EntreLeadership - Why Debt Isn’t a Tax Advantage for Your Business

Episode Date: April 15, 2024

Today we’ll hear about: Why leveraging debt will have you trading dollars for quarters and will prevent you from growing your company well A son that doesn’t know if it’s smart to buy a portion of his dad’s company James Clear talks about how the most productive people manage their time and why working hard won’t take you as far as you think How to remove feelings and communicate well when negotiating compensation  Next Steps 📈 Find out more about your business investing options with a SmartVestor Pro today: http://ramseysolutions.com/smartvestor   🗳️ Submit your question for a chance to be on the show with Dave Ramsey: https://bit.ly/3HUgAgi 👣 Find out what Stage of Business You’re In:  https://ter.li/axd39b ✉️ Sign up to receive tactical tools, advice and resources in your inbox every week: https://ter.li/y8qdo7   🏢 Attend EntreLeadership Summit: https://ter.li/fcazl2   🎤 Attend EntreLeadership Master Series: https://ter.li/wcjhpu ☎️ Learn more about EntreLeadership Coaching: https://ter.li/ycznhl 💵 Learn more about Ramsey SmartDollar: https://ter.li/4imot0   🏅 Help us make the show better! Please fill out this quick survey form: https://bit.ly/3O8fRvh   Offers from Today's Sponsors NetSuite: https://ter.li/x1t20q BELAY:  https://ter.li/yohiu6 Payority:  https://ter.li/fh2oau Trainual:  https://ter.li/a8zexl Listen to more from Ramsey Network 🎙️ The Ramsey Show   🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💰 George Kamel 💸 The Ramsey Show Highlights 🧠 The Dr. John Delony Show 💼 The Ken Coleman Show Ramsey Solutions Privacy Policy https://www.ramseysolutions.com/compa… 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 at any stage of business and leadership. I'm Dave Ramsey, your host. Thank you for joining us. I've been doing this business stuff, small business stuff, from a card table on my living room 30 years ago to where we are today with about 1,100 team members. So you're listening to someone who makes decisions like you make every day. runs into problems and shovels the same manure. You shovel every day. If you're looking for a think tank with theory, you're in the wrong place. I can't help you.

We are practitioners. We actually do this crap. We get up, leave the cave, kill something, and drag it home around here every week for 30 plus years. Thanks for joining us. If you want to be a caller and ask a question, small business leadership, leadership in general,

this is what we're here for. Go to ontreel leadership.com slash ask can leave your question at the website. The team will get in touch with you. We'll make you a caller, or you can leave your voicemail at 844-944-1070. Josh is with us in Charlotte, North Carolina. Hey, Josh, how are you? Hey, Dave, thank you so much for your time.

Sure. How can I help? Yes, sir. So I run a family grading business in Charlotte. I'm the second generation. My father started it out years ago. I've been running the day-to-day for about 10 years now. and our gross revenue is around $3 million.

Good for you. With 11 team members. All right. So the question is this. I really like the idea of running a debt-free business. With our cost of equipment, what it is, that's not the easiest thing to do. My mom, she still handles the books, and whenever there's the discussion of equipment needs, the question always comes up whether we're going to finance it or do a cash purchase.

So her whole lot of thinking is that we should use the low interest rate loans to help purchase equipment and help our tax burden with depreciation benefits. I mean, you have depreciation benefits whether you borrow or not. That is true. It's the exact same appreciation schedule. It is not affected by dad at all. That is correct. Okay.

So the only question is whether you can write the interest off, right? Correct. Okay. And so we have, I mean, we're very conservative-minded. we're definitely not over leveraged. She's very, we're... How much debt do you have? Over analyzers?

We got about 446 at this time. On a $3 million business? Yes. Yeah, I ain't conservative at all. Okay. That's a lot of debt. Because, I mean, what's your margin on this? What are you making?

300 grand net? Are you making 10% margin? Sir. Your margins higher than 10%. Yes, sir. Oh, good. What's your margin? Sometimes we're up.

around 20. Wow. Awesome. Okay. So you can make 600 grand on that and you got $400,000 in debt. That is less risk than I thought. Okay. It's not it's not it's not it's not it's not a well-funded risk, but it is risk. Okay. I got you. All right. So let me, let me address your mom. Let me address your mom with this story and, and it'll help. So I was in college. I grew up in the real estate business. Mom and daddy were in the real estate business. So I was in college. I got my real estate license when I turned 18 and I was getting a real estate and finance degree. and I was selling, I was in, at Knoxville, and at the University of Tennessee,

and I was selling real estate in this small town south of Knoxville, and I sold this old farmer, this piece of ground for 90,000 bucks. Okay. And so I'm like, what am I, 20 years old, 21 years old, and I'm a college student, so I'm brilliant, right? And so this guy comes in to the closing, and in his overalls, dirty, $90,000,

and the real estate closing. And this can only happen in small town, Tennessee, right? Or maybe even small town, North Carolina, right? And he reaches in the top bib of the overalls and pulls out a wad of money and sets 90,000 cash on the table. You could see this happening because you know these guys, too, don't you? Yeah. I do. I sure do. I think that's one of my mind right now.

My mind about exploded, and I'm like, no, you don't want to do that. You're a farmer. It's a business. You want to borrow the $90,000. At 10%, that's a $9,000 write-off every year because you've got $9,000 of interest every year, and you're going to have a write-off. And this old guy looks at me and spits in his cup and says, boy you're in college ain't you? And I said, yeah, yeah, what do you mean? He goes, so if I pay the bank $9,000 instead of just using my money, I get a tax deduction of $9,000.

