching program.And all that, to me, that's all nonsense. You just need a simple one page budget. But you got to understand your numbers because if you don't measure it, you can't manage it.And that was Tom's problem. He didn't know how to measure it, so he wasn't able to manage it.And because here's the problem, most small businesses, like I said, I've been doing this for 30 years. Most small business people run their business by the balance in the bank.Client will say to me all the time, Ralph, I must be doing pretty well because the balance in my bank account continues to grow. And I'm like, okay, well that's one way to look at it.But then I'll have another client, I'll say, look, you're showing a pretty good profit this year. Like, wait a minute, Ralph, how's that possible? I don't have any money to show for it. The problem is they don't get well.Yeah, but you've paid down on your debt. You've made those car payments or those truck payments, those equipment payments. And when you live in that, that right there is A recipe for chaos.You don't want to live in chaos because your business is never going to thrive. Your business isn't going to meet that two year birthday or that five year birthday if it's constantly in chaos. Because here's the key takeaway.Clarity with money gives you control. And when you can finally control something, that's when you can actually live in peace.So here's my big takeaway number one, if you don't know your numbers, they're gonna know you. So that's the thing. It starts with a clear financial plan.And those people who don't make it, those businesses that fail, oftentimes it's because they don't have a clear financial plan and they're not tracking their numbers. Second big thing, no market validation. What are you talking about? Ralph give you an example.I had this client and I'm using fictitious names intentionally. I don't want to hurt anybody's feelings, but I had this client, Sarah.Now, Sarah didn't make homemade candles, but let's just say for today's disc or tonight's discussion, she made homemade cand. And Sarah came to me. She had spent $10,000 on branding. She wanted to build these beautiful candles with these elaborate boxes and beautiful jars.Kind of looked like the Yankee candles had the nice top and a big fat wick in there. But she had spent $10,000 on this branding campaign, making sure it was the perfect brand, had the perfect box and the perfect jar.But here's the problem. She did that without talking to a single potential customer. She just figured, oh, you know, it's like that old adage, if I make it, they will come.If I build it, they will come. And she had this great grandiose idea. This was going to set the candle economy on its end. Everybody's going to want her candles.But she hadn't talked to a single customer. And here's the problem. When she finally did to talk to somebody, she learned that wasn't what they wanted at all.People could care less about the packaging. What they wanted was seasonal candles.They wanted, like when you go into the Yankee candle store, man, they, you go in there, you got all kinds of smells all around you. But those things change with the seasons. They weren't looking for luxury packing, they were looking for seasonal refills.They were looking for candles that, that, that set a tone for the season. You were getting ready to get in to Christmas time.They wanted candles that set that Christmas feeling or that, you know, that holly or that, that evergreen feeling. Because here's the problem. A lot of small business people do. They fall in love with their idea. But see, that's not the right way to do that.Your idea might be great for you, but if it doesn't connect with your customers, it's never going to work and your business is not going to make it. So don't fall in love with your idea. Fall in love with your customer.Because at the end of the day, your business will succeed if your customer has a product they're willing to buy. It's really that simple. It's no more complicated than that.You don't need a $20,000 coaching program to, to to understand that your customers need to fall in love with your product. And like I said earlier, most startups don't fail because they, they lack effort. This particular client, she had a ton of effort.Beautiful box, beautiful candle, whole thing was great. But she built the wrong thing. She didn't build what the customer wanted, she built it beautifully. It was fantastic. It was beautiful.But it was the wrong thing. Because if your audience won't open up their wallet, they're just being polite, but they're not being supportive.So that's why I say this big first, second thing. The best validation is a paid pre order. Understand what you're getting to. So here's a key takeaway here.As you're thinking about getting into business, whether that be a product or a service or whatever that looks like for you, talk to 10 people before you even spend a dollar. Yes, it's going to be uncomfortable. You're going to have to go out there and meet with people and say, hey, I've got this grandiose idea.What do you think of it? And listen, have some thick skin, be prepared. They might say to you, ralph, that's a terrible idea. Nobody would buy that.But what they might do is give you some ideas and, you know, maybe you've got a great product. Well, pre sell them. When I say, listen, I'm getting ready to take this to market. Are you interested in buying?You want to be one of the founding buyers of this? Take a survey, understand what their pain points are, what are you trying to provide them with?What are the things, what