Joel Miller:
In Michael and Megan’s new book, Mind Your Mindset: The Science That Shows Success Starts with Your Thinking, they outline a three step plan to challenge your own thinking and arrive at better strategies ultimately to get better results. Now, one of the things that is true about this framework, is that it applies in every situation you can think of. But one of the things that would be interesting I thought would be, let’s hear it applied to a specific scenario. And one that just happened to come up recently that I thought would be great is around money. Michael and Megan are here today to talk about how to change your money mindset.
Hi, I’m Joel Miller, Chief Product Officer here at Full Focus, and this is the Business Accelerator Podcast. Today, as I mentioned, we are talking about the three part framework that is in Michael and Megan’s new book, Mind Your Mindset. And we are applying it to money. We’re applying it to the beliefs that we have around money. And what it’s great about this is not only are they going to apply those three steps, they’re going to add a fourth. It’s a quickie. It’s a way to implement what they’re talking about in the first three steps. And then since we’re talking about money, I thought let’s have our CFO, Rob Tanner, come on the show and chat about three truths that every business owner should know about money.
These are insights that will clarify some things, that will help you set some priorities and make a difference in the way you run your business. Let’s jump into this conversation with Michael and Megan. Again, they’re going to talk about three steps to challenge your thinking around money so that you can get better results. And that last part, getting better results relates actually to a bonus fourth step they’re going to share with you in this conversation.

Michael Hyatt:
Back in 1992 I almost went bankrupt. The only reason that I didn’t go bankrupt is there weren’t enough assets to distribute to our creditors, but it had all the earmarks of bankruptcy. Couldn’t pay our bills, was deeply humiliating, publicly embarrassing. I just wanted to go crawl in a hole and pull it in after me. And then about two years later, a really important mentor said to me, and I can remember when he said this, I was sitting on an airplane and he said to me as I was recounting this story, he said, you’re not very good with money, are you? And I took that in to the core of my being like it was the truth. Didn’t ever occur to me that he didn’t have all the facts, that he was not in a position to make that universal judgment. But he did and it crushed me.
And I thought to myself, I’m just not any good with money. And so it’s something that I’ve had this mindset for most of my adult life is, oh yeah, I’m not very good with money. Now the problem is that when you think that it has implications. Because what we believe, what we think, and especially the stories we tell ourselves, shape how we act and the results we get. And of course that’s what the new book Mind Your Mindset is all about. But I had a situation recently, and this happens occasionally where I met with Megan and I met with Rob, our CFO, about a new product we want to develop. It’s going to require a significant investment.
And all of a sudden it triggered me, I was right back there, whatever it was 30 years ago. And I’m thinking to myself, well, I’m not very good with money. And I call this the unholy trinity, fear, uncertainty, and doubt. Just viscerally I felt this fear. This might go south. And oh by the way, I’m not very good with money. It was all I could do to re-engineer my thinking in that moment, in real time and say, oh, wait a second, that’s an old story. I no longer believe that story. But I think a lot of people struggle with this.

Megan Hyatt Miller:
I think they really do too. First of all, I’ve heard you tell the story now because you’ve started telling it recently as we’ve been talking about our new book, Mind Your Mindset, and every time you tell it, I just wits. It’s like it might as well be the first time. I think that’s because everybody has had that moment where somebody said something to you usually in a moment of vulnerability and it just stuck and you carried it around for years. It’s funny to hear the story in a way because nobody who knows you, particularly professionally, but also personally would think that that’s something you think, because you’re very successful. You are the CEO of a publicly held $250 million company. You started several successful businesses on and on and on. Right?
And so obviously it’s an old outdated story, but that doesn’t mean that it doesn’t still have those little hooky places that can just hook into you emotionally and feel so true.

Michael Hyatt:
Well, and the funny thing about it is, I’ve begun to tell that story publicly, and I just did this at a workshop I led on Friday with a bunch of entrepreneurs. I ask for a show of hands, how many of you think or have that story that you still struggle with, I’m not very good with money? Literally almost every hand goes up. And I was recently speaking to a room full of financial advisors. These are financial professionals and they struggled with the same thing. And one of them told me afterwards, they said, I feel like I do a great job managing other people’s money, but I still get stuck sometimes in managing my own money because I think I’m not very good with money.

