Why AI Automation Fails Without Solid Systems | Business Unscripted Ep. 66

AI can write your posts, draft your emails, and automate your workflows, but it can’t fix a broken business process, it only accelerates it. We sit down for a candid Friday conversation about what actually comes first: building clean, repeatable systems that your team can run without constant owner oversight. To keep it real (and practical), we use a baseball first-and-third play as the analogy for why “we talked about it once” is not a system, and why reps, review, and updates are what make execution reliable.

From there, we get hands-on with what modern AI automation should look like when it’s done right: clear objectives, a scoring rubric for outputs, feedback loops, and a human approval step so quality stays high while the engine keeps improving. If you’ve ever told a tool “don’t do that again” and it still does it, we explain why your process and context are the missing pieces, not the tech.

We also zoom out to the entrepreneurship side: how to start a business without getting fooled by social media expectations, what sacrifice really looks like, and why side hustles can be the safer on-ramp. Then we hit the basics of business formation and risk, including LLC guardrails and why mixing personal and business expenses can erase liability protection. We wrap with the accounting metrics we want every owner to know, especially gross profit margin, customer acquisition cost, and lifetime value, so pricing and marketing decisions stop being guesses. If this helps, subscribe, share it with a friend, and leave a review so more business owners can find it.

Episode 66

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Transcript

Coffee, Setup, And Friday Kickoff

SPEAKER_00 0:18

We're here to grab your favorite cup of Joe. Let's jump into the show.

Dave 0:27

Grab your favorite cup of Joe. Let's jump into the show, as I say, every single week. We're here for another Friday, which means it's another episode of the Business Unscripted Podcast. And I hope you guys had a wonderful and amazing week. Thank you for joining us again. As people kind of roll in, as you see, it's a little bit a different setup, which is probably why I take us a little bit longer to get these things sort of figured out and technical issues work through, right? You know, trying to get three different views set up in this room. It's it's fun and exciting. But we're here for another one. If you are a business owner or you're an aspiring business owner, you're in the right spot. We talk about all the struggles that we've gone through in our business, things that we're currently working through, but also things that we are helping others in business like yourself, you know, solve, overcome, and conquer. So you're in the right spot. And we hope that if you ever have any questions, feel free to drop them down below. We we pay attention to the comments during the session and after the session. So if there's anything that you have that you want to bring up, feel free to drop it down below. And there's no dumb questions. Because if you have a question, that means there's probably thousands of other people that have that same question. So you're in the right spot. But today we are not joined, obviously, by Dwarren. Dwarne is, you know, he mentioned a couple episodes ago that he is working through a big deal right now. So he is in a business dinner with uh, you know, kind of wrapping that up and getting things going. So, you know, Dwarne, you look forward to seeing you next week. Uh, he's promised to be back next week. So, but here we're joined again by my son, who is with me right now for the summer break. And then we have some baseball tournaments we gotta get to, you know, this afternoon, which is why you're here. But thanks, brother, again for for joining me. You know, you're not as you're not as professional looking today, but that's okay.

Summer Job And Next Year’s Classes

Dave 2:20

You know, you're ready, you're ready for baseball. You're you're getting yourself in the mood, right? Yeah, yeah. So but what's been going on? You know, summer break? You know, what are you you in the working world? A little bit with maintenance at school and middle school. Yeah. So how how does it feel to earn income for the first time? Second time, well, yeah. Second year. Yeah, but how does it feel to earn you know earn income doing so doing something? I mean it feels good because you actually like being handed money for doing something, like for not doing anything. Just being like, hey dad, can I have some money? Yeah, I get it. I get it. You're earning earning the money you're getting. Yeah, my wallet's a little thicker too, because you're not asking for money all the time. But so you're any uh besides baseball, what are you looking forward to for the summer?

SPEAKER_02 3:11

What I'm looking forward to.

