EntreLeadership - Negotiate and Make Decisions Like a Pro with James Clear

Episode Date: June 5, 2023

Today, we hear from: •       A business owner struggling to fund inventory orders at the speed of cash •       James Clear on how to make better decisions •       A team member wondering if he should still work toward purchasing the business he works for •       A COO calling in to celebrate winning Commercial Roofing Contractor of the Year Links mentioned in this episode: •       The EntreLeadership Podcast: https://bit.ly/TheEntreLeadershipPodcast •       Atomic Habits by James Clear: https://bit.ly/42aymU5 •       Join James Clear at Summit 2024: https://bit.ly/3Uw3PMQ •       Learn more about EntreLeadership’s Stages of Business: http://bit.ly/3yvdavv •       Start your free trial of EntreLeadership Elite: https://bit.ly/3tI2fN8 •       Have a question for The EntreLeadership Podcast? Leave a voicemail at 844.944.1070 or submit your question for a chance to be on the show with Dave Ramsey: https://www.entreleadership.com/ask   Start growing your business and leadership skills with the EntreLeadership Newsletter. Sign up to receive tactical tools, advice and resources in your inbox every week: https://bit.ly/3IRWnsL Support our sponsors: •       NetSuite: https://bit.ly/NetSuiteEntre •       BELAY: https://bit.ly/351P9AE •       Payority: https://bit.ly/3IaA5SK •       Staples: https://staplesbusinessadvantage.com/ramsey Learn more about EntreLeadership Events: •       EntreLeadership Summit: https://bit.ly/EntreLeadershipSummit •       EntreLeadership Master Series: https://bit.ly/EntreLeadershipMasterSeries Learn more about EntreLeadership Coaching: •       Elite: https://bit.ly/3tI2fN8 •       Advisory Groups: https://bit.ly/EntreLeadershipAdvisoryGroups •       Executive Coaching: https://bit.ly/EntreLeadershipExecutiveCoaching •       Workshops: https://bit.ly/EntreLeadershipWorkshops Listen to all the Ramsey Network podcasts anytime, anywhere in our Ramsey Network app: https://apple.co/3eN8jNq Learn more about your ad choices: https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy: https://www.ramseysolutions.com/company/policies/privacy-policy Learn more about your ad choices. Visit megaphone.fm/adchoices

From the headquarters of Ramsey Solutions, this is the Entree Leadership podcast where I take calls from leaders like you about what it takes to win in any stage of business and leadership. I'm Dave Ramsey, your host with over 30 years of experience in the trenches, trench warfare, right alongside you, baby. You got a question on what it takes to actually operate a business from someone who does it every day? Well, that's what we're here for. If you want theory from some professor, you got the wrong podcast. We're going to tell you what really happens around here. The phone number, if you want to get on the show, leave a voicemail. We'll call you back and make you a caller on the show.

We'd love to have you say 844-4-4-1070, 844-944-4-1070. Or you can also leave your question at entreleadership.com slash ask. Now, in the next segment, I'll go ahead and give you a preview. author James Clear, our friend who wrote the perennial bestseller Atomic Habits, which is an absolutely lights out amazing publishing success story, but also the content is fabulous. He'll be with us next segment, being interviewed by George Camel. I was out running around the country doing events and other things,

and George stepped in and did the interview for me. Thank you, George. considering we fired George from this podcast, it was nice of him to step back in and do that. So he stepped back in and took care of James, and you'll get to hear that in the next segment. You do not want to miss that. In the meantime, Johnny is with us. Johnny's in Salt Lake City. Hey, Johnny, welcome to the Entree Leadership podcast.

Hey, Dave, thanks for having me on here. I appreciate you taking calls from folks like me. I'm honored, sir. What's up in your world? So I got a question for you. I own a company that I started about six years ago, and basically it's me that runs a company, and then I have one of the person that fulfills orders. I get warehouse flooring manufactured overseas and sell online direct at customers,

and for the past six years we've basically been growing at the speed of cash, which I'm super grateful for. First year we did about $10,000 to $15,000 in revenue, jumped to about $25,000, $60,000, And last year we did $250,000. Very good. And the question that I have is kind of the problem that we're facing now. So I feel like the need that we've created in this market has outpaced our ability to have inventory on hand.

And so basically the way that the process looks like for us to get inventory to pay it with cash is, you know, I sell the majority of the inventory that I have now to come up with the cash. for the future order, which has always been bigger than the previous one, to grow. The problem is, once I have enough cash and place the order, by the time it's manufactured and shipped over here, it's about three months. And I go within those three months, I'm out of product for about two months, and out of product means not being able to sell it. And so I've reached this point where now, like, I'm full-time in this puppy. I've scratched and Claude to not borrow debt, you know, borrow any type of money, but I need to increase

orders substantially at this point to, number one, you know, get a lower cost of what my cost would be per square foot, let's call it, and number two, to keep up with the demand that I'm facing. So when you place an order, it's, I thought, I thought I understood it was a custom order. No, so I have a manufacturer overseas, and I place my order for the manufacturer. But it's not, the customer is not, you don't yet know who the customer is when you place the order. No, no, I do not. Okay.

So why are you not steadily ordering? You're just doing fits and starts instead of steadily ordering, right? Pretty much, yeah. So the reason why I weigh. Exactly, exactly. Because I face these gaps when I have inventory, obviously we're selling. and I'm putting money away for the next order, and I make it a good profit on the materials that we have.