Megan Hyatt Miller:
That’s so interesting. So what you’re saying is, if you’ve ever had this thought, congratulations, you’re normal.

Michael Hyatt:
Exactly. You’re normal and you can change your mindset about money. And so we want to talk about four steps you can take to change that mindset, to exchange that worn out, ineffective story that I promise you is not delivering any good results in your life, to something that’s way more empowering and will serve you way better in terms of what you’re trying to accomplish in the world. So let’s get into those steps. And Megan, I’m going to let you start with step one.

Megan Hyatt Miller:
All right. Well, step number one is to identify the story that you’re telling yourself about your relationship to money. This usually sounds something like one of the following beliefs. In our family, we don’t talk about money or money is evil or money is the root of all evil, or I don’t deserve a lot of money, or there’s never enough money, you have to hold onto it, or I just can’t seem to save money no matter how hard I try. Or I’m not very good with money, or money can’t buy happiness. That’s just a few of those that we came up with as we were polling people. I know I’ve said some of those to myself and even some of those I was like, yeah, but that’s true. Right?

Michael Hyatt:
Well, I have to ask you the question, did you grow up in a family where you got some, as Zig Ziglar used to call it, stinking thinking about money?

Megan Hyatt Miller:
I did get some stinking thinking, I think.

Michael Hyatt:
Wait a second.

Megan Hyatt Miller:
I know. See what I did there.

Michael Hyatt:
Go ahead. Tell all.

Megan Hyatt Miller:
It’s interesting because what I remember as a kid is different than I think where your mindset evolved to. And so I find that to be interesting. For example, I really remember that one about we don’t talk about money, particularly you never ask somebody how much money they make. We don’t talk about, you don’t know how much money your parents make. You just don’t discuss those things. It’s too intimate. It’s like talking about sex at dinner or something. It’s not going to happen.

Michael Hyatt:
Did you ever get reprimanded for it?

Megan Hyatt Miller:
I don’t remember. That’s a good question. I don’t know.

Michael Hyatt:
I did.

Megan Hyatt Miller:
You did? I remember that coming from your parents though, because I remember you talking about it.

Michael Hyatt:
I could remember when I was, I think it was maybe my first year in junior high, and there was a kid that was one of my best friends whose dad was a doctor, and I don’t remember what the number was, but he told me how much his dad made, and I was impressed by that. That sounded like a lot of money. I went home and I said, dad, how much money do you make? And he got angry and he looked at me and he said, son, that is none of your business. Whoa. And so that’s like touching a hot stove. I’m not going to touch it again. I just felt like how much money somebody else makes is none of my business. So maybe that got passed on generationally.

Megan Hyatt Miller:
Well what’s interesting though, if you fast forward now, you and I are business partners and we talk about money all the time. We both know obviously what each other makes. We know all kinds of financial things about each other and we talk about it openly. And I feel like it’s not taboo, it’s not awkward. It’s actually really helpful for us. You share resources, I share resources in terms of this person you should talk to or that advisor or whatever. I don’t know, it’s fascinating to me. I feel like you’ve been very intentional about moving away from that. And so that has paved the way for me to do it too. But I have thought in the past, I’m really good at making money, but I’m not really good at saving or investing money.

Michael Hyatt:
Well, I’ve had that thought before too, that I can make money, but I can’t save it. And I can remember the first time I met with our financial advisor and Megan, you and I share the same financial advisor, his name is Keith. And Keith said to me, he said, we need to get really aggressive about saving money. And he gave me a number. He said, this is how much I want you to save every month. And I laughed out loud. I said, there’s no way I can do that. And he said, well, I think you can. I said, there’s no way. I don’t have the cash flow business wise to do that. This was like eight years ago. And he said, no, I think you do. I think you can. And it was huge. He wanted me to save literally 50% of everything that I was making.

Megan Hyatt Miller:
Wow, that’s pretty aggressive.

Michael Hyatt:
That’s pretty aggressive. And so I said, okay, I’ll try it as an experiment. And every month we have just an auto deduction that goes straight from the company so that half of it goes into savings and investments. And I’ve never missed a month, it’s never been an issue, it’s just always worked. But what it took was a guy with a different story.