Dave 3:14

Oh god, it's a good question. Yeah, there's not only anything else I do. I mean, cedar point, obviously. That's a fun one. Okay. Cedar point time, relaxation. Pretty pretty much just that in baseball. Yeah. Okay. Well, how about going into next next school year? What's what's the one class that you're excited to kind of get started with? Accounting. Accounting? Yeah, you're taking accounting next year. Either I'm not sure if it's first or second semester yet, but okay. It's one of the two. And what what's the other semester? Because I know it's like a full year that you so you have accounting and then what's the other my other elective? Yeah. Yeah. I want to say it's entrepreneurship. Oh, nice. That's what I think it is. It's gonna be a good one. Yeah, you're gonna have to keep me informed on that one. I won't have to we'll have to exchange notes on your entrepreneurship class. So but good, yeah. So welcome back to another

Fix The Process Before Using AI

Dave 4:10

episode. You know, today when I was looking through kind of our last couple episodes, you know, we've talked about things and tools and things that business owners should be doing with AI, processes to be generating, but it also comes back to a lot of conversations that I've had with you know other owners around AI. And ultimately, if you don't have a good system in place, building AI isn't gonna help solve it, right? It's like it's like building on a broken system, right? If you don't have if you don't have a good you know strategy, like if you think of baseball, right? You don't have a good strategy for you know throwing somebody out when there's a runner on first and third, right? And you don't have a good system for that, you know, trying to build some complicated signal system on top of it doesn't matter. If if you don't have the the plans and the plays written out so that everybody on the field knows exactly what's happening, right? And so that's the same thing kind of in your business, is that you know, if just thinking you're gonna put this complicated AI, you know, automation process on top of a broken system, all that's gonna do is is you know amplify all the issues and the errors in the system. So ultimately the first step of any sort of AI implementation is really getting an understanding of you know what a business is actually doing for the process, cleaning that up first, right? And then going out there and then implementing the the efficiency and the AI on top of it to help you know sort of push things forward. So but so so for yourself, you know, we when you think of that, and and welcome to the show, Kathy. Thank you for watching. I hope you get some some value out of this. But when when you think of like yourself and everything for baseball, I mean what what have you guys done or what have you seen or not seen, you know, in in your time, you know, years and years and years playing baseball, when you think back on it, that maybe not having the right system in place has cost you maybe a game or something like that.

Baseball Example Of Broken Systems

Dave 6:12

Well can you think of the time? Yeah. You can look at yesterday. Okay, what happened yesterday? Yeah, yeah. So like um there was first and third, and I believe who was playing second base? I want to say you don't have to say no, but you're second baseman, yeah. Yeah, well, so he was supposed to cover second the second base bag because AJ was gonna do a throw down. Yeah, and he just didn't even go to the bag at all, even though he gave the whole signs and everything. And AJ throw it down right in the center field. It goes, no, nobody would do that second base. Well, it goes right through. And that that that kind of it's harder too with a Summer Ball team because there's not a lot of practice. And that's what that's what builds a good system. It's not just writing it down once, trying to say, and as a business owner, right, putting it down on paper and and thinking, oh, hey, I have a I have the best system known to man. It's actually putting it in practice and and making sure that it works 99% of the time, which is that a great example. You know, you probably haven't practiced that. I mean, you you would think it's a routine, right? Yeah, but even at your guys' age, you're still in high school. You're ex you can't expect it, you know, it's got it, you still have to practice those fundamentals, you know, every day, day in and day out. Like it should be always there. But I think sometimes it gets overlooked, and just like a business owner in in their business with their systems, they get overlooked because they think, well, I I I looked at that, you know, six months ago. It's fine. A system is not something when you're when you're implementing it the first time that you just set it and forget it, right? Ultimately, a system is something that works, but you're constantly like reviewing and evolving it, you know, and it's funny because watching all these games for you guys, right? It's you see these different plays that come up sometimes that people do, and it's like, well, man, why don't why haven't we like you know why haven't your coaches you know like evolved for that or picked it up? And it's even like there's things that from four or five years ago that we you guys still don't even do, you know, which which it worked because it worked on you guys, right? And so ultimately you have you kind of have to you know kind of pay attention to that. And what's where where was I going with that? Of course, as I as I mentioned last week, when I look at my computer or my phone and and I get the the the fun message from the fiance, love you, baby. But she always makes me lose my train of thought when I see it pop up. So where was I going with that? No idea. I have no idea where I was going either. But ultimately, a system for your business, a system in baseball or anything is not just set it up once and forget about it and think it's always gonna work. It's put it in place, constantly have a process of of evolving and review. And I think that's the when you when you compound that then with AI, the biggest thing that I found the most benefit, you know, and I know you've you've worked a little bit, you know, with me on some of the processes, but even that, even since you on spring break, like things have just exploded since the idea that you just have this one process that AI runs through, and then you think that it's it's done, and you're just like, oh, okay, I have all my marketing covered. Well, no, because it's there's things that can be improved on. There's there's better you know, verbiage, there's there's feedback you can give it, there's ways that it can actually analyze itself, you know, in terms of like, hey, I this is where this is the actual objective, right? Of this process, here's the outcome that I want to achieve. Let's create a rubric, right? A scoring rubric to actually score outcomes on. And if you're not constantly evolving and constantly scoring and trying to, you know, add in new additional prompt direction or new context, it's always going to stay the same and you're just gonna stay flat. And so that's the beauty of like these new systems and evolutions is that they can self-evolve with your direction. You know, it's you as a you as a business owner with your direction. Like the ultimate goal with it is you have a regular process, whether it's the end of the day, end of the week, whatever it ends up being, and you have it score, but you also built in your actual feedback to the system.