Obviously, there's things on the way like pork lists and whatnot that need to be purchased. But once I get X amount of dollars that I can place my next order with, by the time it gets here, we will have sold out. And they want cash up front on these orders? Yes, yes. And I've tried negotiating a little bit, but they need cash all up front to begin manufacturing. That's correct.

Yeah. In what country? in China. I'm not paying China up front. Okay, so you just create like terms? I'm going to find a different way of doing that. I mean, I'll pay them on delivery, and I might give them a deposit up front,

but paying them 100% up front and a communist government decided, we're not going to give you anything, screw you. Yeah. You would be out of business and bankrupt. Yeah. And that could happen. I mean, there is absolutely nothing

that keeps them from doing that. I mean, we have run millions and tens of millions of dollars of product out of China. We're not currently ordering anything from China, but we never prepaid 100% because they could absolutely take our head off if they just chose to. You're really vulnerable doing that, dude. I mean, because you've made the assumption that these people's value system operates with honor the way yours does, and that's a dumb assumption. Yeah, yeah, I currently I have basically a middle broker that holds funds until product is finished manufacturing and has to be released to my carrier that I hire privately to pick up.

Okay, then they don't, the Chinese aren't holding the money. Yeah, no, that's correct. Okay, so here's where the BS is. It isn't the Chinese that want the money. It's a broker. He wants to make sure you pay your bill. And you've done enough of these that that's not okay anymore. may need a new broker.

We used to use it. We've had five different product brokers that were doing the connections with the different factories we were using in China because we had a concern that they were using five-year-olds to build it or something and we don't want to support that. So we actually sit team members and the broker over to visit the factories to make sure adults were doing the work and it wasn't a sweatshop or something. We didn't want to be involved in human rights stuff, right? As a matter of morals, we didn't want to do that.

And so our deal was if we're going to do business with China, we're going to hold the money. And the brokers all have to help us get into the factories and we had to walk through them and all that. You're not doing enough of an order to justify that expense at this stage. But there's lots of people that broker what you're talking about. And you might even check into some different countries. There's a lot of the Chinese business has been moved to India and to Vietnam and to Thailand. Okay. Interesting. A lot of it has. A lot of people that were doing business there have moved it because they're scared of the political unrest and where they're going to end up. So anyway, just to be, so there's several people doing what your broker does. You found a way to do this and you, and it worked to the level you're at, but the cash is being held by the broker is what's causing your problem. So anyway, yeah, I'm going to look. I'm going to renegotiate my terms with a broker. And you have enough. of a track record of paying your bill that you can do this and, you know, I'll pay a certain amount

up front, but no longer 100%. Then let's back up now. Back to your original question, how do we set up a system and a structure? You may want to sit down with a good bookkeeper if you have a third party doing bookkeeping and teach you accrual accounting. And that is what we used to do, and I'll tell you, I'll just tell you what was. It was Financial Peace University kits that we were buying and we're buying 250,000 of them at a time. And that's, it was millions and millions and millions of dollars, all right? So what we did was every time we sold a kit, we held back, and we were on a growth curve like you're talking about. We held back enough to buy two kits for every kit we sold. So that enabled us to double our growth and we had the cash always. We did not pay out

I mean, we did not pay out profits. I didn't take money home. We held it back in retained earnings, enough to do double. Now, you may not be able to do double, but you could do 1.5 or something, okay? So what's your typical order size? $50,000, probably? Yep, $70,000. Okay.

And what do you sell that $70,000 order for when it all is said and done? What's the retail on it for you? It would be close to $180,000. Okay, so you're not quite tripling your. money. No, it's about two and a half. Yeah. Okay. So if you held back one and a half every time you sold it. So let's say you get a $70,000 order in, customer comes in, buys $10,000 worth of the $180, then you hold back what it takes to replace that inventory plus 50% for growth. Okay. Every time. So as soon as you get paid by your customer, you're already funding the next order.

Because you're going to carve that out and set it to the side in retained earnings so that it does not, because we're running cash basis accounting or running cash basis operation, but that's called accrual accounting, where every time you make a sale, the cost of goods sold is set aside for replacement of inventory. And all we're doing is marking it up to 1.5 so that you, that, the 0.5 is for growth. Right. And if you need to order more than that 1.5, don't. Grow slower.

Don't get out over your skis. You'll fall. Right. So that's how I'm going to handle it once I have a better deal negotiated where I'm putting up front only maybe a third of the money with the broker and the balance is sitting in my retained earnings. But you don't have to wait to have all the cash to order then. your flow of sale, your flow through, your burn through of your inventory is funding the next order before the next order gets here.

And you can start layering the orders. You start placing an order once a month. Right, right. And I'll tell you something else we did in those situations, and you can go back to this idea as well. You can say, all right, I will contract with you this factory. Let's say you did $250,000 worth. I'll contract with you to do $150,000 worth in this calendar year, and it's going to be in four distinct orders, one a quarter,

but a total of that, and I want the discount based on a $200,000 order. But you're not getting the $200,000 except in increments. Yeah, okay. But you get the discount as if you did it all up front because you're contracting for the whole thing, and then you order and you pay it out per order, in increments quarterly or monthly or however you want to lay it out. I don't care.