are the key takeaways they want? And by all means, test it before you go. Spend $10,000 on packaging or branding. Test it, because if no one's paying, it's not validated.And see, a lot of people say, well, Ralph, I just start a focus group. But see, here's the thing. Validation doesn't mean a Focus group. It means reality testing with your assumptions. Does it work?Are people going to pay you for it? And here's the truth. That one step can save you $10,000 and $10,000 in mistakes. So that's the second thing.Understand your market, understand your customer. And rather than having them fall in love with your product, have them fall in love with the solution. Number three thing. Number three thing.I really, truly believe this. I've seen this happen so many times. A reason businesses fail is burnout. Or I'll add to that the lack of boundaries.I'm going to tell you about James now. James was a landscaper that I've been working with for years. And James was this guy, man. He was a people pleaser. He said yes to every single client.He, it didn't matter what was going on, didn't matter what time of day it was, on the weekends, man, if he was able to, you were able to get him on his phone. He was there every single request.But the problem is James didn't realize, you know, he had eagerness, he was a hard working guy and he wanted to meet the need of every single person. But before long, like a lot of small business people, he got burned out. And worse than that, he got bitter.I did a show a few weeks ago about when you hate your business. Well, let me just say right now, James hated his business. He couldn't stand it. He said, ralph, I have no margin, I have no free time.My wife and my kids, they don't even recognize me anymore, man. The customers love me, of course, because every time they call Ralph, I'm there. There's no delay, I'm right there with it.But it led to burnout, it led to bitterness, and he started to hate his business. So we sat down, we said, okay, what can we do to make this better? He says, ralph, I need some time, I need some margins. I said, well, let's do this.Can we schedule you to work four day work weeks? He goes, ralph, wait a second, how am I ever going to do that? I said, well, it takes a system, right? See, that's the thing. You got to have a system.I said, the other thing is you're getting every, every, every job you go to, they're saying yes. Well, guess what? If you're in business and every single person is saying yes to your product, I'm gonna tell you a little secret.You're probably not pricing it.Well, not every single person should take the bait, you know, because if you're fishing on a pond, right, and Every time you drop the line and a fish just jumps on there, well, guess what? You got really attractive bait. Well, the same thing works for your business.If every single person you talk to is saying, oh, yeah, Ralph, I can't, I can't live without that product. I gotta have that, I gotta have it right now. You maybe need to increase your prices a little bit.And as you increase your prices, what does that lead to? Better margins. Simple accounting term, you're making more money. And that's what we did with James. I said, cut your schedule back.If you're running yourself ragged, start charging me. He's like, ralph, I don't know if I could do that. I'm afraid I might lose some opportunities.I said, guess what, James, you're going to lose opportunities. And that's a good thing. I don't want. Every time you go out to meet with somebody, I don't want him saying, okay, can you start tomorrow?James, there needs to be some pushback. And he kind of half heartedly took my advice.And I remember over the next few months working together, he said, ralph, I'm starting to do what you said. He says, I can't believe it. People are taking the price.He says, ralph, I got so much business right now, I'm just telling people twice what I would usually charge. And guess what, Ralph, they're signing up to do it. And he finally started to earn what he was worth. And what was the key takeaway there?Busy doesn't equal productive. I've met so many people, small business owners, that said, well, Ralph, I'm super busy, I got to be productive. It doesn't always work that way.I've seen some super busy, what they will call productive people end up broken and end up in bankruptcy. Because when you live like that, I'll say something fancy. Your calendar owns you. Your business owns you as well.See, if you're saying yes to everything, if you're saying yes to every customer, you're saying no to other things.Those other things could be your wife, your husband, maybe if you're a female business owner, or your children, or the hobbies that you used to have before you got started in the business. Because I'm going to tell you something right now.To be an effective small business person and to survive that second, third, fourth, 15th year, saying no is one of the most profitable skills that you can learn. And you got to learn how to say it correctly.There's a tactfulness to this, there's a, an art to it, there's a finesse to it, because you have to recognize something, and you have to recognize this early. You will burn yourself out. Your energy is a business asset, just like your equipment, Just like your cash.You've got to protect it just like it's cash, because you can't grow what's draining you. Your business will never continue to expand if it just continues to drain you.So let me ask you a question right now, as you're listening to this, or maybe you're watching this on YouTube or rumble, which of these three hits home for