Once you learn the game of money, it is very easy to make money. But as easy as it is to make money, it is 100 times easier to lose it all. This is especially true if you make one of these 10 dumbest mistakes entrepreneurs make with their money. By the way, I’ve made every single one of these mistakes, so what I share in this video and article comes purely from experience.
#1: Wasted Services
The first mistake entrepreneurs make with their money is wasted services. Let me explain to you what wasted services means. When you become an entrepreneur and you start making a little bit of money, all of these, "messiah" consultants show up. They say, "If you hire me, my expertise is knowing how to take your business to the next level." How much will it cost? Only $10,000. When you're just getting started, you have all this fear that you don't know what you're doing. So you pay the $10,000. But if you only had $100,000, after paying the $10,000, 10% of your money is gone. Then someone else shows up that can create a website for you for $3,500. And someone that will do PR and get you in the news for $5,000. And then the next thing. Before you know it, you just lost $40,000. And you've just barely got the business started. So you have to keep in mind that you don't want to waste a lot of your money on these "messiah" types of consultants. So spending money on wasted services is the first of the mistakes entrepreneurs make with their money.
#2: Legal Team
Next, legal team. Let me explain to you why it's so important to have a solid legal team. When I first started my financial firm in October of '09, I got sued five minutes after starting the company. And we got sued by a $400 billion company. The thing that saved us was an incredible legal team. Without that, I would have eventually won the case, but it would have dragged on for two years and I would have run out of money. So it's important to make sure that everything's done properly on the legal side. Now, accounting is another one. Initially when I started, I had a regular accountant who talked a big game, but he was very unprofessional. I was never able to get a hold of him, he had a bad attitude, and he had no clue what he was doing. He lost my paperwork and was very annoying. I fired him, and went and hired a real accountant. We then started doing accounting properly. So it's very important not to make mistakes with your legal and accounting side. It's also important to pay your taxes early. Many people are not in business today because they didn't pay their taxes.
Next, hiring resumes vs. believers. I made this mistake early. I hired a resume that I brought on board. All he cared about was the money he was going to make, benefits he was going to get, and the American Express card he was going to get. This was because he got all that from the former company where he worked, and he expected it from a startup. He pressured me every day. "Well, you know, the former company gave me this. The former company. . . " Finally, I realized the guy wasn’t a believer. He was a money guy. All he wanted to do was make sure he was safe. He didn't understand the value of a startup company. So I told him it wasn't a good fit. He walked away, and is doing good for himself. Then I brought on a true believer that was first part of my board for five and a half years. Eventually I brought him on. He's going to make a lot of money, but he came in as a true believer. So don't hire just resumes. Hire believers. That will help you avoid one of the most common mistakes entrepreneurs make with their money.
#4: Residual Checks
Next, residual checks. Let me explain to you what I mean. There's this notion that one day you're going to have so much money. Checks pile up, as you sit on the beach. It's so great, you don't even have to work anymore. This is the dream that's being sold, right? I don't know if you realize it, but when you have kids, no matter how old they become, they're still your kids. If you choose to have kids, you're a parent for the rest of your life. And if you build a business, and you plan on growing it, it requires attention. Even a $100 billion company needs attention. It may need even more attention but at that point you have leaders on board that help you take care of the business. If you start living the dream too early, you're in deep trouble. When we started the company, I had money in place and put it all in the business. I sold my Z06 and drove a GMC Acadia. Instead of owning a home, we rented an apartment because we stayed tight. It wasn't about the lifestyle. You see the Lamborghini and all this other stuff now, but this is five or more years later. After putting up with what we had to put up with, then came the lifestyle.