But in every case, the 1.5 or the 1.75 will keep you ahead of the curve and allow you to do the next order. By the way, before you get to the end of that year, you will place the next year's order, and it would be larger for growth. So like in the six months into that year, you may place the year for the following calendar year for $300,000 worth. And you just keep this thing rolling up and rolling up and rolling up because you're, but you're setting the math up to follow the hockey stick up into the right. Does that make sense?

Yes, it does. It does. And so, I mean, that was on the scale that I was going towards as far as setting money aside, you know, obviously without negotiating, which it really sounds like I need to do. You do. The problem is, yeah, I do, absolutely. The problem now is I've started to take a salary. and so it slowed that down a little bit.

I still think that I can do it in the event that I still need. Oh, you've got the margin to take a salary. You just don't, you can't take a salary of $150,000 because you don't have that kind of profit. Oh, absolutely not. Heck no, yeah. I pay myself $60,000 a year. So if your 70 is turning into 180,

you can take $1.5 out and $50,000 and still be okay. Yep. You got the margin loans. You don't go by seven forklifts, right? no absolutely yeah i mean just don't don't don't load up on equipment over here and big boy business toys or whatever now on the other side and then make yourself go broke on that side but johnny you got the tail you got the tiger by the tail here this is a great job man and because you've bootstrapped this completely and from an accounting perspective you had no

freaking idea what you were doing and you figured it out because you're a stud man way to go i'm very proud of you hey you keep fighting man you're exactly who we're here for that's what You're who this podcast was built for, who this Entree Leadership brand was built for. We want to help you level up and go the next order. And so what you needed were new processes to level up. And really what that means is you are moving from probably from Pathfinder to Trailblazer. So you probably need some processes to level up and go through these stages of business. And you're going to get there really fast, especially with the dollar growth figure,

growth curve that you're on. It's pretty impressive. So remember now coming up in this next segment, Camel interviewing number one bestselling author and one of the top books to come out in the last decade in terms of book sales, but also in terms of how good the content is, Atomic Habits. So James Clear will be with us coming up. Hang on just for that, right here on the Entree Leadership Podcast. We've got the one and only James Clear speaker and number one bestselling author of the book, Atomic Habit.

James, welcome to the show. Hey, great to talk to you. Thanks for having me. We all like to think we're rational, logical leaders making good decisions, but we can get derailed, make poor decisions. No one wants to do that. What are some of the common reasons why we struggle with decision making? All kinds of things that can influence it. You know, there's all sorts of biases that we have, like confirmation bias, for example, is probably like one of the most predominant ones where you're just sort of searching for evidence that supports what you already want to do rather than trying to find the truth or figure out the best way to do it. I think one mindset that's good to counter that is telling yourself, I don't care about being right. I care about getting it right.

You know, like I don't need to be the one who comes up with the correct idea as long as we get it correct in the long run. And maybe that gives you a chance to check your ego a little bit and search a little more widely for a solution rather than just hoping that you'll feel good about the process. So, you know, being wrong, nobody likes being wrong. Like being wrong is not going to feel good.

But if you're wrong in service of getting it right, in the long run, then, you know, who cares? That's fine. So I think there are all kinds of biases like that. But generally, when I think about decision-making and trying to make better choices, what does it mean to make a good choice? It doesn't necessarily mean that you get the result that you want. It doesn't necessarily mean that you're always right. I think what it means is that you are continually improving your position. So a good choice is one that puts you in a better position for the next cycle, the next round, the, you know, the uncertain future. Yeah, it's so easy to get paralyzed by all of the what-ifs and what ifs and what if we did this strategy and not that one. And it points to what we call spineless leaders here at

Entree Leadership, which is those indecisive leaders who don't take action. They're powered by fear. They're afraid of the negative consequence. So how can the, the indecisive leader, if they're listening right now, going, I've been there, how do they power through that to take that action? Are there steps they can take. Yeah, like, I don't have a framework or anything like that, but I think that it's mostly about starting small and building confidence. So I had a basketball coach in high school who said confidence is just displayed ability. You know, and so it's like, look, if you want to be more confident about your ability to make free throws,

go out and practice them for a while, and when you knock 10 down in a row, you're going to feel a lot better about it. And so we often have this thought that, like, confidence is something that comes before the action. but usually it comes after the proof. It becomes after, it comes after action. And so what you need is practice. What you need is repetition. What you need is like a volume of work. And then you'll feel a lot better

about your ability to do it. And so I don't think you need to flip a switch and just become a courageous leader rather than a spineless leader. I think it's more about proving it to yourself in small ways day in and day out. You know, so if you're the type of person who likes to plan and research a lot,

well look maybe it's a strength for you planning can be great but planning is only useful until it becomes a form of procrastination so if your planning is enhancing or complementing your actions great if your planning is substituting for the actions that you're taking or should be taking then it's no longer useful and so it doesn't have to be like some huge thing it can just be let's try to take a little more action today and not get stuck in this research and planning loop as much. And you just focus on the next five minutes. You know, can you take action in the next five minutes? What can you execute on? Five good minutes can pay off a lot. I mean, five good minutes of exercise will reset your mood. Five good minutes of writing and you'll feel great about the book manuscript. It's moving forward again. Five minutes on the