Megan Hyatt Miller:
I think that’s so powerful. And really, if you want to be intentional about this, this first step of identifying the story you’re telling about yourself and your relationship to money is so helpful because I was talking to somebody about this in the last week, just when you can objectify this story as not being necessarily true, as being a story, and you can call it that and you can get it out of your own head and put it on paper, maybe write it down in a journal, your notes app on your phone or something, just that alone starts to weaken the power of it. I think is such a great setup for the next step, which is to interrogate your story.
And really what we’re trying to do in this step is to establish, what are the real facts versus the story that my brain is layered on top of these facts to make sense of them? And that and the story you just told about Keith and the savings, you now have a history of doing this thing, of quote unquote, being good with money that contradicts your old story. You actually have facts of yourself being good with money. That is one of the ways that you can interrogate a story.

Michael Hyatt:
It is. And I think I would describe it almost like Lego blocks. The facts are like the Legos, but what you make from the Legos could be completely different. I think this happened at Disney World where I saw an entire Millennium Falcon aircraft like from Star Wars made out of Legos.

Megan Hyatt Miller:
That’s so crazy.

Michael Hyatt:
That’s somebody taking those blocks and biggie sizing it and making something extraordinary. But I’ve seen a lot of different things made with Legos. But that’s how the facts are. We could arrange those into a lot of different stories. Some are disempowering, some are empowering. So that for example, if you think I’m not very good with money, then what you do is you don’t even try. Right? Because what’s the use? I’m not very good with money. Well, you could invest it. Yeah, but I’m not very good with money. You can save it. Well, but I’m not very good with money. And so that’s a disempowering story. And I think that we have to be very careful, and this is part of interrogating the story, is to realize that the story does not equal the truth. And so every story that we have has to be held with open hands.
We may have some of the facts wrong, we may have the majority of the facts wrong, Like in my story, I’m not very good with money. That happened with the bankruptcy certainly was the first thing, or the near bankruptcy. And then my friend making the statement that he made to me about I’m not very good with money. Well, here’s the facts, I did nearly go bankrupt. One experience, had a gazillion other successful experiences, one of them didn’t work. Another fact is my friend actually said that, well, you’re not very good with money, are you? That wasn’t every friend. It wasn’t like everybody in my small town got together and said, he’s not very good with money. Somebody better talk to him. And they sent my friend. No, it was just his random one-off opinion, but it shaped the trajectory of my financial life for a couple of decades.
And that’s why I think every story needs to be interrogated, particularly if we’re experiencing frustration, anxiety, anger, something’s not working in our lives. We’ve got to stop long enough. Push the pause button and just say, wait a second, what’s the story I’m telling myself and is the story reasonable given the facts?

Megan Hyatt Miller:
What might somebody else think if they came in and read these facts without the fear layered over it or the shame or whatever is driving you? You were talking a second ago about when we need to identify and interrogate our stories. I think very simply it’s when your story is not delivering the results that you want anymore. If you’ve decided to yourself, you know what, this idea that I’m not very good with money is not making me financially secure or giving me abundance, then maybe you need to reconsider. And that’s true for all kinds of areas of our life, which we get into in Mind Your Mindset. But yeah, just take a second, even right now as we’re talking and just think to yourself, is my story about my relationship with money, is that working for me or do I want to maybe shake that loose a little?

Michael Hyatt:
I think there’s an underlying assumption there too that somehow we just pop out of the womb and we’re either good with money and you get sorted into one bucket or you’re not getting good with money, you get sorted into another bucket. But that’s not how it is. Money, being good with money is a skill that you can learn. I think it’s really easy for people that don’t do it professionally, like public speaking would be another good one. We’ve talked about this a lot. We talk about it in the book Mind Your Mindset, but you think, well, either I’m a great public speaker or I’m not. But the truth is, the only difference between you and that person that manages money well or you and that person that is a dynamic, powerful public speaker or whatever it is, is the fact that they’ve taken time to methodically learn it, to put in the hours, to put in the blood, sweat and tears and get good at it.
I mentioned I was with all these financial advisors recently and they just didn’t come out of the womb knowing all the things you have to know about managing not only your own money, but other people’s money. No, there’s a whole curriculum that they went through. There was a whole certification or licensing process and they went through that. And some of them, it was pretty funny to hear what the backgrounds of some of them were. Like a school teacher for example, that is now one of the top financial advisors in the country. Why? Because he put his nose to the grindstone and he learned it. And money is no different than any other topic. It’s not innate. It’s something that could be learned.

