How to Use Failure as a Tool to Reach Financial Freedom

Interview With John Lee Dumas

Douglas Goldstein interviews John Lee Dumas, as he tackles the question, how do you develop Warren Buffett’s resiliency as an investor?

Douglas Goldstein: I'm very excited to be talking to John Lee Dumas, from Entrepreneur on Fire, who's created a fantastic Freedom Journal to help people reach their goals in 100 days. But one of the coolest things about John is that he knows firsthand, more stories of failure than anybody I know. John, you've interviewed a thousand people who tell you their stories of failure, but they always have a comeback story. What's the difference between people who overcome failure and those who succumb to failure? 

The Difference Between People Who Overcome Failure And Those Who Don’t

John Lee Dumas: That's a great question, Douglas. I've asked my guests the question, “What is your worst entrepreneurial moment ever?"

Some people try to be vague. They say that they’ve had a couple of bad years. But I want the exact moment in time. What happened? Did you cry, etc.? I make them tell that story because I think it's so important to see that successful entrepreneurs have been massive failures. They have fallen on their face and have completely bombed in every way shape or form. But the one thing that they did was that they didn't stop. They did not stop. They just kept on persevering through those tough times, through the struggles and obstacles.

Successful entrepreneurs aren’t necessarily looking for success. A lot of them are looking for the no. What I mean by that is they know absolutely that they're going to get nine no's to get to one yes. 

When they get a no, they're like, "Okay, sweet. Thanks, bye."  The person is like, "Why is that person so happy that they just said no?"  Because you're one of the nine no's that I have to experience if I'm going to get to a yes.  You realize that you won’t hit a home run every time. 

When a baseball player gets three hits and seven strikeouts out of 10 at bat, they're an all-star. They're an all-star. They might even go to the Hall of Fame with those numbers. That's insanity and that's the life of an entrepreneur. You only need a couple of hits out of every dozen or so swings you take to be a success in life, and entrepreneurs who have achieved success know that. 

Developing an Attitude Like Warren Buffett’s

Douglas Goldstein: I want to look at that also from an investment standpoint because the same principle applies. In 2009, when the stock market was crashing and really hitting the bottom, someone asked Warren Buffett, "Mr. Buffett, how does it feel to have just lost 40% of the wealth you've accumulated over your whole life?" 

And Buffett said, "It feels very much like the previous three times that I lost 40% of my net worth." But how do you get that attitude?

John Lee Dumas:  Number one, it probably helps when you lose 40% of your net worth and you're still a multi-billionaire. That probably helps a little bit. I usually ask my guests the lessons they have learned through failure.

They perk up a little bit because it's tough to talk about the worst moments, because I'm physically bringing them there.

I think Warren Buffett has learned over time not to panic. He’s lost and gained back what he had lost a lot of times. When you're down for it, it doesn't mean you sell everything. No. Maybe you double down on some of those areas where you know the company is still strong, and they will be coming back, but the general market is just panicking. 

Warren Buffett loves saying he likes to be greedy when other people are panicking, and he is panicking more when people are greedy. He's really trying to go against that tide. What are you as an entrepreneur learning from those tough times, and how are you going to apply it to that next time when you face that struggle? That's the mark of a long-term successful entrepreneur. 

Douglas Goldstein: I remember when I started on Wall Street. I was actually partners with my mother. My mother was a vice president and I was this young rookie and I was 20-something years old. I thought I was really good at math, and I started trading options for myself because it's more mathematical. 

In the first week, I made a couple of thousand dollars and thought I was all smart. Needless to say, the next week, I just got crushed and lost it and way more.  My mother started laughing at me and I asked her, "Why are you laughing?"

She goes, "It's a good thing you lost the money now so that when I leave you an inheritance, you don't lose all of it then." Essentially what you are saying, John, is that people who deal with failure and come around to succeed are the people who try to learn the life lesson and just move on. 

John Lee Dumas: Yes. 100%. 

Douglas Goldstein: One of the other issues that is very parallel between entrepreneurs and investors is that there's a lot of stress involved, especially when you're dealing with a couple. A lot of the people that you talk to, and yourself included, work at home and they're very close to their house. We often praise them and say, "Oh, yeah. It's great. You're with your spouse, you're with your kids," but you're also in very tight quarters and the stress can be huge. 

As a financial advisor, I see that a lot. What do you find is a trait that makes people able to deal with that success, without killing each other?

How Can Partners Work and Invest Together, In Harmony?

John Lee Dumas: One of the things that helps make a successful partnership, both in business and in the home, is that you have strengths where your other partner has weaknesses and vice versa. If I may speak for myself, I'm able to spend my time at what I'm really good at, and I'm able to have my partner step up at what she's really good at and focus on that.

You need to make sure that you’re being strategic about that. That you don't just have a business where it's the two of you, and you're both uber type A. You both totally take charge, or you both totally hate details. If you both are like that, then you're setting yourself up for failure unless you're willing to bring in somebody on the team. You can hire a full-time CPA or a full-time financial advisor who's going to be there with you, making sure that you're doing all those right things to run a well-rounded business. 

There also needs to be an on/off switch. If you are working with a partner and you are friends with them, or it happens to be a significant other, that can't be lost. There has to be time where if it's your buddy, you're shutting things down at a certain time, maybe going out for a beer, and keeping that friendship alive. 

Or if it's your significant other, you're shutting it down and you're sitting down to a nice dinner together and you're talking about non-business related stuff.