phone with a customer can restore the relationship. You can do a lot with five minutes. And so it doesn't need to be some huge thing. Just try to win the next five minutes and then go from there. man that's super helpful to me personally as a planner researcher who can get stuck in that mode so when it comes to decision making a lot of the time the the decision is just no and you've said that the ultimate productivity hack is saying no it's a really hard thing to do some leaders are great at it but a lot struggle with just doing this in a way where it becomes a habit and it's not a it doesn't have a negative impact on the team i think everybody's starting to with it. And I think the reason that we all struggle with it is because it's one of those

battles that has to be fought anew every day. So let's say that you're really effective today. You do a great job of saying no to distractions. You focus and work on the highest priority thing. You get to the end of the day, you just feel like, man, that was really good. You know, I was very effective. You wake up tomorrow and there are no bonus points for doing it well today. You know, it doesn't make it any easier. You have to do the same thing again tomorrow. There would be new distractions, new emergencies to interrupt you. you're going to have to refocus and rekindle your commitment to the highest priority task. You've got to do it over and over again.

And those kind of those elements of life or those areas of life that are endless battles like that, you know, fostering a great relationship, building a fit and healthy body, focusing on the highest priority and most productive task in business. Like these are all things that you just got to do them again every day. There's no finish line. And so it makes it hard because it's something that you have to do over and over. again and nobody's going to be perfect. Now, I do think that we can maybe be a little more tactical or strategic about it. Or there's like one or two things I could say about this I think might help. So the first is

we often think about focus as being like, oh man, you know, I can just lock in on this one particular task and like I'm really good. But in many ways, focus is the art of knowing what to ignore. You know, there's always all kinds of stuff coming in. And there's going to be, especially once your business reaches some level of success, there's this strange thing that happens where success starts to eat itself. So you do one thing well, and that brings you customers and revenue and opportunities and partnerships. And because you did that thing well, you have a bunch of new things coming in. And some of them are sometimes it's just interesting and fun to do something new. But success not only brings opportunities, it also brings distractions.

And so a lot of the time, you commit to this new stuff, and then suddenly you find yourself a year later and you don't have the time to do the thing that made you successful in the first place. So it's knowing how to ignore those opportunities. It's knowing how to stay committed to the core task that is often what focus looks like. It's not necessarily being all in and saying yes to one thing.

It's saying no to most of the others. That's like how you practice it. So that's maybe the first thing to consider. Second thing to consider is it's often, like, it's fairly straightforward for most leaders, effective leaders, to say no to things that are wasteful uses of time. You know, most people get, okay, I shouldn't be watching Netflix for three hours a day or browsing YouTube all the time. Like, it's fairly easy to be like, okay, yeah, I should cut out the wasteful stuff.

But what's much harder is to say no to things that are good uses of time, to make space for things that are great uses of time. in a sense, the most dangerous items on your to-do list each day are items like three through five because you have a really good story for why you should do them, you know, and they're often a little bit easier than the things that are like one and two, the highest priority stuff. So, you know, you'll be like, oh, like this is number three or number four on my list. Like, I need to get this done at some point, you know, like, so why don't I just go ahead and start there?

And in fact, those good uses of time are just distracting you from numbers one and two, the things that are really move the needle. And so you got to be really careful about that because it's very easy to slide into it. It's a little slightly easier work, but still has some value to it. But you really need to focus on the items that are the highest priority and commit there. Yeah, man, that's so good. So I'm curious, you've been a business owner now for over a decade. How has your decision making changed from the early days to where you're at today?

I don't know. I hope it's improved a little bit. I don't know if it has or not. I assume you say no to a lot more. You know, early on, you're saying yes to every opportunity. That actually is a good point. More filter. You almost have to say yes to everything before you can earn the right to say no to most things.

So, you know, like early on, yeah, I was trying to spring on every opportunity I could. I was trying to create opportunities that didn't exist. If anything came my way, I was trying to leverage it or utilize it. And you're just trying to use your current advantages to establish a slightly better. advantage or to advance one rung up the latter, take one step forward and use that to accumulate a little bit more of an advantage and then continue the process. And if I'd look back over the long arc of my career, you know, 10 plus years, I think I do see that pattern where like you started with a relatively small advantage and then you used like early on my biggest advantage was time.

You know, I wasn't married. I didn't have kids and nobody was expecting anything from me. so I could just pour all these hours into like trying to build the business. And then now I don't really have time as an advantage as much. I have a family. I have kids. I've got all these responsibilities with the business. So now the advantage is like scale. You know, the audience is large or things like that.

And so your advantages may shift over time. And you just kind of have to find ways. Everybody has different advantages, you know. And you just have to find ways to utilize whatever your set of resources are to advance the ball down the field a little bit and get whatever it is that you're trying to get to. So I do think I probably said yes more early and I've been saying no more frequently. And that's tough. I feel like I'm always behind the curve on that. I feel like my filter for what I should be saying no to is like always three months behind. I'm always on the hook for like,

you know, things that I shouldn't be. But I'm gradually getting there. I don't know. I'm kind of a slow learner in that regard. But as long as you're learning a little bit, eventually you'll make it. What other ways is my decision-making changed over time? I think I'd trust myself more than I did early on. You know, early on it was just like grit and persistence, but I didn't have experience and I didn't really have much evidence that I could make it work.

It was more just like a belief in myself. That sounds like an entrepreneur right there. I think so. You know, I think I almost feel like a test for an entrepreneur should be that you should tell the person, you should not do this. It will be a very hard lifestyle. It's going to be, you're probably going to have a couple years at least where it's going to be really difficult. It's very unlikely. This will work. It's not a good idea. And there's a certain set of people that you'll tell that to. And they'll be like, I understand what you're saying.