I said, yes, sir, that's exactly right. And that's called leverage. And he's like, yeah, he's grinning at me like I'm an idiot because I am. And he said, so when I'm a. write that $9,000 off in my taxes, if I'm in a 30% tax bracket, how much money does that make me? I say, well, about $3,000. And he says, so college boy, you want me to trade $9,000 for $3,000, and you're calling that a deal. Okay. That's my answer to your mom. Okay. All that interest that you're paying, you're getting a quarter on the dollar back. There's no break here.

you're trading dollars for quarters. If you want to do that, send me the dollar. I'll pay a quarter of your stuff. Can I add one little caveat to this, though? Because one thing that we do have the option of on several of our smaller pieces of equipment is zero percent financing. Yeah. And that's one thing she always throws up is that we've got zero percent financing. So we have six things financed right now.

Three of those loans are all zero percent. Okay. The max is at four and a half. one is at 0.9%. So in between 0.9 and 4.5% on six loans, okay? Three of which are 0%. So she's like, well, if we keep that money in the bank, don't use our own capital.

We're gaining a little bit on our emergency fund, you know, that we have. So this is right, let's run the numbers out of that. How many, how much dollars are we borrowing at 1%? Let's see, at 1%. We have left on that one. $40,000. Huh? $48,000 at $1.000 at these super low interest rates or 0% or whatever, right?

Now, the 0% interest rates are roughly $275,000. $275,000? Yes, sir. Yeah, okay. All right. And so you've got $275,000 in the bank, and you're making 4% on it. Yeah, between we're at 4.5%. Oh, wait a minute.

You've got to take off 1% on part of it, but so we're not really making 4. making about three on, okay, so let's see, three times two. So you made $6,000. Dad gone, man, changed your whole life. See, that's kind of, I want the dollar amounts are just ridiculously stupidly low. She feels like she's really doing something smart and sophisticated, but when you run out what she's actually making, you can't buy a steak dinner with it hardly.

How do we deal with the fact of just having the cost of our equipment being so high. I mean, just the financial... You know what an interesting thing is when you start paying cash for all of it? You're going to start buying it differently. Okay. You're going to buy different pieces of equipment or you'll negotiate differently or you'll, you know, you'll buy it from people who got repoed because they tried to do what you're doing or whatever, right?

That's what I understand. I mean, I know that 0% is not truly 0%. We're paying for it somewhere. Well, you know that. Yeah, I mean, it's always based... You have to do MSRP to get the zero on a car. I don't know what it is on equipment, but... Usually there's caveats in there.

You're not getting the best deal on the equipment. We know that, right? They're not going to lose money on a deal. Yeah. They're making it somewhere. And so it's in their margin. It has to be. They're not non-profits.

I can tell you that. Caterpillar finance makes more money than freaking caterpillar. So just like Ford Motor Company, Ford Motor Credit, makes a lot more than Ford makes. So it's their netherland. number one profit center in these things. They're not, I got a buddy runs a huge forklift operation, and he makes a lot more on service and finance and leasing than he does on the actual sale of the forklifts.

The forklifts are just a way to get customers. I'm looking at it right here in all four of those zero percent, and the 0.9% are all cap financial. Those are all. And I don't even know anything about your world. I just know enough to be dangerous and read your tea leaves. So, hey, here's the thing. Let's try this.

Here's an idea. Okay. So, bottom line is that we know the tax write-off thing is bogus because you're trading a dollar for a quarter. You understood that math, right? Yes, sir. From the bib overhaul guy, right? Okay. Yes, sir.

Then the other part, if it's zero or low interest, the second argument or discussion is we're really only making $5,000 or $6,000 on all this crap. So it's not like we're whipping their butt. you know it's not like it's a six hundred thousand dollar swing it's a six thousand dollar swing you know and so it's not much that's rule number two rule number three our problem number three is we're probably not getting the best deal on the equipment we might have got we might have saved six thousand dollars on the equipment where we just pay for it and then we wouldn't have to go through all this gyration uh number four and here's my last point okay um i've art known i got five i'll give you four i already give you number four and that was

you're going to make different decisions when you're paying cash. Correct. On which equipment to buy, whether you buy it used, whether you buy it, maybe what you're doing. So that's number four. Number five is this one. And this is how we can close it up is with this. Because it's a great discussion, Josh.

And I'm not probably making fun of your mom. She's done a great job. She's run a great business. It's a generational business. Y'all are doing a good job. You're not being stupid, but in terms of leverage, it's just a fun discussion because everybody thinks this is smart. And when you get down into it,

you start to realize there's not much smart really going on. The last thing is this, if you have zero debt for the first time in your company's history, all this has paid off and you don't borrow, you walk different. That's what drives me for this because I know the pressure can be off. You think different. You're calmer. There's no distractions in your brain. firing off about 0% with cap financial.

There's nothing going on over here. I'm thinking about this deal. I'm thinking more clearly, you're more precise. There's a thing that was around your neck, that's not around your neck anymore, that weight is gone, that you don't even know is there.

And that's what the Bible means when it says the borrower is slave to the lender. We're not literal slaves in our society today. There are literal slaves in Pakistan over debt, but not in the U.S. You're not a literal slave, but there is stuff that happens between your shoulder blades called tension that is relieved that you don't even know is there because you carry it for so many years. You're used to it. And then when that tension's gone, you breathe a little deeper, like good mountain air going down into your lungs gulp, gulp, right?

Versus I can't breathe in the freaking smog. And so it's that, and once you go there, you'll never go back. So the challenge for me to you guys would be this. Try it. Pay everything off. Run it a year or two debt-free. I've never known anybody to go back after that. But if you hate it, you can go back in debt. Oh, there's plenty of opportunity to do that. Right. So it's not like this is an irreversible decision. So try it. Try it.

Well, I think you've given me some great talking points, Dave. Five of them, baby. Hey, man, I love talking to you. You're a sharp dude. And I'd love talking to your mom, too. I think she's sharp. I'm picking on her concepts, but not her. Any mom that run a books and a caterpillar business and a earth-moving business, she must be rock and roll. I like her already. So very cool stuff.

