The most practical and valuable advice on becoming rich comes from those who tried. Listen closely to those who have tried to pursue wealth. Their lessons are born from the fire of real-world experience.
While most of the how to get rich advice I dispense comes from my Rich Habits Study and my books Rich Habits, Rich Kids and Change Your Habits Change Your Life, I am one of those who have tried. More importantly, I am one of those who tried and failed. Failure, I’ve learned, offers the most important lessons.
In my career, I started four companies. One of those four start-ups failed. This piece will focus on that failure, how it nearly destroyed my life and the lessons I learned from failing.
My first foray into the start-up world was a CPA firm I started with two other CPAs. We had one anchor client and proceeded to build our business from $350,000 in revenues a year to over $600,000. This took in just three years. Pick your partners very carefully. Success is much easier when you have great partners.
I left my successful CPA firm when a very wealthy private equity friend offered me a shot at becoming rich. He wanted me to be the CFO in one of their potential investments, a co-branded credit card concept for automobile dealerships. The start-up, however, was to be located in Rhode Island, which meant I had to live apart from my New Jersey-based family until the start-up secured a credit card issuer. My kids were six, seven and ten years old at the time. I was essentially walking away from my family, $150,000 a year in income and a growing successful CPA firm. I was one of three individuals given an ownership stake in the start-up. If we were successful, we would become multi-millionaires. Success requires risk and sacrifice.
On January 2, 2000 I pulled out of my New Jersey driveway. As I drove away from my house, my wife, and the children I loved more than life itself, I cried. During that four hour commute to Rhode Island I felt something welling up from my gut that informed me I had made a bad decision. Always trust your gut.
It took much longer than anyone expected to secure a credit card issuer. Our expectation was that it would take three to six months. Twelve months later, we were still working on securing a credit card issuer. Success takes far longer than you expect.
The private equity firm, in an effort to reduce our burn rate, demanded that we cut our salaries. They also made other demands. When we pushed back, the firm cut all funding until we agreed to all concessions. He who holds the purse strings controls your life.
I received a call in my office one day from my wife telling me my paycheck did not hit our bank account. For three months we went without pay. My wife was beside herself with worry. The stress was so thick you couldn’t find your breath at times. The pursuit of success is stressful.
We were ultimately able to secure a credit card issuer and our paychecks resumed. Things were looking up and I felt confident enough to move my family to Rhode Island to be with me. This meant pulling my kids out of their school and away from their friends. My oldest and my youngest cried for two months after the move. They missed their friends, missed their school and missed New Jersey. I hated myself for what I had done to my kids. The pursuit of success affects your loved ones.
The second obstacle caught all of us by surprise. The hard part of the start-up was supposed to be getting a credit card issuer. The easy part was supposed to be signing up car dealers. Unfortunately, we had very little success initially getting car dealers to sign up. Of the ten employees working in the start-up, the only non-auto dealership expert was me. Every one of those experts had gotten it wrong. The auto dealers were not lining up for our credit card program, as they experts had promised. Assumptions have no value. Challenge all assumptions.
We then hired a former senior credit card executive as the new CEO to help turn things around. The new CEO and I were able to secure two large auto dealership groups who signed up for the program. They represented about 500 dealerships. We were ecstatic. We were on the precipice of success. The pursuit of success can be exhilarating.
Then, our credit card underwriter was acquired by a large bank and they shut down our program. Unexpected things will occur, in the pursuit of success. Luck plays a critical role in success.
It took 4 years for that start-up to fail. The CEO and I were the last ones standing. Everyone else left or was forced out. That failure completely disrupted my life and put my family in financial jeopardy. I sat in my car at a park near my home the morning after it all ended and cried like a baby. I had zero job prospects and no way to provide for my young family. That was the lowest point in my life. Failure is humbling and will drag you to your knees.
I picked myself up, brushed myself off and eventually recovered. Not only that, I was able to put three kids through college. I am now running three businesses, two of which were start-ups. Success requires that you overcome adversity.
Here are some of the most important lessons I learned from failing:
- Pick Your Partners Very Carefully – Success is much easier when you have great partners. Failure is inevitable when you have bad partners. In any new venture pick partners who know what they are doing, have little baggage, have a positive mental outlook, are success-minded and have a hard work ethic. Pick partners who have been there and done that – never go into any new venture unless your partners have real-world experience in that industry.
- Success Requires Risk and Sacrifice – You cannot succeed without taking risk and making sacrifices. The sacrifices you will have to make are many. The most significant will be time away from family.
- Trust Your Gut – By gut, I mean your subconscious mind. Your subconscious mind picks up things that are otherwise invisible to you. Always listen to that voice in your head. It is your gut telling you what to do or what not to do. That voice becomes loudest when your emotions are at their greatest.
- Success Takes Far Longer Than You Expect – Success takes a long time. Far longer than you expect. See Rule of Three below.
- The Pursuit of Success is Very Stressful – Things will go wrong. When they do, they create enormous stress. That stress affects you, your loved ones and your business partners.
- Fund Your Business With Your Own Money – When you are the source of your working capital, you are in control. When you depend on others for your working capital, they are in control. You will have to do what they tell you to do. You are their slave.
- Assumptions Have No Value – Assumptions can cause you to look at things through rose colored lenses. Most assumptions in a business plan are wrong. Always test every assumption before you accept it as fact.
- The Pursuit of Success is Exhilarating – There will be ups and downs along your path towards success. More downs than ups. But the ups make it all worthwhile.
- Success Requires Good Luck – In the pursuit of success, unexpected things happen. Sometimes they are good and sometimes they are bad. To some extent, success and failure are outside your control. Luck plays a critical role in success.
- Failure is Humbling. It Will Drag You to Your Knees – Failure is an emotional experience. It can take the financial legs out from underneath you and your family. It can destroy your life if you are weak.
- Success Requires That You Overcome Adversity – Obstacles, pitfalls, wrong assumptions, mistakes and the unexpected can stop you in your tracks. Sometimes you can overcome those hurdles and sometimes you cannot. Those who succeed are able to overcome adversity. Those who fail are not.
- Be in Control of Your Business – Control means owning more than 50% of your business. Those who have ownership control of your business, control your business, your future and your life.
- Pilot Every New Idea – Test new concepts first before diving in full-time into any venture. Dive in full-time only when the business model has been proven to work.
- Have Fallback Savings – In every start-up, things will go wrong. Make sure you have set aside funds to help you and your family survive if you fail.
- Understand the Rule of Three – It takes three times as long as you think, costs three times as much as you expected and revenue and profits will be one-third as much as you forecast.
- Business Plans are Bullshit – Business plans are not worth the paper they written on. Never go into any venture solely on the basis of a business plan.
- Have a Powerfully Strong Marriage – If you have a weak marriage it, along with your start-up, will fail.
- Go Lean – Don’t hire anyone. Use subcontractors. Only hire employees when you are succeeding and the business model has been proven to work. Work out of a shack.
- Keep in Constant Contact with Your Network – Pursuing success demands a great deal of your time. It’s easy to lose contact with your friends and former colleagues. Don’t ignore your relationships. You will be calling them to help you find a job if the start-up fails.