#5: Liquid 911
Next, liquid. Let me tell you why liquid. You'll see a lot of people who have a net worth that suddenly goes from zero to $17 million on real estate when the economy's doing very well. Everybody says, "Oh my gosh. He's such a genius. He's so awesome." But let me explain to you why this is one of the dumbest mistakes entrepreneurs make with their money. I took over the office of someone in Woodland Hills. At one point, he was worth $400 million. He went from a net worth of $400 million to $20 million in two years. You know why? Because he was all real estate. He wasn't liquid. He thought real estate would constantly go up and he'd be a multi-billionaire. You can invest $100,000 in real estate and have it become $3.6 million, but there is a one in 36 chance that's going to happen. If it happens to someone, that's awesome. People become billionaires because they were in the right place at the right time. That does happen. But I don't bet my money on it. I bet my money on predictability factors.
Every 10 Years
Let me elaborate. Typically in America, every 10 years, a major crisis happens. Every 20 years, a massive crisis happens. When the crisis happens, do you know who benefits? Those who are liquid. You see a lot of people that say, "I never have cash." I LOVE cash. I was able to survive in 2009 - 2011 when no insurance companies were giving contracts, when insurance companies were losing money, because we stayed tight. That allowed us to be able to weather the storm until the good times came, and now we can play a little loose. But even now, it's cash. You know why? Because if 2008 was a major mortgage crisis, in 2018 we could have another crisis. What kind of crisis could it be? I don't know. It could be oil, war, or something else. But you have to be prepared for it.
Listen in here for my thoughts on profit over value.
#7: Being Too Cheap
Next, being too cheap is one of the big mistakes entrepreneurs make with their money. Too cheap could be not investing in your own people. It's saying, "Oh, I don't need to invest in my people. They're good to go." It's also not rewarding your people and not investing in hiring good quality people. I'm not talking about resumes. I'm talking believers. They require a lot more money as well. Being too cheap can hurt you.
Next unrelated businesses. For example, imagine if Apple bought Toys R Us. For what? If Apple did that, they would be guilty of one of the dumbest mistakes entrepreneurs make with their money. Apple went out and bought Beats. Why would Apple buy Beats? Well, Beats links to iTunes, links to music. So that somewhat makes sense. Disney bought Make Studios. That makes sense. Sometimes it makes sense for a company to buy another company when it's related. I made the mistake of investing into an unrelated business. I bought a clothing line. For what? It was a waste of money. I lost a couple hundred thousand dollars. Even worse than the money I lost, I lost time. I put time into that thing that was wasted time. I couldn't stand the fact that I did that. So I have zero interest in unrelated businesses. If something will benefit your business somehow, some way, consider it. If it doesn't and you want to avoid mistakes entrepreneurs make with their money, instead of buying an unrelated businesses, focus on your business.
Next, active vs. passive investors. A lot of people are hungry about getting an investor. "I can't wait to get an investor." This is one of the dumbest mistakes entrepreneurs make with their money. I had a guy that came in and said, "I'll give you $5 million." This guy was interested in investing into our company. I asked, "What connections do you have?" He replied, "Nothing. I just know that you're going to make a lot of money, and that this company's going places. I'd like to own a piece of it. Here's $5 million." I replied, "Why would I even consider your investment here? Are you going to introduce me to anybody? Do you have any relationships? Do you know anything?" "No, but I’m going to give you $5 million." I don't need the $5 million. I want active investors.
What Active Investors Do
Let me tell you what active investors do. Imagine you have two guys giving you money. Hypothetically one $5 million, and the other $4 million. The active investor's going to introduce you to somebody that's going to give you technology or product or relationship. Or an executive that will take your business from doing $17 million a year to all of a sudden $43 million a year. He gave you $1 million dollars less. But the value that he brings in from his experience from the past took the value of the company 2X. Would you be interested in that? See, that's the difference between active and passive. Passive investors won't do anything for your cause. They'll ask you questions like, "How many times are you going to call me? How many times do I have to go to any meetings? What do you expect me to do?" Now, some people like passive. Some just say, "Give me the money and leave me alone." But I want relationships and contacts. That's what I'm looking for. Because that is leverage for me.
And last but not least, diversify. Listen in here to find out why diversification is one of the dumbest mistakes entrepreneurs make with their money. So those are 10 of the dumbest mistakes entrepreneurs make with their money. If there are other mistakes, perhaps that you've made yourself, comment on the bottom.