And good to talk to you, sir. We appreciate you being with us. Well, Contrae Leadership Summit is next week. We're about to hop on a plane and go meet almost 3,000 small business leaders like you in Dallas for an incredible three days of leadership growth. That means you're nearly out of time if you want to join us on the live stream. The tickets have been sold out for a long time. The summit live stream is available, and it's your chance to build momentum in your business with insights from folks like Coach K, James Clear of Atomic Habits,

Mike Rowe of Dirty Jobs, me, Ken Coleman, Dr. John Deloney, and many others. When you invite your team to watch this with you, it's also a rare opportunity to strengthen your team culture and create buy-in. All of this kicks off first thing Monday morning. If you want to show it to your whole team, we'd love to have you do that. It's a live stream. Go to ontareleadership.com slash live stream and get your ticket to show the whole team before it's too late. Bryce is with us in Buffalo. Hi, Bryce.

Welcome to the Entree Leadership podcast. Hi, Dave. Thank you for having me on today. Sure. What's up? So I work for my family's landscape company. I'm a foreman there. have about seven employees.

Last year we did about $600,000 in sales. And about four years ago, we'd been in business since 1992. About four years ago, we opened a new division, and that was part of our snow removal. And it is snow removal of residential driveways with farm tractors and snowblowers. It was kind of a new concept to our area that we brought in. And it has grown immensely over the last four years. and it's kind of been a little bit my pet child here.

I've been kind of running a lot of that division. And I would like to approach that. Is that in addition to the 600K or is that part of the 600K? That is part of the 600K. So how much did that stuff make? This year we did about $100,000 in overall sales at about a 40% profit rate. Okay. And so I want to approach my dad about possibly buying this segment of the business off of him.

Because it's kind of been my baby here for the last four years. And I just kind of want to know what your recommendations would be to as how to approach him. All the machines, all three machines are paid for. We paid cash for him. And so I'm just trying to find the best way to approach him about that. I think he would be open to it. I'm just looking for some advice. It made $40,000 bucks.

Yes. And you're going to eat how? No, this would still be in, so I would still work for the business. I intend to grow this division over the winter because I get laid off partially through the winter other than this. So I would like to grow this division. So you're going to continue to work for the original company. Correct. And run this in the winter when you're laid off.

Correct. Okay. And the $60,000 worth of expense did not include paying you anything. It was paying your labor and your equipment cost. It included paying me because I'm currently on payroll. What did you make out of the 100? Roughly almost 10 grand. Okay.

And it's what, four months of work, five months of work? About five months, yes. Okay. So you made $2,000 a month doing this last year while you were laid off? Correct. And what do you make at the other gig? Overall combined, because it's all, currently it's all under the same business. My take home last year was about 61. Okay. And so this idea would add $40K to you?

Because I would like to, my family's two or three generations of business owners, and this is how I kind of foresee my start. I have a passion for this segment of the industry. What's the equipment worth today? Approximately maybe 110, $120,000. Okay. All right. Well, this is not a business that probably has much of a value in the marketplace

where your dad to try to sell it to someone else, but we'll still use the same principles for talking about this as if he were going to sell it to someone else. So there's two ways, three ways, to value a small business. One of them is a multiplier of gross. That does not apply here at all. Two is what we call book value, which is if you closed it and sold off the assets. Okay. And so you said you got $120,000 worth of equipment.

So the business is worth $120,000 if you closed it and sold off the assets, unless you could get something for the customer list, which is probably your customer list on the other things, or probably doesn't have any value. Okay? Because you wouldn't sell the customer list to a competitor. So book value is probably 100, 120. The last version of appraising a business

is some multiple of net profit, which is the $40,000 number after the manager and the laborer was paid, and that's where we are. You've got $40,000 bucks left over and after all the expenses are paid. So usually a four multiple of that

or a five multiple of that number is what the business is worth. So it's worth $150,000 to $200K. Okay. All right. And so sometimes we talk to generational transitions about the founder selling the next generation, the business,

and the next generation gives them all the profits until they hit their number. And so if your dad agreed to sell it to you for $150,000, you would say, I'm going to take no more than $10,000 out of this business while I'm still working for you in the summer. And every other dime of profit is going to go to you to pay off what I owe you until we reach $150,000. Gotcha. Which would be three and a half or four years, right? Or if you grew the business, it could be even faster. But I'm going to give you all the profits until we get to $150,

and then I'm going to own the business, which means I own the winter snow business, and I own this equipment. Okay. And that's going to be our deal. And our profit varies from year to year. So this year we had a lighter snowfall year. Other years, our expenses are higher just due to the amount of...

Well, and if you're a hustler, it could go up just because you hustle, right? Yes. You go get more business. Yes. We've... Over four years, we grew this from 26 clients. to 210 and I have a wait list of around 30 for next year. Okay, perfect. Yeah, and so what we figure out way to do is get all that wait list on there too.

So the faster we make profit, the more profit we make the faster we pay Dad off, we have it clear. That's the thing one. Now, how do we talk to Dad about it? So what's Dad going to say when you come up and go, hey, I'd like to talk to you about buying this? I think he would be open to it. I think I would just have to present kind of what you've laid out on how. it would actually unfold.

Because like I said, I've put a lot of the time and effort into getting this up and running and doing the marketing for this portion of the business. Yeah, that doesn't give you any right to ownership, though. That was just your job. No, I agree. Okay. All right. As long as he's okay with selling it off, then the conversation shouldn't be difficult, right?

I do not believe it would be difficult, no. Okay. Because he's going to go, okay, so you're going to give me some money for the next. three or four years and then you're going to clear this thing and then that's going to put you in a position to start talking about buying the other thing out someday too right yes and we have a conversation this month we've been talking about that over the long term but that's still well this gives you more money to do that correct yes because your income's going to go up after you after you clear this thing with your dad yep all right uh other siblings involved uh not currently

I have one younger brother who we're not sure where he's going. All my other siblings have moved on to other trades or other industries. Okay. All right. Very cool. All right. Good plan. That works for me.