It sounds logical to me, but I have to do it anyway. And I feel like those are the people that should be entrepreneurs because they like, they understand the risk going in, but they can't not do it. You know, it's like, I don't. I couldn't convince myself to not try it. And so I knew it was going to be hard, but I just had to do it anyway. So, yeah, I think early on, I just had that sort of attitude and that got me through. Now I have a little more trust in myself where it's like, okay, I was always worried the bottom was going to fall out of the business for the first few years. And it was like, man, this whole thing's just going to come crashing down.

And you kind of feel like you're like duping the world that you're like, at some point people are going to figure this out. this isn't going to work. But now it's like, okay, after 10 years, I'm like, all right, this will probably keep working, but I need to remain committed to the fundamentals, doing a great job, providing great value to the readers. I need to remain committed to the stuff that makes their life better and not get too wrapped up in the stuff that makes my life better. You have to make sure that you keep the reader, in my case, the readers, or I guess more generally, you could say the customers. You have to keep their needs, you know, on top. And then good things happen. If you, I feel like one of my operating motives is I always want to give value before I ask for value.

Or I always want, you know, you could almost think about the value you provide to your customer and then the price that they pay to get that value, which is not only money, but also the time that is required for them to, like in my case, read a book or something like that. The combined cost of their time and money should be less than the value that they get from the product. and the difference between the two is the amount of goodwill that you have built up. And I always want to make sure that I had this surplus of goodwill, that people feel like, man, that was such a great value. Like, I would love to buy the next thing that he writes.

You know, I would love to read the next email that he sends because they feel like it's such a good trade for them that there's no reason that they wouldn't do it. And I think if I can keep that at the forefront of my mind, then, you know, hopefully I'll have another 10 years ahead of me. I think so. One of our core values is if you help enough people, you don't have to worry about money. And we call that marketplace service.

And you have done that so well by adding value to so many people's lives. And I got to ask, out of all the things, the anecdotes, the examples, what is the best first step you found when you share this with people with leaders to make better decisions, to start those habits? What's the thing that's the stickiest where people go, oh my gosh, yes, I can do that. If you just want something really tactical, which is a very specific way to kickstart a habit, I like to recommend the two-minute rule. So it's very simple. It just says take whatever habit you're trying to build and scale it down to something it takes two minutes or less to do.

So read 30 books a year becomes read one page. Or do yoga four days a week becomes take out my yoga mat. And sometimes people resist this a little bit. You know, they're like, okay, buddy, I know the real goal isn't just to take my yoga mat out. I know I'm actually trying to do the workout, you know, so this is some kind of mental trick, and I know it's a trick, then why would I fall for it, basically? And I get where people are coming from, but I have this reader, his name's Mitch. I mentioned him in atomic habits, and he lost over 100 pounds.

He's kept it off for more than a decade. But when he first started going to the gym, he had this strange little rule for himself where he wouldn't stay for longer than five minutes. So he'd get in the car, drive to the gym, get out, do half an exercise, get back in the car, drive home. And it sounds ridiculous. You know, it sounds silly. You're like, clearly this is not going to work for the guy. But if you take a step back, what you realize is he was mastering the art of showing up.

You know, he was becoming the type of person that went to the gym four days a week, even if it was only for five minutes. And I think that's a deep truth about habits. You know, it's something people often overlook, which is a habit must be established before it can be improved. You know, it has to become the standard in your life or in your business before you can scale it up and optimize it and turn it into something more, standardized before you optimize. And so I think that the two-minute rule kind of pushes back on that perfectionist tendency. Just execute a little bit. You know, execute in a small way, get some proof, get some evidence,

become the type of person or the type of business that does this consistently, even if it's smaller than what you ultimately hope to do. And then from that new, from that new foothold that you've established, you can advance and optimize and improve from there. Once you're showing up, there are almost endless opportunities for you. improvement. But you can have the best plan possible. And if you can't get yourself to show up consistently, it doesn't really matter. So the two-minute rule is perhaps a good place to start. Well, this is like the SparkNodes version of Atomic Habits. We're just scratching the surface.

So I assume every listener has read Atomic Habits by now. But if you haven't, you have to go pick up this book, get a copy for your entire team, read it. There's so much value. And James, you've added a ton of value to our listeners and to me today. So thank you so much for your time. Thank you. It was a pleasure. Really enjoy talking to you. Welcome back to the Entree Leadership Podcast. Oh man, James Clear is smart, isn't he? That guy's just smart. Man, I wish I was smart like that.

That's just fun. He's really good. And he, let me tell you, there's so many things in that material that you don't want to miss out on. Atomic Habits is just amazing. And he'll be speaking with us in the 2024 summit. I'm not supposed to announce that yet, but I just did. Check it out. You don't want to miss that.

Hey, if you want to be a caller on this show, leave a message at entreleadership.com slash ask. You can put your question in there. We'll get back to you and set you up as a caller, or you can leave a voicemail at 844-944-1070. The show, of course, is broadcast on YouTube and Apple and Spotify, podcasts and video and everything else. Lots of nice comments coming in.