you? As I went through those, what are those things that really hit home with you? Was it that idea that you didn't have that.That financial plan, that no clear financial plan to start with? You might be saying, ralph, yeah, that's exactly where I'm. I didn't have that plan. Listen, it's not too late to get back to that.You can go and fix that problem before it's too late. Don't continue on the conveyor belt if you're not going to fix it. Maybe for you, it's like, you know what? I never did that market validation.First, maybe I got to go back and ask some questions about what is my service. It's okay to say to your clients, listen. Or your customers, what could I do to serve you better?When I coach people, I say, here's what you want to find out from your clients, your customers, what is the pain point they're feeling, and what is the solution that only you can provide? Well, in order to do that, you got to ask some questions. So if you didn't do that market validation, yeah, it's going to be tough.You're going to have to go back and start over again. But it's so important you do that because like I said, the third thing is burnout and lack of boundaries.Because if you don't set those boundaries, if you don't protect your energy, you're going to end up broke, you're going to end up hating your business, you're going to resent your business. I've seen so many small business clients that say to Ralph, I would do great with business if it wasn't for the customer. I say, wait a minute.If you didn't have customers, guess what? You wouldn't have a business. So protect that energy, protect that asset. Protect it like it's cash. Think about it. In cash, right?If you've got cash, you protect that. You put it in a safe, you put it in a locked drawer. We got to put your energy the same way it's your biggest business asset.So ask yourself what hits home. Now, let's get into five questions that I assembled for tonight, which kind of get back to the main people, main things that we were talking about.Let me get right to this. The first one comes to us first from Sarah. Sarah comes to us from Columbus, Ohio, and she wrote this.She said, ralph, how do I know if my business idea is good before I start to invest my savings? Great point. Kinda like I talked about earlier. I had a client, her name was Becky. Now, Becky was a photographer, and Becky did beautiful pictures.But Becky spent thousands.And listen, it's not hard to spend thousands of dollars on gear for photography, but she spent thousands of dollars on gear before even testing the demand. She just went out there and bought it. But what she kind of finally was able to realize is that this needed validation.Now, in her case, she was able to do that. She was able to go book five mini sessions. And she said, well, Ralph, this is working. People are interested in this. It validated her idea instantly.But here's the thing I want you to. And Sarah, I'm answering your question directly. How do I know if my idea is good before I invest my savings?Validate it, like we talked about a little while ago. Ask people. Go talk to 10 different people. Ask them, show them what your product is, show them what your service is.Because let me tell you right now, Sarah, validation is cheaper than recovery. Because I've dealt with a lot of businesses where they didn't validate.And now we got to go recover, we got to pivot, we got to make some major changes, and that's harder to do. If you do it ahead of time, it's a lot easier.Another thing I'm going to encourage you to do, Sarah, as you're going through this, ask for commitment, not compliments. Because here's a little truth right when you tell somebody that, oh, I've got this great idea, who are you going to talk to?You're going to talk to your family, you're going to talk to your friends. Maybe you're going to talk to some other customers. Well, guess what? They're not going to knock you down.They're not going to say, oh, that's a horrible idea, Sarah. What are you crazy? No, they're going to compliment you, but compliments aren't going to put money in your pocket.Compliments aren't going to build revenue. Ask for a commitment to say, listen, if I launch this product, can I, can I count on you to be a purchaser?Of that, if I launch this service, would you use this service? You can say, hey, thank you for the compliment, but be honest with me. Show me a little love. Is this really something that's going to work?I don't know how many times I've dealt with clients, oh, my mom said this is a great business idea. Well, of course your mom said it was a big, a great business idea. Your mom's not gonna smash, smash your dreams. Maybe she will depend upon your mom.But I'm just saying, like, most people be like, oh yeah, it's a great idea. They're not gonna buy it. But I'll say it's a great idea. Because here's the truth. A paying customer beats a thousand social likes.I did a show about that not too long ago. People are in search of these social likes. Oh, I've got so many followers on TikTok or Instagram or whatever those things are.But are they paying you anything? Big deal. So here's the action step, Sarah. Number one, validate before investing. Number two, pre sell or gauge real interest.I'm talking about people who are ready to sign the bottom line and look for excitement. That's what you really want to find. Not just people who are polite. There's a lot of nice, polite people out there.But look for that person that's truly excited by the service, truly excited by the product. Say, that's the person that I wanted tap into. Because there's a market