I think you just sit down and talk to him. As long as you don't have a relational issue with him, it's a fairly simple conversation. Just go, you know, it looks, what I understand from talking to Dave is the valuation is somewhere around four to five times the net. And so it's 160 to 200. I'd like to do a deal at 150. which is a little less than that, and give you 100% of the profits after I take 10 grand, my current salary, until we get to that 150 number, if it's one year, two years, or five years.

Okay. All right. And I'm going to work my butt off and try to do it in two. Yes. Okay. I appreciate that. Yeah, I think that'll work beautiful. Hey, you're a sharp young dude.

Well done. You've thought this through. You're using a lot of wisdom. There's no entitlement in your voice or your vocabulary. Larry. So I think your dad's done a good job and I think he knows it. So he's going to make it easy for him to work with you. And in terms of doing something with you, he's probably got that in the back of his head anyway. He's probably going to make him proud that you ask about it. So way to go, man. Way to go. Good people. Very well done. Very well done. That's how it's done in America.

As long as there are garages, there will be small businesses. As long as it's there's someone with an idea. I'm going to use a farm tractor, and I'm going to clean snow in Buffalo. And yet there's people that are unemployed. Not named Bryce. This is the Entree Leadership Podcast. All right, folks, so several years ago,

a good friend of mine named Donald Miller, who's a great writer and lives in our community. We've got a whole collection of these people in our community in the self-improvement space, Donald's one of them. and famous for the story brand structure that he uses. Absolutely good guy. He and his wife Betsy have been friends of sharing mine for a long time. Anyway, I was having a men's event up at my house and a bunch of guys coming.

And he said, hey, I've got some authors over. Can I bring him with me? Yeah, yeah. So one of the guys that came up with him was the first time I ever met, our guest today, James Clear. And James, do you remember coming to my house? Sure do. It was a great time. Thank you so much for having me.

Yeah, that was before Atomic Habits. before James Clear was a world-renowned rock star. Before, I knew him before. And so, and man, you have gone on to do incredible things. This book is an absolutely iconic book with 15 million sales now. You dominate the bestseller list for the last several years. Anytime we're putting a book into the same space, we go, okay, what Clear did you last week?

We've got to beat that if we're going to bump him off for one week and make him be number two again for a minute. And you really, it's incredible. The ride with atomic habits has been meteoric, hadn't it? It has been a wild ride. Certainly, I think, has outpaced any reasonable expectation you could have. And I just feel really lucky. I'm glad that it's, you know, people are finding it useful.

And ultimately, you just want to try to make some kind of positive impact. And I'm just glad people are enjoying it and using it. You know, you went through a different door on the subject of habits than a lot of people who have taught on that. and you also put the cookies on a shelf where everybody can reach them. And I personally, as someone else is in a similar space, observing, okay, why did atomic habits blow up? What was the big deal? What was the magic sauce, the special sauce that caused it?

And I think your different take on habits, you know, resetting your identity and some of those things in the book. But also the language and the way you went at it, it wasn't so high-brow that it was a very useful. book. And I think that's why it won. Why do you think it won? Those are all good reasons. I think it's probably a combination of a few things. You know, positioning matters a lot. So Habits is a topic that everybody's interested in. That's one thing. But your other point that it's very useful, I looked at, you know, I'm not the first person to write about habits, right? And it won't be the last person. And it's a very universal topic. But there was kind of a gap there where people said, okay, I know a lot about habits.

or people talk about it a lot, but what actually do I need to do to build good habits and and break bad ones? And I thought, well, maybe that's a gap that I can fill. You know, maybe I can try to make the most useful book on the topic or the most practical book on the topic. And I don't know if I hit that mark or not, but that's kind of what I was striving for. Well, I think the proof is in the pudding. You did because, I mean, 15 million people said yes. And you and I both know some people buy a book and use it for a coffee table, for a coaster on the coffee table, they never open it, but a whole bunch of folks have read this book and told other people to read it. The last time a Habits book dominated this space was seven habits of highly

effective people with Stephen Covey, and it held the, I mean, it held the ring, the brass ring for a long, long time in this self-improvement space. So, hey, so let's talk about you're going to be a summit next week, hanging out with, we've got about 3,000 folks coming that are small business leaders. And, you know, you're going to be able to present to them. But for those that are listening or watching this podcast today, talk about this whole subject of identity around habit and how that applies in a small business setting. The entrepreneur who's got 10 people working for them, they're putting out fires all day long. It's very chaotic to pan back and get control of that environment is a thing. And I think it fits in your wheelhouse. So usually when we talk about habits and

talk about why they matter, we talk about results. You know, habits will help you be more productive, or they'll help you make more money or reduce stress or get in shape. And it's true that habits can do that stuff and that's great. You know, I want results as well. But I think the deeper reason that habits matter is because your habits are how you embody a particular identity. So, you know, if you you make your bed in the morning, you embody the identity of someone who's clean and organized. Every time you study biology for 20 minutes on Tuesday night, you embody the identity of someone who is studious. And so your habits provide evidence of the type of person that you are.

And I think this is the real reason they matter, which is that every action you take is like a vote for the type of person you wish to become. So, no, writing one sentence does not finish the novel, but it does cast a vote for I'm a writer. And no, doing one push-up does not transform your body, but it does cast a vote for on the type of person who doesn't miss workouts. Now, if you put yourself in the seat of an entrepreneur, somebody who's running a small business and you ask, you know, how do you figure out what to prioritize? How do you decide? What to spend your time on each day? I think you can start to get at that question and go back to that.

