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This episode is brought to you by Progressive Insurance. Fiscally responsible financial geniuses, monetary magicians. These are things people say about drivers who switch their car insurance to Progressive and save hundreds. Because Progressive offers discounts for paying in full, owning a home and more. Plus, you can count on their great customer service to help you when you need it. So your dollar goes a long way. Visit progressive.com to see if you could save on car insurance, Progressive Casualty Insurance Company and affiliates. Potential savings will vary. Not available in all states or situations. Takes to grow your business, build more wealth and create financial freedom.
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Hey guys, welcome back to another episode of the show. Thanks for tuning in with me today. And today I want to talk about diving into some strategies that you can leverage in use to help you grow your business, grow your wealth, achieve more success. And so today I want to talk about something that some of the most successful companies in the world use to maximize not just their efficiency, but to increase their overall profitability. And I know so many business owners that want to do that. And if you don't have a business, you obviously want to do this in your personal life as well. And we have seen a very famous billionaire all over the news talking about what exactly he is doing in our government. Of course, this is none other than Elon Musk. And so I want to talk about something that not just Elon uses, but something that a lot of other great companies have used to build back their company to sustain really complicated, complex times or to make them highly profitable in an industry or in a time when they were losing market share and losing profit. So I really want to dive into what exactly this whole holy grail is, why it works, and most importantly how you can apply it right away. So what is this? It's called zero based budgeting. This is something that I didn't realize I used over time until I wrote the 9% edge and identified that zero based budgeting is actually a financial tool or a method where you really identify every single dollar that's being spent now, whether that's your company's budget, your business budget, your own personal budget, and allocating this expense based on the needs, the priorities of the business or your life right now, not carrying it over from prior periods. Right. So oftentimes what happens when we're in a budget is we look and say, okay, these are the marketing dollars that we're spending. This is the staff expenses, our wages that we're spending. This is what we're spending in cost of goods sold, right? This is what we're spending on products to sell or to produce something. The difference is with zero based budgeting over traditional budgeting, instead of just starting with last year's and adjusting it up or down based on your actuals, you literally pull everything back and start to zero what this does. And sorry for all my male listeners, I'm going to explain this because I know that we also have a lot of female listeners. And the best way I can explain this is when you're editing a closet. Like, if you want to downsize your closet or downsize all of the endless things that you have in your house, you can't just go into your closet and try to take each item off one by one and justify whether you can keep it or if you might wear it, you actually have to do the opposite. You have to take all of your clothes off of the racks, off of the rods out of the drawers, and then say, am I going to wear this? Do I like this? Do I like how I feel? And then you put it back in the closet, right? So you're taking this jacket off you, you're taking it out of the closet, and then you have to make a decision whether or not you put it back. That is a much harder decision to do. And the way that our brains evaluate it is far different than the jacket already hanging in the closet. The very same thing happens with budgeting when you take it from year over year and you just roll over those and you adjust them, as opposed to saying, oh, no, we're going to strip this back the whole way to zero. And then we are going to have to justify or approve these expenses based on our current business goals and objectives. And this matters so much because what it says is that there are no expenses automatically renewed. You are forced to evaluate every department, every project, every expenditure, every initiative as if it was something brand new and that you still wanted to do today. And so essentially you're asking this question, does this expense contribute directly to achieving my goal? And obviously, Elon is known for doing this. He not only applied this with his company, Tesla, he applied it when he acquired X, which is why everybody was losing their mind that he's operating it on a fraction of what Twitter operated on as far as the budget, because he pulled everything out to see what should be built back. And he's only one example of an entrepreneur who utilizes this. It gives you the ability to cut down on unnecessary costs, to streamline operations, and to focus on what actually drives value. Now, for Elon, it ensured that every dollar that was spent inside of X or Tesla will contribute to the company's mission, whether that's increasing revenue, improving operations, scaling, or investing in innovation. And so obviously we're going to talk about a few other companies that use it. But how do you implement this? What is the process? If you at least wanted to start? Well, the first step is to really look at how would I bring this back to zero? Every department, every expense, how do I justify to put this back into the budget? And then you want to ask yourself the following questions. One, does this expense directly contribute to my business goals? Two, is there a way to do this more efficiently at a lower cost? Three, is this investment actually driving my growth in a measurable way? Right. So that we are actually measuring the capital that we're deploying in our business or in our budget? And we're saying, okay, if I spend $800 or $8,000 or $8,000,000, what is my return going to be and how will I know when I actually achieve