Megan Hyatt Miller:
This is an example of where if you’re working through these steps that we’re talking about, you could literally get a legal pad or the Whiteboard app on your iPad and you could just make a column and you could just say facts on one column and you could say story on the other column. And you could identify them that way. And remember, facts tend to be boring or not that emotionally charged. Think about how somebody would write about your story with money as a police report. Like, when he was in college he got $20,000 in debt on a high interest credit card, whatever. Just like these kinds of things. But it wouldn’t be any interpretation. And so the interpretation is the story part, and that would be in the other column.
And that might be a good way of how you go through this step two, interrogate before we move on to step three, which is to imagine. And that’s where we say, okay, now that we have separated the facts from the fiction, the raw facts from our interpretation of the facts that become these stories, what might I want to believe that could really instead of being a limiting belief for story, become a liberating belief or story or truth as we sometimes call it.

Michael Hyatt:
I think that’s exactly right. And I think sometimes people get stuck on the imagining part, because they think, yeah, but my old story is the truth. And now I’m just making up something. Well, the thing you used to believe is also made up. There was a set of Lego blocks or a set of facts that undergird it. But the way that you, and now I’m going to really mix the metaphor, the way you stitched those elements together to come up with something completely new is somewhat arbitrary. It made sense at the time, but it may no longer be serving you. And there’s a lot of ways to look at the story. I can’t remember if I’ve told this on the podcast before, so somebody will stop me, I’m sure if I have. But I just literally last week in preparation for the workshop I did, I reread the first chapter of Stephen Covey’s book, The 7 Habits of Highly Effective People.
And he tells the story about being on the subway and it’s on a Sunday morning and there’s another family that gets on the subway and it’s a dad and two kids, and the kids are just out of control, they’re unruly, they’re making a lot of noise, they’re running around the train and they’re upsetting other passengers. And finally, Dr. Covey just says something to him. He just says, look, he said, it’d be helpful if you would pay attention to your kids here because they’re bothering the other passengers. And the guy said, I’m so sorry. You’re exactly right. We just came from the hospital where their mother died and I don’t know what to do, the kids are beside themselves. And Dr. Covey says all of a sudden then he uses it, I remember we used to use this language, it was a paradigm shift.
It is a reframe for him, because now instead of being irritated because of the story of what he was telling, because the story he’s telling is here’s a dad who’s clueless. Here’s a dad who doesn’t know the first thing about parenting. Here are some kids that are out of control. They need to be disciplined. But then when he learned this, all of a sudden now he had empathy. And I think that’s how stories work. And that was a much more empowering story for Dr. Covey because he could offer empathy, he could offer care and concern, whereas before he just wrote the guy off.

Megan Hyatt Miller:
That is such a powerful story. And every time you think about that, it’s like a punch to the gut because you can imagine that snap judgment that Dr. Covey made that we’ve all made not understanding what was really going on, what the real facts were of the situation. And we just take that moment and what we think are the facts and put the story on top of it, and then we realize we’re just dead wrong. And I think that’s true in our own lives as well. And as we think about imagining a more empowering story around this idea of money, one of the things you can do is ask yourself, well, what else might be true about me? We talk in the book about this idea of opposites, believing the opposite is one of the ways you can get a hold of that. And then the idea of paradoxes where you have two ideas seem like they’re in conflict, but they’re actually not.
And so in this case, it could be like, I’m learning to be good with money, so this is an area that I can excel in the future, or it could be I haven’t been very good with money in the past, but I’m confident it’s a skill I can learn for the future. That would be totally different. The actions, and this is why it matters, the actions that you would take with that belief, even though it still has some of the same elements as the original story, would be radically different than the actions you would take if you just thought, well, I’m not very good with money in a fatalistic way. And that leads to different results.

Michael Hyatt:
Well, to quote Marie Forleo, “Everything is figureoutable.” And that’s true of money. And that’s a much more empowering story that look, everything’s figureoutable including money. And if those people that are really good with money can learn it, I can learn it too.

Megan Hyatt Miller:
Even thinking managing my money is just another skill to learn. All of a sudden that feels like this is something that I could do. This becomes empowering.