there. You don't need just politeness.So let me ask you right now, as you're watching or listen to this, have you tested your idea yet? If you haven't, it's not too late to do that if you're thinking about going into business.And I love your, your question, Sarah, before you invest your savings, understand the plan. Well, let's move on to our second question, and this one comes to us from Marcus from Tampa, Florida. And Marcus wrote me this.He said, when should I leave my full time job and go all in? Ralph, this is a question I get all the time. A lot of people are testing the waters. You know, they're, they're at the beach, right?The water looks a little cold, they're not sure, so they put their feet in, they see what it feels like. And Marcus, that's exactly what you're asking me here.You've got a full time job, you've got something that's paying your bills, hopefully it has good benefits, all that sort of thing. And you're saying, well, wait a minute, Ralph, but man, I've heard this. I want to be in business for myself.How do I know when it's time to go all in? And I can only tell you from experience. I've had many clients over the years who jumped in too early. They weren't quite ready.It wasn't, as I say, not ready for prime time, if you will. I remember one particular guy named Rob. Now he was a coaching client and he jumped in face first. Me, he was like, I'm doing this Ralph.I am tired of my 9 to 5. He went to his boss, said I quit, I'm starting my own business. And the momentum kept him going for a little while.But then of course he started to run out of money. He started to run out of patience because he hadn't built the plans that we talked about that will make him successful.He jumped in too early and he paid for it. He ran up his credit cards, he had to get a home equity loan, all those type of things.And in his case, he actually ended up going back to work in his 9 to 5 job. And I forget, he was so, he was so crushed by that. He said, Ralph, because he came in and get his taxes done the following year.And I said, how's the business going? He said, I don't want to talk about that. And I felt bad for the guy because like he's a hard working dude.Like he, he really had the skills to do something. He just didn't want to put the time and invest in the plan that he needed to do.And I said, well listen Rob, don't give up on your dreams, dude, you can still do this. I said, why don't we do this after tax season, schedule a consultation with me. Come let's sit down and let's start to sketch out a plan.And he says, okay Ralph. And begrudgingly I think he's like, okay, maybe I'll try again. Well, he ended up coming in the middle of the summer, it's been a couple years ago.And we sat down, we built a plan. I said, Rob, here's the first thing I want you to do to make this viable. And Marcus, this is really going to answer your question.Build up a six month reserve.So build up a reserve of money so that if you don't make a single dime, you're not going to go homeless, you're not going to go without money, without food, without shelter, all those type of things, without insurance. Build up that six month reserve and start to build that lead system.And here's the thing, a lot of you know, quote, gurus won't tell you, sometimes you got to be a little uncomfortable at first. It might mean, hey, I'm working my nine to five and then I'm working six to midnight.Because you see a goal, you see something at the end of that when you really build that plan ahead of time. So.So Marcus, my answer to you is, once you build at that reserve, once you have that pipeline, and honestly, Marcus, once you're working two jobs, to be blunt, figure it out.Because there will come a time, if it's a viable thing, there will come a time when you can quit that full time job and you'll be right in your own business. Because so many people trade their paycheck for pressure. For pressure. So I mean, trip my words up there, but so many people do that.They trade that paycheck like, I'm tired of working for somebody, Ralph. I'm going to work for myself. And the problem is it just leads to pressure. But that's not what I want you to do.Don't trade it for pressure, trade it for a plan. There is a way to make this work. We just have to build a plan. Because true entrepreneurship, that's what we're really talking about here.Entrepreneurship, being out on your own, rewards patience. It doesn't just reward hard work, it certainly doesn't reward panic, but it does reward patience and having a plan.Because freedom feels better when it's funded. When you have that six month cushion, a lot of people say that's a lot of money to save up for it. Yeah, it is.Because you might have a great idea, you might have a great business plan, but guess what? It takes time to get those things off the ground. So here's my action steps, Marcus. Leave on evidence, not emotion.It's so easy to get tied up in the emotion. Well, five people. Ralph told me this is a great idea and I've already got people lined up. That's great. I know a particular guy does car detailing.He does car detailing on the evenings and the weekends. He keeps his full time job because he doesn't want to take that risk. He doesn't want to go out there because he sees some evidence, but not enough.He sees the emotion. Look, I don't want to have to go work every day in the typical, you know, the job of I can't get away from it. So lean on evidence, not emotion.Save six to 12 months of expenses. No. And I just jumped the 12 months. But yeah, because here's the thing, the first year in a business is not easy.And