The team doesn't let me read the ugly comments, although they're really funny. They would be fun to put on here. Like Dave reads mean tweets kind of thing, but instead, Dave will read nice comments. So here we go. Exactly what I needed from Apple. I've been subconsciously wanting Dave to do a podcast like this. Every now and then you find business nuggets embedded in the other stuff, but this is chocked full of wisdom.

And you can't find in other places. Thank you very, very much. Spotify listener says, best way to start the work week. Another one says, excellent episode as always. I love the new caller-driven format hosted by the goat, Dave Ramsey. not a goat what's that i really hope this comes out more than once a week well thank you once a week so you're getting dude youtube comments i love your podcast have been learning so much dave lots of words of wisdom thanks for the video super helpful dave thanks as always very nice

we appreciate you guys i like people saying nice things it doesn't always happen to me so it's a lot of fun oh an absolute lot of fun so we don't talk a lot about legacy builders around here but Entree Leadership Summit is actually a great example of how Ramsey Solutions has transitioned into this final stage of businesses is the fifth of the five stages. Back in 2015, Entree Leadership had a bunch of different events going. There were several one-day events. We had performance series. We did Master Series twice a year. I even taught every lesson at Master Series back in the day when we launched that stuff.

And we reached a point where I said, if something doesn't change, this company is going to be left high and dry when I die. Yeah, so we need to make our events less dependent on me and that opened up some possibilities Ultimately, we landed on an idea to create an event so good that if I wasn't hosting it, I would go Because I love all the speakers and that's what Summit is We bring the top minds and business the top speakers and communicators about leadership It is the type of conference I personally would attend and next year is Summit's 10th anniversary It's happening April 21 to 24 in 2024 in Dallas. Now, this is going to be a serious party, y'all.

So if you want your tickets to Entree Leadership Summit next April, and you probably ought to get them early because they always sell out. You can go on to Entreeleadership.com slash summit and get your tickets, and you'll be ready to rock and roll. All right, Derek is going to be next. Derek is in Illinois. Hi, Derek. Welcome to the Entree Leadership.

podcast. How can we help? Hi, Dave. I'm the general manager of a repair company. We have about 35 employees, and I am going to have the ability, or I'm in talks or to have the ability to purchase the company. And I'm kind of wondering whether or not I should continue down this road based upon some general differences I'm having with the owner on general day-to-day operations. Okay. So you don't agree with this. the way it's being operated now? Yeah, we kind of butt heads when it comes to personnel and the handling of employees. And if you own it, if you own it and you buy it from him,

why would there be a budding of the heads he would no longer have a say? Right. I think the important detail I probably omitted was that I think we'd had some talks three years ago about it being around this time, and now we've kind of pushed that timeline back another, you know, two year, two to three years. And I'm concerned about whether or not I can hang on for this, hang on that long myself to get there. So I guess, you know, I'm kind of looking for some advice on how to maybe. So why is he pushing the timeline?

I'm not 100% sure. I think it has to do with financials on his end. Okay. All right. So what is the net profit of the business after all the managers, including the owner, being a manager are paid. That's after he gets a salary. So it's making a million dollars a year.

Mm-hmm. Wow. And what's he want to sell it to you for? How much? Well, we had some discussions a couple weeks ago, and we're looking at around 3-6. Okay. That's not unreasonable.

And how much of a salary is he being paid? and the 960 one more time is net of that 125. Yes. And how much of a salary are you being paid? How old is this guy? How old is this guy? Mid-40s. Okay.

So why is he selling? I don't think he's in love with it. Okay. So why does he want to hang around? Like I said, I think my gut feeling, I don't have confirmation, but my gut feeling is that he's a whole not. for a financial number. He's got a number in his head of money he's trying to make.

In addition to the $3 million,6. Yes. Yeah, like, I mean, like he's, you know, putting away money for something or trying to secure a certain amount for his next venture or something of that nature. And how are you planning to pay him the $3 million? We've discussed for owner financing and then paying out of profits. You know, one of the things that, you know, kind of, it did come up in our most recent conversation is there's a significant inventory of products. Part of our business is selling things.

There's a significant inventory, probably around $400,000 with the inventory of products that we sell in addition to the repair. I don't know how that works. You know, is that going to be mine on top of the three, six? Wait, wait a minute, wait a minute. Here's how it works. Okay. There's three ways you can value a business. a small business for sale, okay?

The least a business is worth is book value. Book value is the receivables minus the payables plus any hard assets like inventory. Okay? So in other words, if you close the doors, collected all the bills and paid all the bills and sold off everything, that's book value. Okay?

Or in some businesses, you can, It's rare, but you can find some places you can do a multiple of gross revenues. It doesn't apply very often, and it's a bad method. I don't like it. The best method is a simple multiple of the, a simple multiple of the net profit. And so you're at about three and a half times your net profit is your multiple. You follow me? You don't get to do that plus inventory.

You don't mix these methods. it's either worth a multiple of net profit or it's worth book value, whichever is more. In this case, it's more to be a multiple of the net profit. So the way you all have valued it is not plus inventory, period. Okay. The inventory goes and a deal.

Now, a piece of real estate doesn't, but the actual inventory, the trucks, the equipment to do the repairs, the tool sets, the forklift, whatever the crap, all that stuff is,

is just part of the business, all of that stuff creates the net profit and a multiple of the net profit is the valuation. Does that make sense? Yes. So 3.6 is a good number. 3.6 is a good number. 3.6 plus inventory is not a proper methodology. And then another question, would accounts receivable be included in that?