Who is the type of person I'm trying to become? What is the type of company we are trying to create? You know, if you scale this out to like the culture side, if you think about it in terms of what has, habits do we have as a team, as a group, as a business, and what votes are we casting each day? Who are we trying to show up as? It gives you maybe something a little bit deeper to hold on to when you think about why are we doing this process for the thousandth time. Why are we having this meeting again? Why are we talking about this topic again? You know, the question that we're ultimately trying to come back to is who are we trying to become and how are our habits reinforcing that? You know, what step, what direction are your habits carrying you toward? Sometimes a question I like to ask is, um, can my current habits carry me to my desired identity or sorry can my current habits carry me to my desired future so we think I'm sure you got a bunch of things in your mind when you think about what we want to be as an entrepreneur when you want what you want the business to become but are you on a trajectory to get there and if not then something needs to change with the habits so it's really linking that long-term vision that you have as an entrepreneur with the daily habits that you and the team are following yeah Henry Cloud talks about desired future a lot, and he always says, and he'll be one of our speakers this year, too, what must be true that is not true today that causes us to be at that desired future? And what must be said of us. And I remember when I was a young sales guy, an entrepreneur,

I hearkened back to that. I consumed the atomic habits as an audio book on my walk, on my morning walk. And so, but I thought immediately, I thought, I used to, when you went through the whole thing is casting a vote. I used to be late for everything because I was important. I was busy. I was frenetic. I was everywhere, but I was nowhere, you know? And I sat down with a guy. He wasn't technically mentoring me, but he did that day. And he said, you know why, he said, if you had the chance to meet the president of the United States or you had the chance to meet with the rock star of your choice or whatever it is, somebody famous, that you would be gagod, would you be on time?

I said, yeah. He said, so what you're saying is those other people aren't as important. That's arrogance to be late. And I used to walk around in my identity, the vote I would cast it was, I'm late for everything, but I'm busy. I'm late for everything because I'm so busy.

In a sense, I'm saying I'm important. I'm arrogant, you know. And so I changed it that day. I'm a guy who's not late. And the trains at Ramsey, run on time, baby. I mean, I hit my commercial breaks on time. I'm known in the radio world. Our meetings have a clock countdown before you come on stage.

You know, exactly. You know, they run on time. We don't run an hour over. And, you know, we don't do that. We are on time. And it's emanated now 30 years later from that first discussion in my own brain, casting a vote, I'm a guy that's on time. Now we're an organization that's on time.

And we deliver products on time. And so it manifests itself all the way through the whole business to change that one identity piece in my head. It's a good example. I think another question that I like is, what am I optimizing for? You know, and so in this example you're talking about, listen, we're optimizing for being efficient, for being on time, for being the kind of culture that respects the people that we're around and the people that we're meeting. And this is one habit, one way of showcasing that identity. And whatever the answer is to that question, what am I optimising? I mean, it's different things for different people. It's different things at different times in your life. You know, sometimes you might be optimizing for money. Sometimes you might optimize for family time or creative freedom or whatever. But you need to lean against that question for a little bit. Try to figure out what the identity is that you're trying to shape and then back into the habits that can reinforce that identity or the ways that you can cast votes for being that kind of person. And I think that gives you maybe a new lens for seeing why your habits matter and why to focus on them day in and day out.

So when we're coaching these businesses that have two to 30 team members, and there'll be a whole bunch of those in the audience. A whole bunch of them are 200 team members, too, but a bunch of them are in that smaller stage. I remember being at that stage. Through the Atomic Habits lens, how would you coach them to organize their day? Force ranking by priority, or how would you coach them to organize their time? Yeah.

There's actually one question that I come back to a lot, when determining priorities. And it's, what is the work that keeps working for me once it's done? So let me give you an example. So I wrote a Tom of Cabot. A book comes out. I'm going to do a bunch of interviews to try to promote the book. So I did podcast interviews.

I did radio interviews. I did TV stuff. And the radio interviews were fine. But I've kind of decided that I'm not going to do radio interviews anymore unless there's a podcast component to it. Because once we get off air, whether that five-minute segment or 10-minute segment or whatever. Now the work that I just put in is vanished. And with a podcast, it gets recorded. And it gets published on, you know, YouTube and social media and elsewhere and so on. And, you know, at this

point, I've done 250 plus podcasts about the book. And so there's someone somewhere listening to one of those right now, while we're talking. And it's almost like there are two versions of James out there right now. There's the one right here that's live talking to you. And then there's the other one that put in that previous effort that's being listened to right now. And, you know, there are a lot of things in life and in business for sure that are kind of like weeding a garden. You know, like nobody likes weeding a garden, but you just got to do it because the weeds have to get out there for the garden to thrive.

So not everything that you do can fall into this category. But if you can just do one thing a day that continues to work for you once it's done, where that work starts to stack and accumulate, it doesn't just vanish once the time is gone, man, you turn around in like a year or two or five. and you have this tidal wave of previous effort that continues to work for you. So I think the answer to what should we be spending time on is what is the work that's going to keep working for us once it's done? And can we find a little bit of time today to do one of those things. And if we can do that today and do it tomorrow and just keep stacking the days up, you're going to end up in a really good place in a year or two.

Yeah. And while you have to spend some time putting out fires, it's just mandatory. The building will burn down if you don't do it. but if you spend all your time putting out fires, almost none of those fire calls are things that last. They're almost always instantaneous issues and they evaporate when you're done. And so it's the opposite of what you're saying.

