Richelle Shaw: Money Makes You Stupid

My Case for going without loans, credit cards or IOU’s from family, and The 8 Essential Lessons Every Entrepreneur Must Know!

I truly believe that money makes you stupid. It makes entrepreneurs spend money on things that don’t matter or that don’t directly affect your ability to generate sales. I call them “crutches.”

OK, I may be biased, because I was denied by the SBA for a loan when I first wanted to buy the telephone company I was working for. But I am forever grateful for the important lessons the denial of the loan taught me while building my $36 million company.

In writing the book, The Million Dollar Equation: How to Build a Million Dollar Business in 3 Years or Less, I looked back at building my business plus some of my private clients’ businesses and came up with some essential lessons and further proof that money makes entrepreneurs stupid.

Here is the most important MDE (Million Dollar Equation) lesson #1:

If you are unable to make money in your business without money, when you get money such as a loan or investment, you will not be able to make money either.

Harsh words, but let’s break down what were you going to use the money for?

To Pay yourself?

MDE Lesson #2 If you are getting a loan in order to pay yourself, you are not ready to be an entrepreneur. Your pay should be directly proportionate to the revenue that you produce. This is one of the reasons why we become entrepreneurs to reap the benefits of big sales. AND every person you hire, should be held to the same requirements. All employees. PERIOD end of story.

MDE Lesson #3 Hire only to insure more revenue can now be produced as a result of the hire.

Why are you getting a loan….To Buy ads?

Buy ADVERTISING? Let me be frank – money is not guaranteed to get you a customer. It can allow you to buy ads. BUT what if the ads don’t work?

Now, I am thankful for having no back up. I was forced to sell and market my way to a million dollar business. When I invested in any marketing, I had to follow these MDE (Million Dollar Equation) Rules for marketing without money.

MDE Lesson #4– Start with Your Target Market

Don’t start with the media – most entrepreneurs start with the media. For example, I will use the internet because it is free. Have you made sure that your customers are online? The local newspaper made me an inexpensive offer to advertise everyday of the week, however, my credit challenged customers did not read the newspaper. It did not matter how much the ad was. If my target market does not see it… I am screwed!

MDE Lesson #5 – Make sure that I was speaking directly to my target market

I targeted customers who were credit challenged and who had their telephone service disconnected before. All images, words were geared to those that had been disconnected before.

MDE Lesson #6 – Everything should be tested in smaller amounts – then Results rule.

Never sign 1 year agreements for marketing media, even if it costs double . The price is not your concern. Your concern is testing to see if the media is right for your target audience, testing to see if your offer brings in enough customers to produce an amount more than you paid (ROI – Return on Investment), testing to determine if you should invest more.

If you need capital to create your product, you can get a few manufactured to demonstrate how it works, then sell an order based on the “prototype”. Once you have an order, then, you are allowed to get a loan to pay for the manufacturing of the product.

BUT – if you want money to buy ads, create a website, business cards, pay yourself, this is one of the biggest mistakes you can make in your business.

MDE Lesson #7 – Money is only for investing in proven systems, ads, products.

For example, you sold your product to Wal-Mart and it will be on their shelves. Now, you are allowed to use the money to fill the order.

You have tested a small ad in your local paper for one issue. Customers are coming in buying products. Now, you can use money to buy more ads in the paper.

MDE Lesson #8– You are not allowed to buy an asset unless it appreciates or the asset will directly drive revenue until your business has made a profit 3 years in a row

I watch entrepreneurs as soon as they sign a new client decide to purchase a new car, house or boat. YIKES! And soon, they are in trouble. Resist the inclination to spend your cash.

When you have cash sitting there, you tend to make bad decisions. Have someplace for the money to go. Set a budget and stick to it. There should never be extra money. When every decision directly impacts your ability to eat each day – you will make smarter decisions.