that return? So often people just throw money into a strategy hoping that it's going to work. But if we can't measure it, we have no way of knowing if that is going to give us a great return on our money or not. So for example, let's say you have an e commerce business. You might have a monthly advertising budget and instead of rolling over last month's budget, you would then evaluate, okay, how much money did I spend on advertising? How is this performing? How many new customers did I get? What was their average spend? Is this reaching the right audience? Is there a better way to find customers and allocate that money? You may find that developing an influencer marketing campaign is going to give you higher yields or returns that are more profitable over a Facebook ad. So then you shift accordingly. That's the power of zero based budgeting. What makes a leader? It's a tough question, but one thing's for sure. A true leader leads by example. And a true leader takes risks too. They plunge into life with determination. For those who lead by example and who approach life with a palpable passion, there's the Range Rover Sport. Each Range Rover Sport model offers a dynamic, sophisticated take on sporting luxury. The Range Rover Sport offers focused on road performance and world renowned off road capability with industry leading features like adaptive off road cruise control that monitors ground condition and acclimates to the present terrain. Agility, control and composure are achieved with dynamic air suspension and adaptive dynamics. Reduces unwanted body movements to deliver smooth and composed handling, True sophistication and excellent maneuverability. All in a seriously stylish Package. Sophisticated refinement meets visceral power in the Range Rover Sport, a new dimension of sporting luxury. Build your Range Rover Sport@Land RoverUSA.com what it also does is it allows you to identify your objectives, like what goals are you really aiming to achieve? And then justifying each cost. Is this expense necessary to reach that goal? Goal or somebody trying to sell me something that I don't need or I can't use. And then adjusting your resources accordingly so that you can maximize the impact of every one of those dollars. And then really where the rubber meets the road, measuring the outcome, continually assessing how that spending will impact your business, your revenue, your top line growth, your bottom line. Because zero based budgeting is extremely beneficial for many, many reasons. And truly, if you don't listen to any other podcast that I ever put out and you're an entrepreneur or you're a person solopreneur. If you're working and you're an intrapreneur and you're inside of somebody else's four walls of their business, you can still leverage this tactic in your own life. And really it's going to not only increase profit, but it's going to maximize your efficiency because you're going to be constantly evaluating every expense to ensure that those resources are being used where they matter most. It also encourages innovation, which I find too many business owners, especially small businesses, aren't doing. By doing this, you will actually find new ways that you can operate more efficiently or generate new revenue verticals because you're constantly scrutinizing your expenses and your processes. And very much like Elon's approach with X, this helped him cut out wasteful spending and focused all the efforts on areas that were driving the success. And here's what a lot of people miss. So many people talk about Twitter's revenue when Elon acquired it and how their revenue was cut in half by the time Elon took it over. And of course, there are many reasons why that happened. But here's what people fail to talk about because they want to somehow demonize what he's doing. They'll say, oh yeah, well, Twitter's revenue was billions. I think it was $4 billion roughly. Elon comes in, it goes almost into half, like maybe $2.4 billion. But what happened was he was highly profitable. The amount of profit on his two and a half billion dollars was exponentially greater than the profit that Twitter had acquired not doing zero based budgeting. So when we're looking at profit, which is really where the rubber meets the road, it's really what is going to keep you part of the successful 9% in business. It's not revenue, right? It's why the saying always goes, revenue is vanity, but profit is sanity. And that's really why you can be super efficient, decrease your revenue and actually become more profitable. And X is a great example of that. He eliminated office space. He reduced the staff drastically. He revamped the platform's ad strategy, got rid of so many advertisers. All possible because he was using zero based budgeting to eliminate costs that weren't providing enough value to the bottom line. And by doing this, he created a much more profitable company. And this is exactly what he's doing inside of the government. What he did with Tesla and SpaceX by using this to keep them lean, to make sure that they're innovating, that they're always looking at solutions. I think in 2018, it's when he really got Tesla to focus on production and to reduce cost, which allowed them to scale their operations far more efficiently. It helped them improve their margins despite challenges in the car market. And this is a big reason why Tesla is now one of the highest valued automakers in the entire world. But it's not just Elon. Companies like Coca Cola use this. So imagine a huge company that's a legacy company that's been around forever. Coca Cola also implemented zero based budgeting. They reduced costs by billions over a decade, all by reassessing every budget item and allocating funds to areas with the highest return. They managed to stay profitable even during tough economic times. And I think the greatest example of this is ford. Ford Motor Company back in 2008 was the only car company that survived the financial crisis. How did they do that? They made significant cuts. They didn't sacrifice quality or innovation. They used zero based budgeting which allowed them to emerge stronger post financial crisis and really maintained leadership in the global automotive market. So obviously, if it's good enough for Elon and Coca Cola and Ford, it's good.