then final thing, build that proof of concept first. Understand what you're getting into. And let me ask you right now, who else feels that tension between safety and freedom? I get it.I was very much in that situation myself. I remember about, it's been 25 years ago now. I decided I'm going to go off on my own, start my own accounting practice. I had a wife, two young kids.I was in a situation where I was not enjoying myself anymore. And I said, I'm going to go do this thing. And I leaped into it. Now, looking back at it, it worked out. I guess you could say God was with me.But man, it was a lot of emotion. And it probably could have been more evidence and I certainly could have saved more money to get there.I had the concept because I went from accounting work to accounting work. So I knew what I was getting into it, man, I didn't really build that buffer.If you found yourself in that same position, if you're thinking about quitting your full time job, build that buffer first. If you want to listen to anything else Ralph says tonight, talking in the third person like, I've lost my mind.But the truth is, if you want to do this, build up that buffer 6 to 12 months because you don't want to be in that panic situation. I've seen way too many small business clients end up in that panic situation.They've got a great idea, they've got great emotion for it, but have that plan. Well, let's move on to our third question. And our third question comes from Priya from Austin, Texas. And Priya says this, Ralph, I'm overwhelmed.Marketing, bookkeeping, operations. Where do I even start? Yeah, see, that's the problem. And Priya, thank you so much for your question because you might have a great idea.We just talked about that. There's evidence, okay? This is going to work. It's not just emotion.And maybe you've saved up the money, you've built that proof of concept, but now you're like, wait a second, Ralph. No, I got to do the work. I got to keep track of the work. I got to market the work. I'm not a marketing person. I have no idea what I'm doing here.I'm not a bookkeeper. I don't know what I'm going to do here. Not to mention the operation side of this. Yeah, I can twist the rancher.I can do whatever that looks like for you. But Ralph, I'm overwhelmed because they don't even know where to start. And that Is a huge problem.It's one of the reasons I see small businesses fail. Let me tell you about Jessica. Now, Jessica ran a bakery, and, man, she made some stuff. It was fantastic.I'm talking about stuff that, As a type 2 diabetic stuff, I shouldn't be eating. But she tried to do it all. And that's another problem and a little pet peeve I'm going to take a rant on for a second.A lot of small business people are just focused on Ralph. I can do it all. I don't need any help. I can do this all myself. But the problem is that leads to burnout, that leads to resentment.It also leads to not being able to do a very good job with it, because you can't possibly do it all. There's a couple businesses you might be able to, but generally a small business person, you're not going to do it all. So we sat down together.We focused on cash flow, we focused on production. And I said, wait a second, we need to look at, you know, can you hire some people? Can you start to delegate?Now, she was a controlling person, but that was. She needed to build some systems. See, a lot of people go into this. You know, they hired our first employee, but they don't have any system built.We had to understand what the systems were. We had to understand what the cash flow needs would be. We had to understand what that production cycle would look like.And when we did, we finally put it to paper. We started to build a plan. Took several months, but she was able to actually raise her revenue dollars.She doubled her money, and she cut her stress in it because she wasn't trying to do the marketing. And she actually hired me to do the bookkeeping work. Best decision she ever made. Of course I'm biased, but I helped her.So you have to go find people that will accentuate the skills that you have. I'm not a baker, but she is a great baker. Well, I'm a good accountant is what I do. I stay in my lane. I can really help people with that.But it also cut her stress in half. See, you can do anything. I really believe that with all my heart. You can do any. You can do anything, but you can't do everything.You know, it kind of cracks me up sometimes a potential business kind of come in and say, ralph, you know, I do my own accounting, I do my own marketing, I do my own. And I was like, yeah, you're doing your own craziness. Because at some point, if you really want to, now you can keep it small.But if you want to scale that business, you're going to have to accept that you've got to surround yourself with better people, with different people.When I meet with a new business client, first thing I say to them, have a good accountant, have a good attorney, have a good insurance salesman, and have a good banking relationship. Because that is the dream team.That's the team of people you need to surround yourself with if you really want to be successful and not be in the statistic that we talked about earlier. If you want to get past that second birthday and that third birthday and that fourth, and heaven forbid you get past that fifth birthday.The people who make it past there have built systems. They've realized that they can do anything, but they can't do everything. They've had to surround themselves with qualified people.Another thing I'm going to say right now is understand the