All you are as a fireman running from fire to fire to fire to fire, you're being reactive rather than proactive and everything you're doing. And you're not managing your time. It's managing you. And you're not working on things that last. You know, this doesn't work for everybody, but as and it doesn't even work for me all the time about 70% of the time probably I leave my phone in another room until lunch each day and so I get the morning to work on my agenda rather than responding to everybody else's agenda or responding to the fires and I don't know what version of that will work for you if you're listening to this right now but try to figure out some version that does work for you whether it's the phone until lunch or whether it's carving out an hour in the morning or whatever but there needs to be some dedicated space where you can work on the thing that accumulates.

not the thing that evaporates, where you can work on the thing that's your priority rather than just responding to the rest of the team. Yeah, when you work for the phone. Don't protect that time. Yeah. It just gets swallowed up. Exactly. When you work for the phone instead of it working for you, when you work for the email, you feel a slave to the email chain instead of it, the email being a tool that causes efficiency in your organization or causes work to get done or productivity or whatever heading we want to put it in, then you are a slave to the stinking little box that you carry in.

your pocket and a whole bunch of folks are falling into that trap it's tough because you know email and phones and whatever like they're useful they you know they allow us to reach tons of people they scale and so on but um there's that line by chris saka where he says your email inbox is a to do list to which anyone in the world can add an item and you know it's like you have to you have to take control of it otherwise it's going to start taking control of you well and you can't it's where your ability to actually think about the problem that's in front of you because you've got this distraction laying under your right hand buzzing and beeping and your brain just will not stay on the problem. And we're creating, even if you're not ADD, you're creating an ADD environment

for your thought patterns. You know, Dave, the word you just used think is so obvious, but it's so easy to lose space for that. I would say this is probably one of my best habits as an entrepreneur, which is I have a weekly reflection that I do. So every Friday, it doesn't take that long. It's maybe 15 or 20 minutes. But I have space to actually sit and think rather than just be working. And then I also do an annual review. But I think that it is so unlikely if you just keep your head down and work hard.

And by the way, working hard is very important and stuff that you shouldn't work hard. It's just that if you just keep your head down and work hard, it is so unlikely that you will be working on the thing that is the highest and best use of your time. It is so unlikely that you will stumble into the optimal way to run your business. The only way that you can really figure out the optimal way or get closer to the ideal way is to have a little bit of time to think. You need a period of reflection and review to look at what you've actually been doing and what you could potentially be doing and to try to close that gap. And the people who don't have enough time to think and are just busy working really hard,

it's just really hard for you to find yourself doing the optimal thing. Yeah, it's very difficult to be at your peak of productivity or efficiency when all you are is frenetic and responsive rather than proactive. And so, you know, we have six drivers that drive business. One of them is plan, have a plan, and be executing on the plan. And so people never win at anything accidentally, randomly. they win as a series of incremental intentional acts. And that's exactly what you're describing. And so...

We'll give you one of my favorite little business plan analogies and metaphors that I like to use. So I think a lot of times when people think, oh, I need to have a plan. They feel like, oh, I need to plan every step out. I need to know the whole path. But the model that I like is called A, B, Z. So I got this from this entrepreneur named Sean Puri. So A, B, Z. So point A is an honest assessment of where you are right now, which is just because

being self-aware, it's trying to understand what exactly am I dealing with, what resources do I have, what are my strengths, what are my weaknesses, what are we facing? Point Z is where you want to end, where you want to end up, that desired future state. So it's, you know, it's like a mountain in the distance. B is your next step. And the secret of the whole thing is that you actually only need to know B and Z. You don't actually need to know points C through why, because you take the next step and you get there and then you reassess. and you do A, B, Z all over again.

And it's kind of like driving a car toward the mountain in the distance and like the valley in front of you is foggy and misty and you can't really see where the road goes. But your headlights shine far enough for you to see the next step. And as long as you can see the next step and you still know what the mountain is

that you're driving toward, then you can make the journey that way. And what I think any seasoned entrepreneur knows is that a lot of entrepreneurship is really about trusting yourself to figure it out along the way. it's not about having every step planned, but it is about having the best plan that you can have at the time

and enough courage to take the next step and keep driving down the road. And as long as you know what that end state is and you continue to make progress, you can just continue to go day after day like that. You don't have to have everything figured out perfectly. It also allows flexibility, which is critical because things are definitely going to change.

Yeah, that keeps you from getting paralysis of the analysis. I mean, people get paralyzed by thinking they have to have the whole thing mapped out, and then they do nothing. And so they end up just sitting in the middle of the road and getting run over. I mean, it's just nothing happens. It's horrible, and this over-planning is a thing. But a lack of thinking through where we're going in the distance is a big problem. So very, very good.

We're talking with James Clear, number one, New York Times best-selling author of the Mammoth book, hugely successful, Atomic Habits. and I think you're seeing why it's successful. If you've not consumed that material yet, folks, it is time you read it. It's one of a Ramsey must-reads. If you want to be winning in business, you want to be winning in life,

it's going to cause you to have those elements to do it. A whole bunch of folks in our space are referring to James's work. I was with Craig Groshell the other day. He'll be speaking, Pastor Craig, at this event as well. And on his leadership podcast, we were both banging around, you know, what James Clear says about this. And so it's absolutely,

guys incredible. He's on top of what's happening. Now, I noticed you're doing a new app called Adams to help people build us. Talk. Tell us about Adams. Yeah, so we launched Adams a couple months ago. Atomic habits came out five years ago. And the number one thing that people have asked me for in that five years is to build an app for tracking habits. Now, there are many apps that can track habits. And the action of tracking is something I talk about in the book and when it's useful and when it's not useful. And so, I don't know, I just kind of had a little bit of hesitation about it. I wasn't sure if I wanted to do it or if I wanted to run a software team and so on. But I figured out a way to partner with Meta Lab, which is one of the best software companies in the world.

They built Uber and Slack and a bunch of other huge apps that you've heard of. And so they designed Adams and I strategically kind of let it and I also am responsible for all the content that's in the app. So what you get is basically something that pairs really nicely with atomic habits. If you read the book and you think, okay, that's great, I have a really good understanding of how to build habits now. What should I do next? Or how do I like take, put this into action or operationalize it? The app is there to act as kind of a coach and to carry you along. So you can enter your habits in.

You can track them each day. It gives you a bunch of stats and progress and so on. But it will also give you timely reminders. You know, if you fall off course for a day or two, it'll help coach you through. Does this habit need to change? Should you scale it back or shift it to a different time? There's a whole content library in the app. you get daily lessons from me, which are really short. It's like just two minutes, just a quick

like mindset shift or something to think about that day. And then there are also longer form articles for learning more about how habits work and how to build them and so on. And my hope is that the app will end up being the place that you come to again and again for that like reminder. You know, it's funny, there are a lot of books that have been written about, you know, say personal finance, for example. And you're like, well, why do people keep reading personal finance books if a lot of the material is still there? And the answer is it's because it's a very human thing that we all need, which is we need to be reminded.