Build Systems That Learn Over Time

Dave 10:40

So when, for example, like our social engine system that we build and we use and and we're evolving for client use, it sends us the weekly content for our platforms with imagery or or links to articles, et cetera, that we need to, you know, whether we're gonna schedule it on GoHi level with the first comments, or it's gonna be booked through cowork. But what I've built into the engine is once it's sent it to our command center for my approval, so my review, which is one of the things that I think that you still have a human element in it, right? So it's it's still coming to me. I still have to approve it, but I can give it feedback on copy, imagery, or both, and say, I don't like this direction, go change it. But what I built into it was when I give the feedback to it, it writes back into its memory and updates itself so that it doesn't continue to do it, which I think a lot of people overlook. They just feel like, well, I told this chat, you know, three weeks ago that I didn't want to do this anymore, yet it keeps doing it. Which because you don't have a good, you don't have good context, you don't have a good process for it to update itself. You know, and so that's the beauty, or that's the thing that a lot of people overlook and they miss is that just because you created it once doesn't mean it's over. It's always evolving, it's always constantly shifting. And and it's one thing to always kind of consider, you know what I mean? And I hope that's I mean, that's a lesson you can take forever. When you go into business, right, or whatever you're gonna do, having systems is important. Why do you think let me just ask this question for you like why do you think having a system in your business is important versus you the business owner just overseeing everything and making sure it's done right the way that you want? Well, like yeah, I think it like having a system makes everything a lot smoother, definitely, I would think. When it's done right, right? Yeah. Well, you can look at something like the assembly line when Ford invented that way back in the day for cars. Like it's just it makes everything way more efficient, right? And then you can improve on it and make it even more efficient as it goes on. Right. But if you don't have a system, it's just like you're just throwing random things together and it can just fall apart at any time. Well, and when you think about it, I as you're starting out, you're a business owner, maybe you're small, maybe you you're starting to bring on your first one, two, three employees. If you feel like you have to be the one to control everything, you're you're only gonna grow to your own limits. Right? Like, if you can't manage 50 people by yourself, like that's a limit. You're never gonna be able to do that if you want to keep everything in your head. That's the beauty of a system, is that you get the direction where you want it to go, and then you just oversee the system. And then as you get bigger and bigger, you can have other people oversee it that then report up to you where you're still directing the outcome.