cash flow. Because if you don't understand the cash flow, you're gonna get struggling. That's the number one killer.I talked about that on the show a couple weeks ago. The number one killer of small businesses is cash flow. Because.And that's why I said, you gotta have that 6 to month, 6 to 12 month buffer because you're going to have a cash flow crunch. But hear me on this. Delegate what drains you and double down on what you do really well. So, Priya, my big takeaways for your question.If you're overwhelmed. Where do I start? Focus on cash flow. Understand your numbers. If you don't understand your numbers, you're going to struggle.Then automate or delegate the rest of that and give yourself a little grace. Because progress beats perfection. A lot of small business people get stuck on, well, Ralph, I've got to be perfect.You're not going to be perfect, but you can make progress. You can build towards an end in mind. Well, let's get on to our next question. This is our fourth question from David from Detroit.And David says this here, David says, I don't know how to price my services. Let me just tell you right now, I hear this all the time from small business clients. They give away the story.Talked about that a little bit earlier, but he says this. I don't know how to price my services. I feel guilty charging what I'm worth. Yeah, I hear that constantly.And that's a big struggle for a lot of small business people. They're like, ralph, you know, I just, it just, it doesn't cost me this much to do it. And I feel bad for these people.You Know, what should I do, Ralph? You know, I deserve more. Like the client I talked about at the beginning. I said, do you want to earn minimum wage the rest of your life?He's like, no, that sucks. I could go work at Home Depot and make more money. I said, exactly. So how do we fix it?Well, one of the ways you fix it is you've got to understand your pricing. And I work with this guy Mark. Now, Mark's a plumber, and Mark was a great plumber. I mean, he could do some plumbing work. It was fantastic.If there was a leak, he'd find it, he'd fix it. But he was also the cheapest guy.When I needed some plumbing work done, I called Mark because, listen, Mark's prices were half of what everybody else's. But the problem was, Mark never looked at that. He always said, well, Ralph, I get every client because they're like, oh, man.I called this other guy in Ralph, and the prices he wanted to charge me were outrageous. But I give him a good deal. He had a soft spot for people, but he didn't have a soft spot for himself. And he was book solid.He got to the point where he was a great technician, but he couldn't grow his business because he was locked into it. He wasn't making enough profit to hire somebody. So I said to Mark, I said, we got to figure something out here, my friend. He said, what should we do?I said, well, first of all, if your book's solid, you're not charged enough. I said, raise your rates. I said, let's do some market analysis. I call three or four plumbers and list the main things that you do as a plumber.Is it, you know, maybe we're fixing pipes, we're replacing hot water heaters, all those type of things. I said, call a bunch of different places. Have your wife call, have your sister call, have somebody call and get some prices from other people.And he goes, ralph, that sounds like a really good idea. Well, he did it. He says, ralph, I was shocked. He said, I can't believe what other people are charging. He says, I'm giving away the store.I said, exactly, Mark. And I said, people are taking advantage of that. Yes, you do great work, and they appreciate the work you do, but they don't appreciate you, Mark.You're not getting what you're entitled to. You're not getting what you deserve. So with him, we raised this price. We added a warrant.I said, one of the big key takeaways, Mark, you said to me, is, your customers love you, because it's a job done right the first time. I said, well, then here's what you do. Find out what the market's doing for a warranty because, well, most people warrant one year.I said, warrant two years, warrant three years. Mark, you're doing the work. You know the capability that you have, you know the craftsmanship you have. I said, throw in a three year warranty.He's like, well, that's a great idea. I said, because it's not going to cost you anything. You might have an occasional call back.I said, but if you're the one doing the work, you're going to be fine. Because here's the thing, big takeaway here.If you compete on price, so many small business people compete on price, you're gonna lose because someone's always gonna be willing to go broke faster than you. It's a funny way of saying it, what I call the race for the bottom person working out of the back of their car with a toolbox.You're always gonna lose to somebody because they're always gonna undercut you a little bit. If that's the goal, if that's the game you want to play, man, you better hope you do a lot of volume because you are gonna drive yourself crazy.Second piece to this, David, you gotta have confidence in your brand. Have confidence in yourself because your price reflects it. Your price reflects. You say, I'm guilty of charging what I'm worth.So, David, in your own mind, you have an idea what you're worth, but where's the disconnect? Why aren't you able to do that? Have confidence in that. Have confidence in your brand. Because here's a little dirty little secret.Your pricing tells the market how to value your expertise. Because guess what? Your customers are calling several other