Michael Hyatt:
That leads us to step four, which is to implement or turn these into daily affirmations. And I’ve done this, I literally have a set of affirmations for every day of the week. So there’s a set for Monday, which has to do with my health affirmations, but I’ve also got financial affirmations that I do on Friday, and it’s just a bunch of things that I’m trying to affirm as true. By the way, totally made up, it’s a story, but as long as we’re going to be telling ourselves stories, I might as well tell myself an empowering story. So affirmations are one of the best way to turn these better stories into something that we can do to begin to reshape that story.
And it’s important that we do that because literally what’s happened in our brains is we have cut these neuro pathways so that every time we have the trigger, our thoughts run down that pathway, almost like a groove that’s too deep on a record. And so if we’re going to believe something different, it’s going to take some effort to cut a new track so that when we have that trigger, our brain goes in a different direction. And that’s the value I think of affirmations. And there’s an app that I use called ThinkUp and it’s available for iOS and for Android, and we’ll put a link to it in the show notes.
But essentially it allows you to record your affirmations, won’t write them for you, but there are sets that you can get, you could borrow, but if you write them for yourself and then you record them in your own voice, you could put a music beat on if you want it, one, two. You can set the number of times that it repeats, the number of time between affirmations and just make that a daily meditation, or August Bradley calls it brain sculpting or thought sculpting process where, okay, I’m going to intentionally just like I would do if I was working out physically, I’m going to exercise my brain and I’m going to get this all going in the right direction.

Megan Hyatt Miller:
Okay, I love this idea partly because a lot of us, especially in the business world, we’ve heard people talk about this idea of affirmations. And I just have to be totally honest, when somebody says affirmations, I just roll my eyes on the inside.

Michael Hyatt:
Sometimes on the outside.

Megan Hyatt Miller:
Sometimes on the outside. And the reason is because I think affirmations have developed a bad rap because sometimes people make these outlandish statements about themselves, like, I’m the wealthiest man in the whole world. You can have that be your affirmation and you’re just like, yeah, right? It’s so over the top that it’s not believable. You don’t really have any foothold into that building new neural pathways. But part of what I have loved about the work that we’ve done with Mind Your Mindset, is instead of it being this whole idea of mindset being woo woo or in that space, we’ve really done the research to understand the science of why these practices like affirmations work, how those things are actually based in the brain sciences and exactly what you said around cutting new neural pathways. And we have to sculpt our brains just like we would sculpt our bodies in the gym.
If you want to have defined shoulders, you’re going to have to lift some weights. You’re just not going to wake up one morning and see these amazing shoulders. It’s the same thing with our brains, and it actually works over time. And so if you’re a person like me who’s rolled your eyes at this affirmation idea, don’t let the word be off-putting because we’re not talking about some crazy outlandish idea, we’re talking about something that you can connect to emotionally that ultimately will direct not just your thoughts, but the thoughts that lead to your actions that ultimately drive your results.

Michael Hyatt:
Okay, just to summarize, we’ve talked about four steps. Step one, identify or discover your stories about money. Step two, interrogate, establish the real facts. Separate the facts from the story. Step three, imagine, transform your limiting beliefs into liberating truths. And then step four, implement, turn those liberating truths into daily affirmations so they make a difference in the results that you get.

Joel Miller:
I said at the top of the show that money is just one example of how to apply this three-part framework. And I want to lean into that for a second by pointing out that the framework that Michael and Megan detail in the book Mind Your Mindset, applies across all the domains of life. You can put it to work in your business, you can put it to work in your marriage, you can put it to work in raising kids. You can put it to work really anywhere. If there is a point in your life where your brain is engaged in thinking, you need this book, you need Mind Your Mindset. You can find out more at mindyourmindsetbook.com. We’ll be back in just a minute to talk to Rob Tanner, our CFO here at Full Focus.
We’re back and it’s time for our conversation with Rob Tanner. He is, just to remind you, the CFO here at Full Focus. I wanted to have a conversation with Rob about truths that every business owner needs to know. And I thought, I’ll find out what those are in advance by asking our mutual executive assistant DeAnn to ping him, ask him, hey, what are three to five truths that every business owner needs to know? And she’d get them back to me. I’d be able to read them, I’d be able to help set up the show. Here’s what Rob gave me. Number one, truth that a business owner needs to know about money, have some. Number two, get some more. Number three, save some. Number four, don’t spend it all. And finally, number five, don’t have teenagers.
I knew he wasn’t being serious, so I thought I’m excited to actually get a chance to confront Rob and ask him what his real list is. All right, so you have an actual list prepared. Why don’t you go ahead and tell us what those three are?