Douglas Goldstein: What if you are not partners? In the example I gave, I'll often see that one of the spouses handles the investment portfolio. In the same way, one of them might be the entrepreneur but the other one has a "real job". All of a sudden, you're going for a big deal and you lose $100,000 or you invest in a stock and it goes bad. That's when all Hell breaks loose because the other person is not involved in your business. 

I'm not sure about the percentages but certainly, in a lot of cases, the husband does his thing, the wife does her thing, but they share the common bank account, which can take a huge hit. How do they deal with that in order to stay married when the money's so volatile?

John Lee Dumas: The ones who I've seen who have achieved success even when they're leading completely separate professional lives are those that keep the communication going all the time. Leading up to any big move or big acquisition or big risk or whatever it might be, the conversation has been happening in the days, the weeks, the months preceding that. If it goes great, it's not out of the blue, and if things go horrible, that's not out of the blue either. 

Keep your partner involved, and you likewise be involved in what you’re partner is doing. If we’re going to share our successes, we also have to share our failures and our tough times and it shouldn't come as a surprise. It should be a complete communication that both of you are on board with going forward. Otherwise, you're in for a rocky road.  

Douglas Goldstein: Even when I think about budgeting, the two of you have to sit down together on a monthly basis and look at what you are spending versus what you're earning. If you're going to have a bad month, then you won’t be able to pay for the groceries. You really want your spouse to know that upfront.  

Then you go to the question of getting professional help. I'm not talking about marriage help. I'm talking about business, and again I think there's a great parallel between investors and entrepreneurs. You talk a great deal about coaching and getting coaches, but it's expensive for a lot of people.

People tell me,"Doug, I'll just go trade on discount brokerage firm and I'll be okay." How should a person know when it's good to spend money to build himself up or to save money for reinvesting in his own business? 

The Importance Of Outsourcing

John Lee Dumas: I like to say penny wise, pound foolish. I think that is a really true term in pretty much everything that you're doing. As soon as Entrepreneur On Fire started generating revenue, the first thing that I did was say, "Hey, I've got to get my taxes in order." I was bringing in a lot of money, and since I was an entrepreneur, I knew that I had quarterly taxes that were due here in America.

I'm working on producing content for entrepreneurs, for EO Fire, writing emails, doing social media, all of this stuff, and so I went out and I found the best gosh-darn CPA that I could find. I was like, "This person gets entrepreneurs, gets business. I'm bringing him on the team." That investment has paid so many dividends. 

If I would have tried to do TurboTax, which is something we have here in the States, at the end of every year, I would have found that I hadn’t been keeping up with my business expenses at the end of the year. I've been co-mingling funds. I haven't been taking out the right deduction. The list goes on and it would have been a mess, a real nightmare. It would have distracted me too.

But bringing on a CPA, who knew what he was doing and who was able to get my house in order basically the month that I started generating positive revenue, was a fantastic idea. It saved me so much money. Trying to go the cheap route, trying to be penny wise at first, can really bite you big in the end. 

Just like if you have some disposable income and you want to invest it. You don't get help from people who are willing to take the time to understand the situation that you're in: the goals and the aspirations that you have financially. Then you put it all into a stock or whatever it might be that doesn't line up with your risk profile, and the next thing you know, you’ve lost 40% of your investment. 

Was it really worth it going with a discounted brokerage, somebody that doesn't know who you are and what you're looking for? Of course not. Because maybe your son or daughter's going to college next year, and you have to have a certain amount of money set aside no matter what happens to the market. That's critical stuff and if it’s not your strong suit, you should give it to somebody who knows what they’re doing. 

Douglas Goldstein: In other words, as soon as you started making money, you decided that you were  not going to handle your money like a politician. You were going to get real professionals to handle it. That’s great advice. I’m actually seeing two sides to this. One of them is, whether you're an investor or an entrepreneur, you've got to figure out what value you add to the equation, what you are good at, and everything else you should outsource.

Even though I'm a financial advisor, people always wonder how I am not a tax accountant. I tell them that I have a bookkeeper. I think in the end, when you hire someone who’s good at what you’re not, you'll be happier. If your goal is to be teaching people and writing content like you do, that's what you should be doing. Someone else should be doing everything else.

John Lee Dumas: I'll give you a real example that happened a couple of days ago. My father, who is a very successful lawyer, is really from the old school. He still mows his own lawn and wonders why I hire someone to mow mine. He's of the, "Pinch every single penny," school of thought.  He believes that if I did my own lawn and washed my own dishes, I’d save about $40 or $50.

However, the truth is that my time, my hourly time, is much higher than $10 per hour. I am much better doing my thing: producing content, doing podcasts like this, and writing emails. 

Douglas Goldstein: He doesn't get it. He has no idea what you do, does he?

John Lee Dumas: He doesn't get it.

Douglas Goldstein: "You're spoiled." He just doesn't see it.

John Lee Dumas: He's like, "Ah, kids these days." I'm like, "Alright."

Douglas Goldstein: John, tell us how people can follow you and follow your work.

John Lee Dumas:  There is this amazing hardcover, gold-embossed journal called The Freedom Journal, which guides you in accomplishing your number one goal in a hundred days. We're super-passionate about it. We've sold over 14,000 to date, and it's just been a huge excitement for me to see people actually now crushing their goals. If you want to check out more about goals, head over to thefreedomjournal.com.

Douglas Goldstein: John Lee Dumas, real pleasure talking.