Systems That Scale Beyond The Owner

Dave 14:23

Otherwise, you're you're literally limited to your own capacity if you want to control everything. And then the second, like the the offset shoot of that is if you know when you think of the ultimate direction of where you want to go with your business, is if your ultimate goal is to like sell, you want to get out, you want to sell, you know, maybe in 10, 15 years, whatever that is, what do you think they're buying? You you want to leave, right? You want to retire. So they're not they can't buy you if everything's in your head and your whole process is in your head. You know, they need to buy a system, a knowledge base, all that. And if you haven't put it on paper, you haven't put it in operation, there's nothing to buy. And the best time to do a system besides right doing it yesterday, you know, if you haven't done it, the second best time to do it is today. Like start working on it today, start putting systems in place, documenting things that are in your head or the processes, but it's also way easier to do it when you're small. Because you have you have no other time, you're not trying to manage 17 different people, you know. So I think a lot of people overlook that one piece that goes along with their business. And sometimes it's as simple as talking. This is the great use of like AI, just talking to AI and say, here's what I do around my invoicing, right? Here's my invoicing process. Perfect. Because now when you bring in an outsourced, you know, financial bookkeeper, you know, or support system, or you bring it in-house, whatever it is, you have that process already down and documented. Right? Here's here's my here's my process for following up on AR, here's my process for onboarding, here's my process. And so when you work through all these things, next time you bring somebody on, you just point them to the process, or you point them to the documentation and the system, and there you go. But I think it's something that so many people they feel like they don't have time for, and they just go through the motions. But really, it's ultimately that motion is what's gonna help you maybe identify inefficiency, it's gonna help you identify where you're taking up too much time, etc. So, you know, when you think of that, like you got a perfect example of Henry Ford with the you know, the assembly line. You know, how more efficient was he, you know, after creating that? Now they're able to just roll them. I mean, I can't, I don't even know the numbers, but they're probably I mean, they roll off like ultimately like I want to say it was a new car every like 12 seconds or something like that. It was insane. Yeah, if you just think about that, it's just the volume, right? Is it's crazy. And obviously, you know, we're small business owners, we're not like at the level of Henry Ford, but I have said this about Henry Ford all the time, right? And I don't know if you know this, like you see Ford every uh all these cars, right? Millions of cars a year. How much like he had to have been like the best automotive mind in the world, right? What do you think? I mean, you have like Chevy and General Motors and stuff like that, right? So you probably haven't heard this story in school. So Henry Ford knew absolutely nothing about cars, right? He uh let me take that back. He probably didn't know absolutely nothing, but he what he did know is that he didn't know anything about an engine, he didn't know how to, you know, internal combustion and all this kind of stuff, right? But what he did know, he did know how to bring people around him that were smarter than him about things that he wanted to do, right? So he was able to form that support group of people that understood the engine, all that, and and build a company uh with their right support and knowledge, and now, but his name is the one on all the cars, not you know, theirs. But and it's not saying that they weren't influential, it's the fact that you have to be the person to understand where your limitations are and how do you surround yourself with those types of people in your business in your life, right? Whether it's with baseball, whether it's with school, right? If you decide to start a business, whatever it ends up being, who am I finding and surrounding myself with that are gonna help me level up? Maybe they are smarter than me in two or three different areas, but I have the overall vision of what we're trying to do and trying to accomplish. And that's what's gonna help you as a business owner as well, like grow your business.

unknown 18:49

Right?