people. And I'll tell you about Mark.So Mark is a good plumber, but people were calling other people and they would always go back to Mark and say, oh, he's the cheapest guy on the block. He can't be the best. And he was always be shocked because he did a good job with it. But your pricing tells the market how to value your expertise.So here's my action steps, David, for you tonight to be effective. And everybody else is listening. Price from confidence, not fear. A lot of people price from fear.Well, if I don't price it low enough, Ralph, I'm not going to get the job and then I'm not going to make the car payment. My wife's going to be upset with me. I'm not going to be able to make a mortgage payment. I can't feed myself. You're pricing from fear then.But you got to praise some confidence. Know what your market is. Know what your competition is charging. Understand your market.Add some value, added things into it, like the warranty we talked about. That's the first thing. Praise some confidence, but know your true costs.A lot of small business people, especially in the trade industries or service industries, they have no idea what their true costs are. I'll say to them, hey, what does it cost you every day to put your truck on the road? I don't know, Ralph. How would I know that?Well, you got to know that. It's something you got to understand because when you go to get that job, you've got to factor into that. What does it cost to drive there?What are your overhead costs? What is your insurance costs? What are the cost of your tools? Do you have a person answering the phone for you? Do you have a laborer?Do you have a person to come along and help you? You got to understand your costs. So price from confidence, not from fear. Know your cost and listen. Don't race to the bottom.A lot of people catch themselves doing it, man. That is not a race you want to win. You don't want to be the lowest price in the market.You're going to get yourself burned out and you're going to go broke because the cash flow does not work when you're racing for the bottom. So, David, I truly hope that helped you tonight. Well, let's move on to our fifth and final question.And this one comes to Lisa, actually from not too far away from here in Wilmington, Delaware. I'm actually in Middletown, Delaware, about 40 minutes south of Wilmington. But Lisa sent this question.She said, how do I know when it's time to hire my first employee? Now, Lisa, I'm going to tell you something. You can go back and look in the archive. I did a show about that, how to hire your first employee.And I also did one about your first five employees and what you need to know about. Let's cover that tonight because this is a very common question.Having been in practice for a long time, I hear this question all the time because a lot of people are like, you know what, Ralph? I'm getting burned out, man. I can't do all this myself. They've recognized that.They recognize that I can only grow my business so much until I hire somebody. And so many people wait till it's too late, wait till they're completely exhausted. They've lost all the passion for the business.They've lost any sense of being able to make it work. And when you get to that point, the problem is you talked about fear a few minutes ago.But it's also, you can end up hiring out of panic because you're like, man, I'm getting sick. I can't do all this work. But don't end up doing there. You know, I'm working with somebody right now, and they've hired their first employee.But the problem is they didn't take the time to really build a system around that employee. So the employee shows up at the place to work, and the employee looks at the other person, says, well, you know, what do I do?My client's like, oh, good question. You know, I guess we're going to figure out this out together. Well, that's a bad plan. You got to build the system first.So, Lisa, first thing I'm going to tell you is build the system. What does this look like? What does this employee do? What are the tasks that you're going to assign to this employee? What are the skills they need?What are the tools they're going to need? Do they need a computer? Do they need a telephone? What are the skills they need to have in order to be effective in the job?Because you, before you cast somebody, you better understand the skills they need to be effective in their job. Because if not, you're going to hire the wrong person because you didn't have a system in place.Because when you hire the right person and you're working in the right system, you can easily increase your revenue. It's not a big deal. Because here's what you want to remember. You want to hire for growth, not for relief.So many people I've worked with hire for relief. Man, I'm working 80 hours a week, Ralph. I got to hire somebody to get some relief. That's not a good plan.And it's going to end up not working in your business. You're going to sink your business by doing that. If you're just hiring for relief, hear me on this. It's not going to work. Hire for growth.Because when you hire for growth, and I talked about this on the show a couple weeks ago, you'll understand what this person's bringing to the table. What are the skills they're going to bring? What is this going to allow you to do? What will it give you the ability to do? More of.Like, I'm working with a plumber client right now. He's hired another plumber. Why? Because he realized there's only so many hours in a day.He can only bill out so many billable hours in a day before he runs out of time. So he says, ralph, I'm going to put