Rob Tanner:
Sure. First, cash is king in times of economic uncertainty. I’d start there. I think that might seem obvious to folks, particularly small business owners and folks at that part of the business life cycle. But cash is always king, but it’s really king during times of economic uncertainty. Joel’s heard me say this a bunch, the worst time in an economy isn’t when times are bad. The worst times is that moment right before you realize they truly are bad. It’s that moment of uncertainty. It’s that when you’ve not sure if you’ve fallen off the cliff, it’s dark out. You’re like, if I hit bottom yet. And so when you’re in that point of uncertainty, maximizing cash reserves, having access to liquidity really drives everything.
And the other point I always make, this is still my first truth that all business owners need to know, is that cash does not equal revenue, does not equal earnings and does not equal sales. Those things all depend on each other, they’re all variables for calculating or understanding each. But ultimately really understanding that relationship between your cash cycle, your sales activity, and how your business and your accountants calculate revenue is fundamental to then making sure you know which activities are going to be the most cash, either generating or preserving, whether it’s what sales activities will produce the most amount of cash and keep it in the coffers, which spending activities, if I cut these two things, they produce the most cash impact on my balance sheet, in my bank account.
Whether you’re a simple business just using cash accounting or a sophisticated business like we are here Full Focus where we’re using a bunch of GAAP compliant accrual accounting standards. At the end of the day, just really understanding the relationship between the sales activity, how revenue shows up in your financial statements and how cash all work, they’re interrelated, but they’re not the same thing is important, so you can do the things and prioritize those things, each of those areas that ultimately produce as much cash reserve as possible. So that would be my number one item.

Joel Miller:
So just to come around on that for a second, that’s fundamentally about keeping your options open, right? In a period of uncertainty, you need to have the most flexibility you can manage, and your surest, quickest path to that is cash.

Rob Tanner:
Absolutely. At the end of the day, optionality is king. You will have fewer options to acquire cash if you get into a cash pinch than you do during the best of times or even the myth of times. You’ll have fewer options and you’ll have fewer sources. And so again, just to preserve your optionality as a business owner in terms of enacting a new strategy, handling if a big client walks out the door, with inflation now some key underlying component of your business cost, your business suddenly jumps up in price. Your ability to maneuver through those situations is greater if your cash reserves are strong. And remember time of uncertainty, that’s when lenders and investors become as tight as they ever are. They love to actually put money to work in down cycles of the economy.
They obviously have to put it and love to put it to work in up cycles, where they get hesitant, where they step away, where they say, let’s wait and see for six months. It’s always where we are right now, is that where are we on the economy? Are we in bad times or not in bad times? Those are the periods of uncertainty and that’s when things are toughest. So yes, optionality is the key that we’re trying to manage too in that area.

Joel Miller:
All right, give me your second.

Rob Tanner:
Sure. Build a good budget. If you’re not doing that today, because revenue was covering all sins, you were just growing, growing, growing, and you’re like, I know the numbers in my head, I got them on a scratch piece of paper back in the envelope. I’m good, I’m good. No, now’s the time to really build a structured budget. If you have somebody on your team that can do that or has been doing it, look for them to either start the process or upgrade the process. If you aren’t, go out and find a third party, a consultant, an accountant that can help you build a really good budget. And not just one that says, here’s my guess of revenue and my recent history on expenses, but actually applies some strategy to building a budget. That means what are the precursors or what are the drivers that generate revenue?
I have to have this many customers and my customers have to place this many orders and then this many orders times this price equals my sales, right? That’s what I mean by understanding going upstream and understanding the precursors your drivers of your revenue. Likewise, here are the things, when I sell this many widgets, I generate this much in materials cost, this much in in-house labor and this much in fulfillment costs. And say, these are the variables that drive cost in my business. And so you can start to measure, you’re not just budgeting revenue and expense, you’re really budgeting the activities that create revenue and the activities that generate expense. And so you can start to understand, boy, my expenses are higher. What variable is causing that and what can I do about it?
So really investing in a good budget that goes upstream is critical because it’ll let you in times of transition, in times of uncertainty when switching from a really strong bull market to what looks to be likely more of a bear market in many industries for some period of time, understanding those things and having it to map against and how’s my performance going is fundamentally critical. So again, when you’ve been in a 10 year run up of a marketplace, you can get away with, my costs were a little higher than I thought, but I just sold over it. My revenue’s been growing at such a high rate I don’t have to worry about not managing my costs in the right ratio or some of these KPIs, some of these key performance indicators that tell me what I’m likely to see. That’s not going to work in particularly what looks to be a little bit bumpier, a little bit more stagnant macro growth environment for most business owners.