No, that's what I just said. They're part of book value. Okay. All right. I just wanted to double check because that was another point that we were talking about. He's not a sophisticated seller, or he would know this. He's just a guy. Okay.

This guy that's got a company that's doing pretty good. All right. So here's what I would do in your case, and that's why you're calling. I would say the 3.6 is a really good number. If I were in your shoes, I would offer him 125 plus 960. I would, whatever percentage that is. In other words, if I were you, I would live on your current salary, and I would give him 100% of the profits above that or 90% of the profits above that.

Okay? Real profit. You live on your old salary until he gets his three six. So let's call it a million. And that means in three years and half he's going to have all his payout. That might solve his problem that he's dragged butt in his feet around on if he thought he's going to get all his money that fast. Okay. So if you give him 90 cents, 90% of profits or 80% of profits after you receive only a salary of 75 or maybe 100, I don't care, something like that.

In other words, you're not going to take money out of this until you get him off your back. And if profits go down, you don't owe him anything except the profits. You don't have a fixed payment. So if there's a COVID quarantine and your profits went in half, you don't owe him 900,000. it owe him 400,000 or whatever, right? Right. I'm going to give you all profits above X or a percentage of profits above me taking this base salary until we get you to 3-6, whatever that timeline is.

It should be in the three to five-year range that you get all your money. And if we're going to do that, I want to execute that sometime in the next 12 months. And you get some out of your year. Yeah, from your experience, you think, just, a forward conversation, you know, offering something to that nature will move this along? I hope so. Otherwise you're going to, or it's going to help you discover what the blocker is. What's the blocker?

Because if he comes back and goes, no, go, okay, I don't understand. Because we've agreed on a number, and I figured out of the way to get you the number really, really fast. Why are we waiting? I don't want to wait. And this is how it would be if I was sitting there. You've got to help me here because I got to understand. I don't understand. Because now, what are the differences of opinion about how operations go that y'all are having?

What's that over? He wants to be tougher. He wants to be tougher than you or vice versa. He's definitely tougher than me, a little more old school, a little less, you know, building, a little less willing to deal with the employees that are, we're kind of, don't have in this day and age, you know, where you have to deal with things a little bit differently than you could have 10 years ago. Okay. If it means being angry or brusque with them, I would agree with you.

If it means I'm going to require you to work while you're at work and freaking come to work, if you call that old school, then you're getting ready to fail. No, that's true. Okay. All right. It's not, it's more about, you know. It's how he treats people. How he treats people.

Yes. Okay. Yes. And it's about putting money back in and, you know, upgrading and continuing to, you know, reprim the engine or reinvest into the machine. Yeah. And you're not going to be able to do a lot of that until you get him paid out the way I describe that formula, okay? Right.

But at least he's going to be going really fast. And you've got no payments and $900K coming in. You can really do a whole lot. Yeah. And that's, you know, that would be ideal for me. That would be something that I would, you know, I would like to go for. I think, you know, they were looking, or he's looking for more of a, you know, a 30-year amortization, but I told my, like, I'll never drag it out of that long. I don't want to be in

business with you for 30 years. I don't want to be in debt for 30 years. There's no prepayment penalty. I'm going to pay you out. Right. And he could take all that money and invest it and make more than you're going to be paying him because you weren't going to pay him a high interest rate anyway. He put in mutual funds. He'll make more on it than you were going to pay him an interest. Right. So, you know, he doesn't want to keep a low interest 30-year-am. He just thinks he wants steady payments so he can go on to his next thing. He doesn't.

He wants $3,0.6 in his checking account. That's what he really wants, if he's smart. I want it in there as fast as I can get it from you, because you might screw this up and I don't get my money. If I'm him, right? Yeah. Right. From his point of view, yeah, that is a real concern.

That's what I'm saying. So I don't want to drag this out 30 years. That's dumber than a rock. I want to get the devil out of Dodge, man. That's the thing. Hey, you're doing good. You're really thinking this through. You have identified the value system differences in the way we treat people and relationships

in the business. And that's very important. That's a sign you're going to succeed. And you've got a good nose for how people, your emotional EQ is excellent. Your emotional quotient. You're seeing this with really good, wise eyes. I like everything you're saying. So I think you're going to do really well.

I would just draw this thing to a head by laying something. on the table, but a little one-page deal sheet that outlines what I just said and go 12 months from today we're going to close and you're going to take 3-6 and you're going to take it as 80% of the profits. And the profits are based on me taking a $75,000 salary and no $125, so your 125 adds to the salary or adds to the profit base. And so you're going to get your money that much faster. And, you know, you get to take that money and invest it and you're going to be a, you're

going to be like a multimillionaire. You're going to love your life, dude. and sign off, sign here, press hard, there's three copies. You know, here we go. Let's get this done, right? That's how this works. That's an old school saying from back when people had, y'all remember the, what was that stuff?

It was the black paper in between that made other copies. I can't even remember what, carbon copy, thank you. They're telling me from the booth, yeah. Yeah, press hard, there's three copies. That was what we used to say when we were signed the sales order because it had three pages and you had to go through two cards. carbon copies. That's, oh, brother. God, y'all are dealing with a dinosaur on a microphone. T-Rex Ramsey here.