You know, like, it is the most human thing to get distracted and you focus on the right things today. And then tomorrow something comes in front of you or interrupts you and you get pulled off course and you need to get back on track two days from now. And your habits are the same way. And so the app, you know, we all carries our phones with us all the time. So the app is with you day in and day out and hopefully provide some of those nudges to remind you and to keep you, you know, on the right course.

Now, was it you I was reading that was talking about the power of having a streak and not breaking, not wanting to break the streak? Just continuing with it to just not break the streak. Was that you? Yeah, so I kind of have two thoughts here. There is an example in atomic habits where I talk about Jerry Seinfeld, and then there are many other people who have done this too. But they just focus on don't break the chain, don't break the streak,

try to build up the streak of X's. And that feels really motivating when you build up the streak. Like you can feel really good to be on day 17 or day 32 or whatever. You know, you feel like you're making a lot of progress. But the challenge is when a streak breaks, there's the second conversation that happens in your head, which is like, oh, now I feel like I've lost my progress. And so building a streak is motivating, but breaking a streak is kind of demotivating. And so I like to pair this second philosophy or mantra with it, which is never missed twice.

So, you know, follow a new. diet for seven or eight or nine days and then you binge eating pizza. Well, I wish I hadn't happened, but never missed twice. Let's make sure the next meal is a healthy one. In my case, the habit that kind of launched my career was I wrote a new article every Monday and Thursday, and I did that for three years. You know, if I missed on Monday, I wish I hadn't happened, but never missed twice. Let's make sure I pour all my energy into getting one out on Thursday. And you see this pattern in a lot of top performers in different domains in life, which is they're human. They make mistakes like everybody else. But they tend to get back on track quickly.

They're pretty good about reclaiming their habits. And if the reclaiming of the habit is fast, the breaking of it doesn't matter that much. You get to the end of the year and it's just a little blip on the radar. Well, when you reclaim it quickly, then it's a streak that's still a streak psychologically. I mean, you're still getting the feedback loop.

So I'm at 1,461 consecutive days that I've walked or ran, a minimum of a mile up to 10 miles. And it rained in Tennessee this morning. And so the only reason I walked in the freaking rain, I'm the old guy in the neighborhood, walking in the rain. How weird is that? It's because I'm not going to break the freaking streak.

I did break the streak, though, with three days of this mysterious disease in 2020. And it put me in the bed. And so then I got out of the bed and got right back up and started walking immediately and running and everything else is back as fast as I could. because if I don't do that, I get fat.

And so I have to, you know, and so, but the streak did break, but I still count it as 14161 days, even though I had that three-day break, right? It's kind of nice to focus on total reps, too, rather than, you know, some unbroken streak or whatever. Like, if you're, I mean, if you start hitting the number of total reps that you need, the timeline, you know, whatever, we can debate the semantics of it, but it doesn't really matter. Particularly in exercise stuff, it shows up all. the time there. You're right. Yeah. The data's clear. Very cool. Good stuff. James Clear from Atomic Habits. He'll be with us this week in Dallas, along with a whole bunch of other folks like Mike Rowe and

Coach K, Dr. Henry Cloud, Craig Groschelle. The lineup is stellar. And I'm going to take a couple of the lessons and teach them myself. So it's going to be perfect. It's going to be a lot of fun. James, thank you, my friend. I'm so proud of your success. You're a hero. You've done a great job of helping people and look forward to seeing you again and hanging out with you next week. Thanks for spending time with us. Great. Thanks, Dave. Hey, check him out at, of course, social media at James Clear. James Clear.com. You can find the new app Adams he was talking about. And again, if you've not consumed atomic habits, highly recommend the audio book. It's amazing. But however you choose to consume books is great with me. I love, of course, hardbacked books too because I'm old school. But however

you're going to do that, make sure you do that. That's how this stuff works. So very, very well done. Good stuff. All right folks, we'll be right back on the Ontario Leadership Podcast. Thanks for joining us, America. So the Ontario Leadership Podcast has been a part of the Ramsey Networks for well over a decade. I've been an occasional guest on it during that time. And last January, I decided it would be fun to start taking some calls from some of you. And so about 14 or 15 months ago, I started doing this version of the Entry podcast, which is kind of a call-in type of a deal. And dead blame if it didn't work. A whole bunch of you are listening and the ratings have gone way up. Thank you for that. They mainly go up because you guys tell people

about it. Thank you because our whole marketing budget is your mouth. So click the share button, click the follow button, click a link or cut a link out and paste it and send it to your buddy and go, hey, listen to this guy and let people know that we're here. This is the only way the word gets out is the, and leave some five-star reviews. Your mama said if you ain't got nothing nice to say, don't say nothing at all. So it serves no point to troll me because I don't give a rip. It does screw up the algorithms.

If you want to screw up the algorithm, you can go do that if you want. But send us a five-star man and tell people it's nice, say nice things. It's a good thing. It's good for your soul and share it and subscribe and follow and all that. Wyoming's next, Sarah is calling.

Hey, Sarah. Welcome to the Entree Leadership podcast. Hi, Dave. It's such an honor to speak with you today. You too. What's up in your world? So I'm the CEO of an education company with about 35 employees, and we've done about 4.3 million in revenue this year, and my question is, how do I advocate to my board for the proper pay for our C-suite team? What kind of C-suite team have you got with 35 people? me a C-O-O so operations and a CFO finance who's the CEO

I'm the CEO oh I thought you said you're the C-O-O I misunderstood okay so you have a CFO and a CEO and you're both underpaid in a C in an operations there's three of us oh C O C-O okay so C-O C-O C-E-O and C-F-O and you're all three underpaid I don't I'm not Sure, it feels that way, but I don't know. Why does it feel that way? I make about, well, I make less than I did as a teacher with the same company. That's nothing to do with it.