Dave 18:49

It's still your business, it's still your name on the company, you know, your you know, your company name. And but having all these people around you to help bounce ideas off of or help point you in the right direction, who have different levels of knowledge and expertise in different areas, you don't have to be that jack of all trades. You know, ultimately the the most successful business owners are going to be the ones that are the they're the visionaries, right? They're the direction, you know, with probably the the exception of you know, I don't know, maybe Elon Musk, because he knows a lot of he's a he's a he's a savant of sorts, but like you know, when you when you think of Bezos, you know, he probably doesn't know anything. You know, he's probably not an expert in shipping logistics. You know, he started as uh online bookstore, you know what I mean? So he probably doesn't know half of the stuff that's on his site or you know, half the stuff that they do. You know, he's probably he's not a car salesman, but they sell cars on Amazon. So you have to you can take those these things that you see at a grand scale, at a big scale, right? And say, how can I learn from that and implement it in my life, right? Like how can I build a system to help me do that in my life? Yeah, whether it's baseball, whether it's business, life, relationships, etc. So you did I'm I'm assuming you hadn't heard that story about Henry Ford? No at all. No. So you're going into entrepreneurship this year. What is what is a burning question maybe that you have right now that either you're you're hoping to get out of the class or you're hoping to get an you know direction on from the class. Again, another question I never thought of. Your dad's good at that one. Yeah, your dad do ask those questions quite a bit, or I don't really know the answer. But a question I have that I want to get out of the class. Honestly, I have no idea. I haven't like thought of that. Okay, so well, now that you are thinking about it right now, what is something that you've always like obviously you know, you're I'm I've been in entrepreneurship for a while, right? What is something that maybe has always crossed your mind that you're like, man, I wonder about this, right? That dad does, or anybody does in entrepreneurship, but what is a question that you you know kind of comes to mind when you think of that? Like what I like what I like a question to think about entrepreneurship. Like, just is there anything by the way? Yeah, like a general question about entrepreneurship that you're always like generalized, maybe you haven't asked anybody about. Probably how do you even

Starting A Business And The Sacrifice

Dave 22:18

start like a business? Like, is there like a process you have to go through to even start a business, or can you just like randomly start a business? Well, I mean, there there's always gonna be a legal process that you want to do, right? But before you even start a legal process and form like an LLC and all this other stuff, like ultimately you have to understand that you want to sort of you're gonna come up with an idea, you know, or you're gonna take something that you've done as a skill for somebody else as an employee, and you're like, you know, I'm gonna start doing this myself. One, you have to realize the sacrifice. Like, I would say like that's the biggest thing before anything, like it's not grand, it's not easy.

SPEAKER_02 23:02

Oh, yeah.

