Hey guys, welcome back, today we’re gonna talk about The Power of Broke.
Money is great, especially in businesses.
WIth money, we can take all sorts of shortcuts and make multi million dollar businesses within
a short period of time, but having too much money could also be a bad thing.
When Daymond John was a teenager, he bought a van that held 15 or so passengers.
He used that van to pick up people in his neighbourhood along the bus route.
Not only was his fee a dollar cheaper than taking the bus, he would drop passengers off
anywhere as long as it was within his route.
In those days, each bus stop could be as far as 6 blocks apart, so there was an incentive
to ride his van over taking the bus.
Soon, the people in his neighborhood started to get accustomed to his schedule and his
little business became profitable.
In no time at all, he had enough money to buy a new van, but he decided it was best
to keep his old one because having a new van wouldn’t help him make more money, his customers
didn’t ride his van for the luxury, it’s because it gets them to where they need to
go.
Besides, he was broke, so he needed some extra money for repairs.
Daymond, who is the author of this book, later became a super successful entrepreneur, which
landed him a leading role in the show Shark Tank.
According to him, he couldn’t have done everything he did without the Power of Broke
mentality every step of the way.
Principle number 1: “When you’re broke, you learn to make the best use of your money.”
One of my friends is the literal definition of this.
I mean, he makes a decent living, like 100k a year, but every time we go to the grocery
store, he would calculate the cost per unit of every item we buy in order to look for
the best deal.
If you ever go to one of his barbecues, you wouldn’t see a brand name anywhere.
The coca colas would just say Cola and the hot dog buns wouldn’t even have a logo,
that’s because those are the cheapest ones to buy.
I’ve asked him on several occasions why he has to go through all that trouble when
the difference in price was less than a dollar and he always gives the same response.
“Warren Buffett is one of richest people in the world and he always makes sure he gets
the best deal no matter how small it is.”
Even though I don’t a hundred percent agree with what he said, he has a point.
When we get into a habit of making the most out of our money, we will begin to really
see what is important.
Just like when Daymond had the option to buy the new van, he was able to see that buying
the new van wouldn’t necessarily move his business forward, it was just for his own
satisfaction.
In other words, when we have the power of broke mentality, we make sure to make the
most out of our money.
Principle number 2: “Money is great for accelerating the building process of your
business if you know what you’re doing, but that’s about all it’s good for.”
When we watch shows like Shark Tank, we see entrepreneurs pitch their business ideas hoping
for some money.
But that’s not how most businesses grow at all.
It’s great for people who’s already have experience and looking to quickly start a
business, like if they’ve previously had a successful gaming company, and they want
to open another one.
In most cases though, giving away a percentage of your company for some money is a stupid
idea.
An exception is if the other person has something else to offer.
Perhaps they have more experience than you in running a business and partnering with
them will allow your business to do even better.
If you don’t know what you’re doing yet, it’s best to allow the business to grow
naturally.
That way, you can afford to make more mistakes before you are forced to close down.
According to forbes, the number 1 reason businesses close down is because they create products
nobody wants, and the number 2 reason is they run out of money before the business is profitable.
When we grow our businesses organically, we’re able to minimize both of these situations
from happening.
Let’s use this next example.
Five years back, when I took a course on old age and retirement, I learned about the phases
people go through after retirement.
Apparently, several years after someone retires, when they’re done with all the travelling,
a lot of them get bored and start looking for new hobbies.
Surprisingly, a lot of those people end up opening bakeries, maybe it’s because deep
down inside, all of us have a longing to sell cupcakes.
For whatever reason, they open these bakeries.
All them have something in common, and that is they close down within a year.
So, why do these bakeries fail?
Aside from the fact that they have no prior knowledge in opening a business, the biggest
reason is probably because they are using all their retirement money to create the store
without first testing their business concept.
Is there a demand for baked goods in the area?
Are there other bakeries already nearby?
Before you know it, they’ve spent a ton of money renovating the place and they’ve
yet to sell a single cupcake.
Imagine spending a few hundred grand opening up a bakery and then realizing you made a
mistake, a mistake that could have easily been avoided with a simple test of concept.
The retirement money, just like any other funding, allowed the retired folk to take
shortcuts when that’s the last thing they needed.
Somewhere else out there, there is a young entrepreneur who’s selling cupcakes from
his home, realized that the demand for cupcakes isn’t as big as the demand for pizza, so
he started to make pizzas instead.
Word gets out, and everyone in the neighbourhood knows about the young man’s home made pizzas.
With this proof of concept, he then uses his profits to open up a small food truck.
Several years down the line, he creates a large chain of pizza stores all across the
country.
When we’re starting our first business, or a business in an environment we’re not
yet familiar with, it’s important to grow organically.
That way, we can take the most important steps first, just like the young man who ended up
selling pizzas.
It doesn’t take a lot of money to create a successful business, especially with the
introduction of crowd funding sites.
Not only that, but it’s probably better to be broke when you start a business because
you will focus more on making money, which is the most important part, and you will also
learn more because you won’t lose all your invested money with one small mistake.
Remember, money is good, but only when you know how to use it.
When you have a lot of money to work with, always remember to have the power of broke
mindset and don’t just use money for the sake of it.
Ask yourself if the money used directly increases your ability to make more.
If it’s like Daymond’s new van, then it’s better to pass.
That’s all for now, hope you learned something new, but most importantly, I hope you enjoyed
it.
Here’s the surprise: I made a video on Traction and how to grow your audience.
It’s not uploaded on my channel, so you can only check it out on my friend’s channel
by clicking here.
I’ll see you next week.
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