Whatever noise they made, right? Oh, my gosh. This is the Entree Leadership Podcast. Welcome to the Entree Leadership Podcast. I'm your host, Dave Ramsey. If you're enjoying this, thank you. Spread the word for us. Click on follow and subscribe and all that kind of stuff, leave a five-star review. If you were going to leave a one-star review, why are you listening for it? Go listen to something else. Leave a five-star review. You're helpful. We thank you. If you ain't anything nice to say, don't say anything at all, that's a plan. So subscribe, follow, and I share of the show. Click on the share button and share the link and let people know the podcast is here, tell your buddies about it. And we appreciate it. The rankings have been

growing steadily. And that's only because you guys are telling people. So thank you very, very, very much. We appreciate that a lot. Michelle is with us in Nashville. Hi, Michelle. Welcome to the Entree Leadership Podcast. Hi, Dave. Thanks for taking my call. Sure. What's up? So I am the C-O-O of a commercial roofing company. We finished out last year about $50 million. Whoa! And yeah, and I was listening to you the other day, and you said to call in and celebrate good news. So I was calling to do that. Good for you. Thank you. We recently won. the commercial roofing contractor of the year, and that was based on the culture of our company. So we're super-spyed.

For the nation? For the nation, yes. Wow. Very cool. So how many team members do you guys have? We have about 200 team members. And how many of those do the roofing, actually? About 160, 170.

Okay. So you got about 40 in sales and miscellaneous staff? Yes. Wow. So what is it about the roof? culture that causes you guys to win roofing contractor of the year for the nation? You know, we do subscribe to EOS, so we've been doing that for a while, and that sort of helped us hone in on what it is. But really, you know, it boils down to we don't deal with jerks.

We don't, you know, we take our time on the hiring process. You know, we listen to stuff like all the Ramsey things. You know, we really just try to focus on the people and making sure that we're not only hiring good people, but that we're working with good people. We try to make sure that our customers are just a quality of your team and the quality of your customer creates a nice day to work. Absolutely, yes. That's true. Yeah, because you've got to fire the people on your team that aren't worthy.

You know, you get a donkey in there. And I had a lady in here that day. She said, you have all the nicest people. And I said, yes, ma'am, we get rid of the others. Yeah, same thing, right? And then the same thing's true with your customers because a percentage of the public should be institutionalized. So, you know, you've got some customers just nuttier and a fruitcake. And you can't make them happy no matter what.

You're better off to send them to your competitor and let them burn up their bandwidth. Yeah. So that's how you're doing it. So what are some of the key things inside the culture? Once you've got the quality hires on the bus, what are some of the things you guys are doing or that are just observable that the, the person that works there for three years goes, this is an awesome place to work. Why are they saying that?

So we really, really focus on our core values. And when we see somebody that doesn't, we point it out. So if it's something specific to a core value, we bring it up. So, for instance, one of our core values is accountable. So if we've got somebody that's showing up to work late every day, we're not just yelling at them saying, hey, you're late. We're actually putting it in that thought process of, hey, you know, one of our core values is accountable, and that means you do what you say you're going to do.

When you took this job, you said you were going to be here at 8 o'clock. That doesn't mean 805. That doesn't mean 8.20. And we have it in that sort of context. Yeah. And so our employees have really gotten used to that. And so they actually bring it to us. Hey, this person is not being this core value.

They're not being that core value. And they bring it to the leadership or they call each other out on it. Yeah. So Maloloi that was running forward talked about that when he spoke at Summit, a few years ago. He was the president of Ford. He said, I told all the regional managers

that all the regional managers for Ford will be here on the third Tuesday of every month for a regional managers meeting. And one of the guys called and said, well, I won't be able to be there.

I have this and this and this I have to do. And he said, well, all the regional managers for Ford will be here. Exactly. Oh, yeah.

So the way we said it around here is we aren't late. The trains run on time at Ramsey. And so if you want to be a we, you're going to be on time. Because that's what we do. You know, like you just said, we're accountable.

We are accountable. And if you want to be a we, you're accountable. And so we're going to hold you to that. But we hold everybody to that, by the way, not just you. It's not, you know, there's no politics involved. Yeah. That's very good.

I like that a lot. Very well done. So you've got very clearly stated core values and they're not brochure fillers or really who you are. and then we hold everybody up and down the whole food chain to those core values, no exceptions, no special people. And then every, and, you know, so really what has built your culture then is consistency. Yeah, it has.

Yeah. Good for you guys. I'm so proud of y'all. Congratulations. Thank you so much. What was your rev the year before it was 50? I think we're at 44, 44. Okay. How old is this company?

Well, we've been in business since 1974. The current ownership took over in 2010, and at that point we were a $3 million company. Wow. So in 13 years, we've grown it quite a bit. Yeah, like over 10X. Wow. Yeah. Wow, 15X. That's pretty impressive.

Congratulations. Well, very cool. Thank you for calling in and bragging with us. We really appreciate it. Michelle, wow, commercial roofing contractor of the year, $50 million a year, top line core values that everyone's held to, one of the core values being accountability. Man, that is pretty cool there. Good stuff. Good stuff. Hey, folks, this is the Entree Leadership podcast. Remember a better, a weary warrior, than a quivering critic. Leaders serve. Leaders are active, not passive. Leaders act on principle, not appearances. This world needs more high-quality leaders. So choose to lead. I'm Dave Ramsey, your host. Thanks for listening to the Entree Leadership podcast.