Joel Miller:
So as things get tight, you have to amplify your visibility. That’s really what this is about. You have to see how they’re coming in and where they’re going out or you’ll lose control of it all.

Rob Tanner:
And spend the time mapping why they come in or why they go out, what are the drivers? Because frequently you’ll start to be like, if something goes out of whack you’ll be quicker and better to understand what’s off and what’s driving, why results aren’t matching expectations.

Joel Miller:
Why do you think a lot of small business owners don’t take this seriously enough?

Rob Tanner:
They’re growing businesses. I have a healthy respect. I’ve been a small business owner myself at times in my career. And when things are going well, your day is filled with just the saying yes to the customer, saying yes to the market opportunity, saying yes to your team because you want to keep them motivated and excited and keeping customers happy and just getting invoices out the door. And you basically like, hey, as long as I’ve got this amount in the bank and I’m invoicing this amount out, I can roughly in my head know where it is. And I just think we’ve been on such a long extended strong economy that most business owners have been able to say, I can get away with a half measure on that front.
I really think it’s that, and that we haven’t just had to have discipline. Even if you look at it historically over the last 40 years, this is as long a bull market, bull economy, a strong economy as we’ve had. And so you have people who have built very successful businesses for a decade that never had to manage through a downturn, never had to manage through leaner times. I just think we’ve, either you’ve fallen out of the habit or you just never had to develop that muscle memory of doing it.

Joel Miller:
All right, so the first was cash is king. The second insight was to build a good budget. What’s the third?

Rob Tanner:
Raising capital has strings attached. This is probably the number one thing when I’m talking to business owners. Forget small business owners, even medium to larger size business owners, that there’s folks that say in good times, bad times, this is economic cycle agnostic as a statement. Although I think some folks will be particularly keen on this right now because they’ll think, well, I can’t sell fund growth in a down cycle part of the economy. I’ll just go out and raise capital, I’ll go to the bank, I’ll go to my angel investor network, I’ll go to some private equity firm, whatever. You can open the Wall Street Journal, click on Business Insider, and they’re still talking about just the crazy amounts of money sitting on the sidelines and being put to work on any and every business idea, particularly earlier, smaller businesses.
And the one thing I always remind business owners about is raising capital really does have strings attached. Or the way I put it, Joel heard me say this is, when you take the king’s coin, you will do the king’s dance. So let’s look at a couple, the most typical parts of the ecosystem, the capital stack ecosystem. Let’s look at the biggest chunks of it. So one would be a lender, right? I think one we’re most familiar with. Well, whether you’re boring from the SBA, which is the federal government, all the way to a bank or to a private lender, they don’t just hand you the money and say, I hope you pay me back. There’s going to be a contract, loan documents and typically rights granted to the lender. And you’re going to have to understand things, not just interest rate and term, which I think we’re all used to just from our consumer and mortgage lending habits.
But things like what covenants are in place, what ratios does my business have to perform at for the loan to be considered in good standing and what are the consequences if I breach covenants? Their common one for a business is something called a debt service coverage ratio. And that’s just saying, hey, your free cash from your business, the free cash your business is generating has to be one and a half or two times what the debt service is, what your debt payments are each month. That’s a pretty common one. And so just understanding that they will implement rules, and as I describe it, the tentacles will come into your business and some degree of control will be ceded when you raise money. I don’t make scare crows, totally appropriate.
And at times you’re like, boy, of course I borrow money at 8% today to invest in my business, which is going to grow way more than that and that’s a good investment for me all day long. But just understand that it’s not, even easy money is never easy. Even we were a few years ago and money was just flying off the shelf, it’s not easy. The other part of the ecosystem I’d point to is equity investors, private equity, venture capital, those worlds. And those folks while they don’t come with immediate payment obligations, you really need to understand what their business is. They raise funds from limited partners. Those funds typically have a 10 year life. So if they’re investing in you five years into the fund life, into your business, that means they need you to return their money plus what they’re going to make on it, the three, four, five times their money they want to make within five years.
So understanding what motivates them, what type of returns they’re looking for, what their fund life cycle is, will help you understand when they create, give you something called a minority shareholder’s rights agreement that explains their rights to basically even though you’re still the majority owner, you’ve maybe sold them 10, 20% of your business to raise capital, they’re going to be able to exert certain things in the business as though they were the majority owner. Again, frequently these are totally acceptable things. They’re really downside protection mechanisms for the investor. But ultimately you as a small business owner taking on a lender, taking on an investor, just really need to understand what you’re giving up beyond just the economic terms. And so I always remind people that raising capital anyway, shape form hamstrings attached.
And typically if you perform great that those strings become irrelevant. If performance is a little wonky and it doesn’t meet expectations or the performance expectations of the capital provider, they will become part of your life in ways that maybe you didn’t anticipate. So just go find somebody in the world who can help explain it, go get a good advisor, lawyer, financial consultant to look at the documents and say, hey, in an upside case you’re good, but in a downside case, here are the things that could happen. Not to scare you, but just make sure you’re fully informed in terms of what the consequences or obligations are of any capital raise.