Wait a minute, you're a teacher. You have 35 employees. The rest of them are teachers? The majority of them are, yeah. Okay, and the person running the place makes less than the rest of the employees? Yeah. Okay. I'm also a little confused as to why a 35-person organization has a board.

Who owns this? The founders own it. Okay. And they don't operate it. They turned the operation over to an external board? No, they are the board. Okay. So our current owners, they're not in the office every day,

and you don't feel like they're paying leadership enough because leadership doesn't even make what the downline makes. Correct. Okay. All right. It's making a lot more sense. Okay. So you're going to the owner and saying,

how does it feel to you that the CEO makes less than the rest of the staff? And the owner would say what? When I had that discussion with her last year, she got a little bit emotional about it. And what is emotional about it? I, you know, I feel like, well, it's a fuel thing. So they didn't do anything with my pay that year. And so this year I don't want it to come across as like, you know, confrontational.

Just can I have a conversation about why you feel that this is like the best pay for the C-suite? team. Yeah, and then she got mad about that? Yeah, she got a little bit twisted up about it. Thou doth protest too loudly. Sounds defensive like she knows she's screwing you. That's what my husband thinks, Mr. Ramsey. Okay.

All right. So, well, there's a couple things that need to happen here. Anytime you are negotiating or making decisions, there's two things that will give you great power in decision-making and in negotiating. And one of them is options. The second one is information. So anytime you're entering a negotiation, you need to have options other than the person you're negotiating with, lots of them to where that deal, you're not married to that deal.

And the second thing is you need to know a lot about what you're talking about. And so if someone in our organization says, I don't feel like I make enough, that doesn't really mean anything. There should be a reason you feel that. So you need some information. You need to do some research on what a $5 million, $4 million, top line education company pays their operating CEO. Okay?

And the CFO and the CFO, okay? It's a little unusual to have all three of those in a 35-person organization. I'll tell you. But you're pretty staffed up there at the top. But that's okay. That's okay. We still want to find out what the average pay is for a CFO of a $5 million, $4 million company and that is in the education space. And you just do a little bit of research. Mr. Google will tell you everything you want to know. I mean, you can jump on LinkedIn. There's all kinds of tools there for doing comp research, compensation research, and do some comp research on yours. And actually find some competitors and, you know, poke around, find out what they're paying.

maybe some publicly traded companies that I don't think they would be at $4 million, but there may be somebody out there that can give you some indication on some public stuff that will show what the pay should be. What do you make? I make about $125.25. Okay. And so I want to establish that that is market rate or that $1.75 is market rate or whatever. And I've got four or five sources.

That's information gathering, okay? which gives you confidence, not a feeling. It also gives you a valid basis to have this discussion. And then options gives you the ability to tell her to stick it and walk and take one of those options if she decides she's going to be emotional about you having a discussion and you run the whole freaking operation for her.

I mean, what kind of a leader is this? So, I mean, I get emotional about stuff, but somebody asking about something about pay, I mean, we can talk about it. it, but I'm not going to give you a raise if you work for us based on a feeling. We don't do feelings in that regard. You have to take your feelings somewhere else. A fact. Now, a fact, the fact is a good thing. So we do comp studies. We figure out what people should be paid. We figure out what they could be paid if they went somewhere else because we don't want

them to go somewhere else. We want them to work here. We need the help. We want to be fair in our pay. You want to be paid fair, but you're not being greedy. And so you do a comp study. You may discover 110 is the market rate. You're being paid $125. in which case you just shut up. Right? Yeah, for sure. Yeah. So now you've got a new feeling.

Satisfaction. Yeah, the shut up feeling. Yeah, satisfaction. You know, I get, or I would rather be a teacher because this doesn't pay enough or whatever. So, yeah. It is weird that the teachers get paid more than a hundred and a quarter doing this. What do they teach? A super specific disability.

Ah. Okay. And their personal incomes are hires, what you're talking about? Yeah, their weekly pay is higher, and we pay at a different, like we pay in the state where the company is located, and it's not in Wyoming. Okay. And they're spread all over. Correct. Okay. Yeah, I think you need information and then you need some options where you're going to work if this doesn't work out.

because what you're describing is a toxic leader that's trying to bully or intimidate you into staying in your place and if that's what you're dealing with, you don't need to be there. You need to be somewhere else. So you're going to make a decision on that too. So that's your options.

Options gives you power and comfort. Here's the thing. If you know you've got three other places to work and you've got information in your hand that says your position's worth 175 and here's some actual data that says that, not a feeling, and you all can to sit down and talk with us,

person, your tone of voice will be more confident. You'll be down an octave instead of squeaky and stressed sounding, and you'll just be real calm. And calm scares the crap out of bullies. So her tone may change if she smells that I better behave here. I'm going to be running this thing by myself. So, you know, it sounds like somebody needs to teach that woman that lesson anyway. But anyway, so that's something you've got to talk about. And if you can get information and options, it gives you confidence in the negotiation.

And you can say, look, here's what they make over there. These people over here are even making me an offer of this much. I'd rather stay here if we can work this out and you and I can have a good working relationship. And that's what I want to achieve here. And you may discover that she doesn't have that capacity and you have to move on. Or you may discover, oh, look, look. look, what happens when I'm prepared for these meetings? And that'll walk you into the situation.

So good question. Sounds like you guys are doing bang-up business. It's a lot of revenue for only 30 people, 35 people. Well done. You're kicking it. So proud of you. Hey, folks, remember better a weary warrior than a quivering critic. This world needs more high-quality leaders.

Take courage and lead. I'm Dave Ramsey, your host. Thanks for listening to the Entree Leadership Podcast. Thank you.