another truck on the road. I'm going to put another plumber in the truck.Because he says, I've got a pipeline of business coming in. I can feed him business. And I'm like, yeah, you got it.He's built a system, he's outfitted a truck, he has software that everybody understands, the pricing models, he's built an infrastructure and he's built a clear system. Because if not, you're going to have chaos. And if you try to scale in chaos, it's never going to work. So here's my big takeaway. Lisa, action steps.First thing I'm going to tell you to do is hire when demand exceeds capacity consistently. Because it's really easy to hire somebody.Say, well, we're having a big season, like maybe you have a holiday season and it's like, oh, I got to hire somebody for holiday. Okay, then maybe you hire somebody part time. But you again, it's going to be a little uncomfortable at first. You may be working a lot of extra hours.Maybe you bring on a contract employee so you don't have to worry about benefits and worry about a long term commitment test delegating certain tasks. You can outsource some things, but wait till you really are exceeding capacity.Not because you feel stressed about it, not because you feel like you have to do this. But hear me on this, no matter what you do, build those strategies first.What I call the standard operating procedures, before you hire, it needs to be rock solid. Everybody needs to understand what's going on. Everybody needs to be on the same page before you even put that ad to go find somebody.You got to have that plan in place because you got to know what you're looking for. Probably sounds like I'm harping on that, but I've seen this happen so many times.People say, well, I got to hire somebody, Ralph, because I can't do everything myself. Okay, what are you going to have them to do? I don't know. That's a good question. That's a question you better answer.Because before you go hire somebody, you better figure out what they need to be able to do. If you want somebody to answer the phones and they can't talk on the phone, that's a problem.If you want somebody to handle your bookkeeping work, you better hope they have some training. If you want somebody to do computer work, you better hope they can use a computer.If you want them to be a technician in the field, you better make sure they have a license or they have the ability to learn something. It is so crucial. I just want to thank everybody for sending those questions because those are great questions.It really got us into that whole discussion today. And I want to ask you right now if these stories sound familiar because I'm going to tell you right now, they sound familiar to me.Just in the time that I've been in business myself, I feel like I've lived in each one of these at one time or another. So if you're feeling that way right now, that's a good thing because it means you're not alone and you're also in the right place.This whole show is about the grit and growth and that's why I built this community. I started talking about this at the beginning. I just launched a new thing. It's called the Grit and Growth business community.And it's here to help you grow. It's here to help support you, help you to find structure and help you to find strategy. Now, I talked about this at the beginning.This is where you get our action siege. We're going to have live discussion. You can even ask me questions. You'll have direct access to me for feedback.You'll be like, hey Raf, what do I do about these things? Some coaching insights. We've got some tiered plans in there where I'm actually going to do some live training. Some one on one coaching.But check it out, you can go right to grit and growth business.com join again, that's gritandgrowthbusiness.com join. That's our community. And if you're ready to level up, consider a one on one or group coaching to move from chaos to clarity.Because I've coached hundreds of business owners through these same issues we talked about tonight. And the biggest breakthrough always comes with clarity. Always comes with understanding what they don't know.Well, let me bring it home for you right now. I'm gonna do a quick recap, give you three takeaways from tonight.Again, these will be in our action sheet that you can get by going to our new community site. That's@gritngrowthbusiness.com join. But here's my three takeaways from today. Number one, plan your money before it plans you. It's really that simple.Plan your money before it plans you. Number two, validate every idea before you build it. Understand your customers desires. Understand their pain points.Understand the solution, but validate every idea before you build it. And number three, and I can't stress this one enough, protect your time.If you don't hear anything else I say tonight, protect your time because your business needs a healthy you. It will never survive if you're burned out if you don't have the energy to do it. So listen to me.Protect your time because your business needs a healthy you. And if you've got value, I want to encourage you to do a couple things. Number one Share this episode. You can go and subscribe to the show.You can go to be going to gritandgrowthbusiness.com join join the show and member. Grit builds growth. That's what this whole show, the whole point of the show is that grit and growth builds freedom. So I'm going to encourage you.Come join me every Tuesday night. We do this live every Tuesday at 8pm Eastern time right here on Grit and Growth Business Live. So tonight, thank you for joining me.God bless you and you have a great night.