Myth Four: “It’s too risky. I’ll lose money

THE FOURTH COMMON MYTHUNDERSTANDING

MYTH:IT’S TOO RISKY. I’LL LOSE MONEY. TRUTH:RISK ISIN DIRECT PROPORTIONTO HOW WELL YOU HOLD YOUR INCREMENTAL COSTS ACCOUNTABLETO PRODUCING INCREMENTAL RESULTS.

Anyone who has ever spent any time in a boardroom knows that when it comes to expenses, there are basically two kinds of people. There are those who cry, “It costs too much!” and there are those who counter, “We can’t afford not to do it.” Most people react one way or the other out of habit or nature. Most of the time, you can examine the numbers and make a sound, dispassionate decision. However, there are times when this won’t work because you simply can’t reliably assess the risks. Millionaire Real Estate Agents know how to operate when the end result is unclear. They understand that if you hold your costs accountable for corresponding incremental results—if you stay engaged after you write the check and evaluate the direct results of writing that check before writing more— you can greatly minimize your risks.

It’s just like the childhood game Red Light, Green Light. However, instead of playing the traffic light for fun and games, you must be a traffic light for your expenses. Here is how it works: Once you have a green light, you increase your expenses by an appropriate amount to accomplish a corresponding goal. Now that you’ve increased your expenses, you must hold that incremental increase accountable to deliver an incremental increase in income! You’re now sitting at a red light. And you’ll continue to sit there with no increase in your spending until you see the appropriate incremental increase in your income. Once an acceptable incremental increase shows up for that level of spending, the light turns from red to green, and

you are now free to add another incremental increase in spending.

This isn’t so complicated, yet too many people act as if it is a green light world and run red light after red light without so much as tapping the “expense brakes.” This process is about scrutinizing your results hard and understanding exactly where they come from. Don’t pay for a second of anything until you’re sure the first one is producing great results! Red Light, Green Light is how you can greatly reduce the risks of increased spending.

Early in my career, I remember fretting over what seemed to be an extraordinary monetary risk involving a new hire. This was at a juncture when one of my businesses needed a new manager. I had interviewed a superb candidate but knew she would command twice the salary I’d ever paid anyone in that position. My initial mistake was in assessing my exposure in terms of her annual salary, which for the purposes of this discussion we’ll say was $60,000. In that business, $60,000 would have been a lot of money to guarantee someone for that position. I was very nervous and afraid of the apparent increased risk this guarantee represented. Then it dawned on me that my actual risk was really only the difference between what I had previously paid for the position and the new person’s salary. So, in essence, I was risking only about $30,000 a year on this new person. This was a better and truer perspective, but $30,000 still felt like a substantial risk to me. Then it occurred to me that if this person was not performing, I wouldn’t be paying the salary for an entire year. The truth was, I would be at risk only for about $2,500 for every month the individual was with the company.

I realized that if I paid close attention to her performance, I’d quickly be able to determine if she was right for the job. I knew I would have to hold her accountable to bring in significant results to justify that kind of guarantee. I finally determined that if after three months performance had fallen or remained the same, I would need to be prepared to part ways and move to another candidate. So my actual risk would only be $7,500 ($2,500 times three months). Once I thought of it that way, I decided