Gino Wickman (00:00):
Welcome to the Shed and Shine podcast. I am Gino Wickman. This is where Rob Dube and I help driven entrepreneurs shed their shit, free their true selves, unlock true entrepreneurial freedom, and shine. We truly appreciate you taking the time to spend with us and we hope to make a huge impact on you.
(00:21):
Hello and welcome back. This episode I call the 10-year business cycle. And so, this is something that was taught to me by my business mentor 30 years ago. His name was Sam Cupp and he was absolutely incredible for me in my 20s. And so at around age 27, he taught me the 10-year business cycle. And what he taught me, I'm feeling very compelled to share with you for some reason today in this episode. And so with that, here we go.
(01:00):
So, the 10-year business cycle works like this. And what he taught me is that in a 10-year business cycle, you will have six good years, two great years, and then two bad years that could potentially put you out of business.
(01:19):
And so obviously, I'm speaking to you driven entrepreneurs out there. And the idea and the goal of this episode is to help you become aware, to help you prepare, and be prepared. And this absolutely ties into Discipline number one, ten-year thinking, which I'll come back to in just a little bit here.
(01:45):
But what's ironic and what's crazy and just amazing is that since he taught me this 30 years ago, it has held true. And so, I've now experienced three 10-year cycles in the last 30 years that I personally in my businesses, have had six good years, two great years, and two bad years, and I'll touch on that in just a little bit as well. And so, it has held true since the day he taught it to me.
(02:13):
And the idea here is obviously in the six good years and the two great years, you want to make hay while the sun shines, as the saying goes. And like I said, this is about being prepared. And so, we're not going to spend a whole heck of a lot of time talking about the six good years or the two great years, because we pretty much know what to do in those times. But again, make hay while the sun shines, we're going to talk about being prepared for the two bad years, having experienced this again in three cycles and then having helped my clients survive and experience this during three cycles.
(02:56):
So there's a great saying by Warren Buffett that goes, "When the tide goes out, it reveals who has been swimming naked." And so it's one of my favorites, and it kind of says it all here. Because what happens for us driven entrepreneurs running our businesses, we think in those six good years, in those two great years, it's going to continue on that forever. And it just doesn't work that way. The two bad years are coming. And I'm not trying to create a doom and gloom here thing. Again, it's all about preparation and being prepared.
(03:31):
And there's something I teach, and I touched on this in a previous episode. And I just call it my Finance 101 class. And I'm not going to get into that and fully teach it in this episode, but there's three basic parts to it. And one is understanding the definition of true financial independence, which most driven entrepreneurs don't understand. And that's simply means that you have enough money invested that the interest from that money, the returns from those investments support your lifestyle. And so if you have a half a million dollar lifestyle, $500,000, and you're generating a 5% return on your investments, that simply means you need $10 million invested to throw off your half a million dollars to support your lifestyle. That's financial independence.
(04:17):
Number two is having a budget, knowing your budget personally and in your business so you understand and you're monitoring your expenses. Number three is called the three buckets to financial freedom. And very high level, the first bucket is the safety bucket, the second bucket is the financial independence bucket, which is where you're putting enough away every month to reach financial independence. And then the third bucket is kind of the risk bucket where once the first two buckets are full, you're putting any additional dollars, if you are a risk-taker, into the risk bucket, taking bigger risks, higher risks to hopefully far exceed your financial plans.
(04:59):
With that said, that's the real high level. What I'm going to focus on for this episode is the first bucket, the safety bucket. And the safety bucket is all about you having enough cash reserves to survive three to six months of no income. And so for the sake of this conversation, I'm going to use six months because I'm going to err on the side of being more conservative. And so what I'm talking about here is having six months cash reserves, both personally and professionally. And so if your personal income stopped for six months, you could support your lifestyle. And if your business took a hit, you could survive six months. You have enough cash flow that the business can survive for six months.
(05:51):
Now with that said, you choose the number of months. Some people have as much as 12 months because they're very conservative. Some people have one month because they're risk-takers. My urging is three to six months. You decide. Again, but I'm going to keep referring to six months as the magic number here. So assuming that's the case, then all of the sudden you are now prepared for the two bad years. I'll come back to that in just a minute.
(06:21):
Now as you go forward, it's very simple math right now. Because if you look back and you realize that you have experienced eight really good years, six good ones, and two great ones, there's a good chance that your two bad years are coming. If you're just coming out of your two bad years, then there's a good chance you've got a six to eight-year run ahead of you of good to great years. Nonetheless, it's all about being prepared. And again, I'm going to say it again. I'm not trying to preach a doom and gloom here. I'm just wanting you to be prepared.
(07:01):
With all of that said, it's not always an external force. I want to give you some examples. Looking back on the last 30 years for me personally, in terms of what caused and drove the two bad years. And so going all the way back to the .com crash in 2001, that was my first experience of the two bad years. And that, quite frankly, completely wiped me out. I went from being a millionaire to $200,000 in debt overnight. So those two years were brutal, and I was not prepared. And that's where I really learned how to be prepared.
(07:40):
The second was the great recession of '08 and '09. And so, it happened again. I took about a 30% hit to my revenue in business and income, and fortunately I was prepared. And so as brutal as it was at 33 years old when I lost everything in that .com crash, when it happened again in '08 and '09, and my wife experienced that intimately with me when it happened in '08 and '09. I remember her saying to me, "Oh no, not again." And then I was able to say to her, "This time I'm prepared, honey." So with that said, again, be prepared.