Joel Miller:
It’s just about being prudent. Rob, the three insights were cash is king, build a good budget and raising capital has strings attached. I just thought I’d ask, are there any additional parts to these that we should be aware of?

Rob Tanner:
In my role I go in and tell folks all the time what the risks or the downside is, far more than I have to quantify opportunity. I think most small business owners innately grasp what the upside of what they’re trying to do is. Occasionally I’m intellectually accretive to that discussion. For the most part, I think we’re good finance leaders ultimate help is to help you understand and manage the downside more than they really help you understand, although we try and do that as well, the upside. And one thing I always remind folks is when we’re talking about managing this downside, managing this downside, managing this downside, I say those are still secondary.
Primary is if you have a great product or service and you have a market that’s receptive to it, that can overcome all these downsides as long as you just execute well. So the classic product market fit variable, which is I’ve got something that works, the market’s responding well to it and all of the downside things I’m managing against, really they are more insurance than reality. And so if you find yourself bumping up frequently against some of these downside issues, I always say go back and take a look at that product market fit. Look at your product. Is there anything there that you can do? Look at your market. Have you run out of addressable market with your current product? There’s something you do on the product. Is there some new markets you can go to?
Frequently those things, if you can answer those things, it’ll help you work your way out of the ditch or avoid bumping up against some of these downside things. So while a lot of what I can say can sound pessimistic, the truth is like most small business owners, optimism is frequently the cure to or the prescription for a lot of these diagnoses we provide. That’s always my guiding for us, which says, remember your original purpose, get your product better, make sure you got a healthy receptive market and these other things we can work through.

Joel Miller:
Rob, thank you so much.

Rob Tanner:
Great, thanks Joel.

Joel Miller:
One thing I love about Rob’s perspective is the balance that you can hear in the advice he’s offering versus what a business owner might come to the conversation with. He pointed it out right there at the end, a business owner knows the upside case almost every time invariably. If they didn’t have a good sense of what the upside case was, they wouldn’t be in business. The problem is sometimes the downside case is not always clear. And so having someone who can speak to that in your business is essential. But what I also loved about what Rob said about optimism is this, it’s the optimism that enables you to take the upside case and the downside case, put them together and make a fully informed decision about the future that you want to build in your business.
And that’s where mindset comes in, because if you are tripped up or trapped by stories about money that are not true, stories about your ability to raise money, to manage money, to deal with money, then you will not succeed. The good news is there is a proven and simple way to deal with that problem and that is to mind your mindset. That’s why Michael and Megan wrote the book and I think if you dig in you’ll find that it’s applicable across the board.
That’s it for another episode of the Business Accelerator Podcast. If you’re a business owner and you’re interested in learning more about our business accelerator coaching program, go to businessaccelerator.com. We help busy but growth minded small business owners just like you scale yourself and your business so you can win at work and succeed at life. It’s what we call the double win. And if you’d like to experience that for yourself, go to businessaccelerator.com. That’s it. We’ll be back next week with more conversations to help you accelerate your business.