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Enough for us. So how do we do this? Let me give you a couple quick tips for implementation. Get clear on what your business goals are. Are you trying to maintain profitability or optimize it? Are you trying to grow revenue? Are you trying to acquire more customers? You need to focus on what your goals are for this year so that you can get super clear and specific. This is the only way this will work. I talk about it in my book. You need to set the intention of what the year is going to look like and really identify specifically what your goals are, why that's important. If we don't have that first, we can't review all of our expenses to make sure that every cost, whether it's marketing or advertising space or software or salaries are actually helping you achieve that goal. That's really the first step. And then you want to really prioritize your investments, like what areas are directly linked to to that growth. So for example, let's say you're in the beginning of startup. You may heavily spend on product development or marketing rather than luxury office space, right? Because you are trying to acquire more market share. It's really important to know what is the goal for this year so that you can deploy the right amount of resources in those areas so that you can get more money back with your money. And obviously you always want to let your team know or whoever it is that you're working with, if you even have a very small team. That zero based budgeting is really prioritizing impact over expenses. It's about being strategic about your growth. It's the sniper strategies, right? Not going out with a machine gun to acquire everything it is that you want to achieve, but being super specific, laser focused with every single initiative, every single dollar and every single expense that is in and out of your profit and loss. And this is not a one time thing. This is literally how you start to develop and run your business. It's a continual process, regularly reviewing your spending, tracking the effectiveness of it. But really as entrepreneurs and business owners, like this is the one thing that we have to do. Well, like truly this is the one thing. Like I always say, no one is going to care about your bottom line or your checkbook or your money more than you. And really they shouldn't. Especially if you're under say $50 million in annual revenue a year. You want to make sure that this part really establishing where your goals are, what your growth targets are for the year, and identifying how you can be more effective, leaner, more specific at achieving those goals. That's really when you start to make your success not just possible, but probable and really staying on top of your game. You know, doing the State of the Union meeting, which I talk about so much on the show and in the book, making sure that you set up that monthly meeting with yourself, with your other partners, if you have additional owners or people that have equity in your company, at least at a monthly minimum. Taking a look at, you know, what expenses do we have, what revenue, identifying your KPIs and metrics, measuring them, obviously measure what really matters. And then taking a look at how can I strip out some of these expenses and how do I get really specific on do I really think that this expense is going to get me closer to this goal. Doing that on a monthly basis is really going to stay on top of not just your business and your finances, but it's going to help you accomplish your goals more easily. So if you want to scale your business like Elon or other successful companies, this is a really great game. Changing strategy as it forces us to be intentional about every dollar you spend and really ensures that you're always optimizing for profit. If you apply these principles to your small business or your personal finances, you will find yourself cutting costs, increasing profit, setting yourself up for real long term success. And so many people are losing their minds of what Elon is doing to the government. But this is exactly the same approach. He's going and asking the question, do we really need to be spending this kind of money doing this initiative? Is that actually helping our economy? Is that helping our citizens? Is that helping our standing in the world? World? And when you are willing to ask great questions and you're willing to identify and you're willing to challenge your thought process, because growth never happens in an echo chamber. When you are really willing to challenge your thought process, challenge what you did yesterday, last month, last year, that is what's going to set you up for greater success. So if you are ready to implement zero based budgeting in your business, I encourage you take out that phone, set your appointment for your State of the Union meeting and start to look at your current budget, identify the areas that you can cut back, where can you reinvest that savings to really impact the areas towards your growth so you can make more money, save more of the money that you make so that you don't always have to trade time for it. Hey guys, thanks for tuning in to this episode and if there was something that you loved or you have a specific takeaway, share it and tag me at Candy Valentino. And if you haven't already, grab a copy of my latest book, the 9% Edge Life Changing Secrets to create more revenue for your business and more freedom for yourself. You can pick it up anywhere books are sold, Amazon, Barnes and Noble, or your local independent store. And once you do, head over to 9% edge.com and claim feedback. $1,500 in pre order bonuses, including a chance to join me on this very show. Thanks so much for tuning in and spending this time with me today, guys. We'll see you next time.