(08:20):
The third time was, it's an interesting one. So, COVID is really fascinating. So, I don't believe that COVID was the two bad years. And so for those of you listening, if you're thinking COVID was, what's interesting about it is half the businesses absolutely thrived in COVID and half of them got their butts kicked. And I think it's actually a little less than half got their butts kicked. So some of you had your two bad years during COVID and some of you had your two great years during COVID. So, just be careful. COVID may not have been the bad years, and this gets to my point. It's not always external.
(09:01):
So sometimes it's not about what happened to the economy, to the world, and so sometimes it's something that happens to just you and your business. And so, it's a really bad decision you made that you're going to pay for two years. Sometimes it's a massive industry change in your industry that just absolutely kicks your ass. So just know it's not like every business experiences this two bad year thing simultaneously, although sometimes it does happen, i.e. the great recession of '08 and '09, and for a lot of us during the .com crash of 2001.
(09:37):
So, what I'm trying to help convey here is the learning that I experienced. And I sit here wondering, is that possible? Because my business mentor taught this to me at 27 years old. And six years later at 33 years old, I had my two bad years and I was not prepared. And so, I had to experience getting my ass kicked and losing everything to finally learn how to be prepared. And so this is why I'm trying to, as best I can, get you to feel it and experience it so you don't have to experience it to the degree that I had to. Most of you already had and it's ingrained in you. But I'm hoping that I can burn this into your soul so that you'll prepare now for whatever is coming in the next 10 years.
(10:33):
So with that, I want to give a couple specific examples, so I'm going to go back to the great recession '08, '09, and a couple of things that happened there. So for my clients, at that point in time, I was probably eight or nine years into working with my clients. And it was a really fascinating time because I worked with a lot of young and early entrepreneurs that had not had their bad years yet. And it was really fascinating for me because I had experienced it. And then in my 20s I turned around the family business, so I had some of this stuff ingrained in me. Well, what was fascinating is these entrepreneurs would think that the good old days were going to last forever. And when '08 and '09 hit, potentially put some of them out of business, they took 20, 30, 40, 50% hits to their revenue. And their central nervous system could not grasp this feeling of what happened? What changed? Why doesn't it always grow?
(11:35):
And so to plant a seed for you, it's simple math, if and when it happens to you. But if you take a 30% hit to your revenue, and so let's hypothetically pretend you're a $10 million company. You take a 30% hit, all of a sudden overnight you're a $7 million company. You will survive that. Every company will survive that, if you have the psychological ability to stop this energetic thing that's happening. This thing in your central nervous system that you think you were going to go from 10 to 12 to 15 to 20 million, all of a sudden you went from 10 to seven, you just got to go back to structuring your business like it was when it was at $7 million.
(12:25):
Which means unfortunately, you're going to have to cut some things, expenses, people. It's brutal, it's scary, it's hard, but your number one job when the two bad years come, is to save your company. If you don't save the company, then there's nothing left. If you save the company, then when you get back to 10 million again and going forward from there, you can bring everybody back and spend like you used to spend.
(12:55):
The other thing that happened, so we EOS implementers, so all the EOS implementers at the time took about a 30% hit to their business. Like I said, in addition to me, they did as well. And so, that was a really powerful lesson. And so from that day forward, I would teach all of the EOS implementers about this 10-year business cycle and urge them to be prepared. So now, we have 850 strong and they're all taught this. So what was amazing about that is when COVID hit, I cannot tell you the number of emails, phone calls, texts that I received from implementers saying, "I'm going to be okay. I've got my safety bucket full, I've got my cash reserves in place and I'm going to be fine." And I'm going to bring this all into the home stretch, but to be in that mindset, you will think clear, you will be more peaceful.
(13:50):
In addition to that, just a personal example, when COVID hit, I reached out to both of my kids who have been taught my Finance 101 class since they were 14 years old, and I called them both and I said, "Are you good?" And they both said, "Yes, my security bucket is full." And so, ah, be still my heart. Because the whole point here, as I keep saying, is it's about preparation. And this is 10-year thinking. This is one of the aspects of 10-year thinking, is understanding this 10-year business cycle. This will actually help you if you struggle with 10-year thinking.
(14:28):
But nonetheless, as I alluded to, when you are prepared, when those two bad years come and all of a sudden they hit, your safety bucket is full. All of a sudden, there's that peace and that calm I talk about, because you're able to zoom out and simply say, "This is just the two bad years. I will survive." You will think better, you'll make better decisions. That peace and calm will lead you to see everything so much clearer. And you'll make the right tough decisions that need to be made to endure those two bad years. And you'll also know that the six good and the two great are coming.
(15:15):
And so, here's the million-dollar question. Here's how I want to close this episode with one simple question. Do you have six months cash reserves in your personal bank account and in your business bank account? Please take the time, do some math, and if you don't, please get to work on doing so.
(15:44):
Thank you for listening in today. We truly appreciate you taking the time to spend with us, and please tune in for the next episode. Until then, if you'd like to see where you are on your True Self journey, go to shedandshinepodcast.com to take the True Self-assessment and receive personalized guidance. If you're all ready to begin your inner world journey with Rob and myself, please join us for the next round of the 10 Disciplines group coaching program. We wish you all the best in freeing your True Self. Stay focused and much love.