Dave 23:02

You know what I mean? And and so I think so many people, especially nowadays, we have you know, YouTube shorts, we have TikTok, whatever, you know, they see all these people driving these Ferraris and these Mercedes and Maseratis, right? And if you think about it, those are the people that have already spent years their years, their 30, 20, 30, whatever years, you know, kind of grinding and building. And if your idea is that in like two years you're gonna be able to do that, like maybe one in a million, you may have a shot at that, but ultimately it's it's the guys that are driving around like in the 10-year-old truck, 100,000 miles, that are the ones that are building and grinding right now, which is where you need to realize that you're gonna be before you even decide to even get into business, and realize that like social media is so misleading. Yeah, it's a giant lie. Right. Pretty much. It's every it's everybody's best moment on social media. You know, and and so it it obscues the expectation. And you know, I I saw something the other day, and I don't remember the exact like numbers and and the lines, but ultimately it was like the average like I think it's millionaire is in their 50s. The average millionaire, right? The average business takes 10 years to truly be profitable, like you know, sustainable profitability, right? And and what before you even get started, that's the first thing that you need to realize is like, you know what, this is a grind. I am willing to sacrifice that's the biggest thing is if you're not willing to sacrifice your lifestyle right now to build a business, you shouldn't even consider starting it. Which is why, like, I love Gary V's advice on this. Gary Vaynerchuk, and I don't know if I we've ever talked about him, but I think we have a couple times. But probably you know, his biggest thing is is you know, grind in your 20s. Like, don't just get out there, build, you know, don't worry about numbers of views and and all this kind of stuff. Like, just build, grind, do the work, and then you'll in your 30s and your 40s is when you're gonna be able to enjoy life, which is ultimately what you you know, if you're trying to build something, that's ultimately when you want to do it. So many people look and they think, oh my god, I gotta be, I gotta be rich in my 20s. No, rich in your 20s is is is grinding and learning. I wish I would have learned that, you know what I mean? Like I I regret my 20s, not not fully, led to you, right? But you know, I wish I would have grinded more. I wish I would have been willing to like sacrifice and build what I'm learning now, you know. But now I'm spending my 40s building, which is great because then I'll be able to spend my 50s and 60s. Hopefully, I get them, you know, to live life. So that's what I would say before you even start business, you know what I mean? Um, and I'm interested to see what they tell you in entrepreneurship class about that, you know, because it is gonna take years. And what people think is they're like, well, I do accounting or I do you know maintenance, right, for somebody else. I can easily go and do that. It's you know, I'll be able to work, you know, I'll be able to make my own hours, I'll be able to work less and make more money. It's like, yeah, no, because there's especially when you're just starting out, you know, like more hours. You know, you're entrepreneurship, and this is the big the most true quote, and I'm sure everybody's seen it online. The most true quote is entrepreneurship is quitting a nine to five job, right, and saying, I'm sick of working for somebody else for 40 hours to work 80 hours a week for yourself, and it's true. And then you add on top of that a lot of stuff that people don't talk about, right? You talk about the stress, the mindset, right? The you know, the what's the word everybody talked about now? Uh, you know, your emotional stability. What's what the hell's about mental health? Mental health, yes, thank you. I drew a blank. Maybe my mental health isn't good. But your mental health is is going to go, it's going to be challenged, you know, and so you know, you're worrying about cash flow, you're worrying about invoicing, you're worrying about clients, you're worrying about social media, you're worry about proposals, all these different things that if you're not strong-minded and and motivated and in love with what you're doing, it's gonna cause you to quit before you even get started. And so these are all these things, and I I wish people would have said this right before, but so many people don't. And I'm not saying that if you're an aspiring business owner, that you shouldn't get started, it's just you have to consider all these things. You know, are you willing to change your lifestyle? Are you willing to downgrade your lifestyle for the next three to four to five years in order to put in the work and make things successful for yourself? And if you're not, if you're like, no, I need this lifestyle, this is what I need, then you probably shouldn't start it full time, right? Start it as like a side hustle. Yeah, start it as a side hustle. You know, stay keep your nine to five so that you can keep your lifestyle and then you know, work five to nine. But there's gonna be some things you're gonna have to sacrifice, and some of that's gonna be, you know, maybe it's you know, gaming at night, right? If you're a gamer, or maybe it's going out to the bars with with friends, or you know, spending the weekend on the beach. Like those are the times that if you need your lifestyle, you need your nine to five, those are the times that you have to make available to do your side hustle to then replace your main gig. You can't just quit on your main gig. And so it all it really, and sometimes you're forced into it, you know. Sometimes you're forced where you don't have a nine to five, you gotta make it work, and then you've got to be willing to you know say no to people. You know, that's the hardest thing that I think for me to learn was you know, saying no. And I think, you know, I'll tell you to you straight out. You know, I always said I had to be at every one of the games, right? I always had to like leave work early, you know, over the first year or two. I'm like, oh, I can go to every one of the games, I can go to every one of the trips, and it's it's lessons learned even earlier on when I was in business, because I don't get paid, right, if I'm not doing work. Or something's gonna fall behind that I'm gonna have to pick up on anyways, and I'm still even further behind. Like, as an entrepreneur, if you take an hour away from work, you have to make that hour up. Where's that hour gonna be made up at? You know, or you know, there's not a guaranteed paycheck every two weeks. And so, really, when it when it comes down to is like not having so much pressure on yourself that you have to do everything for everybody else and not yourself. And like for me, you know, I love being and watching all your kids' games, right? But but I also have to realize like if I'm 45 minutes late, it's better than nothing because I need to finish something up or I need to get something done. Or if I can't come down on a Thursday, right, or even a Friday because the games are at bad times and I have meetings, like I yeah, like 8 a.m. 9 a.m. Like I'll be there, you know, afterwards, and just not putting that pressure on myself, you know. And I hope you guys understand. I hope it's like yeah, you know, but and and I that's good to hear because I think a lot of people, you know, or maybe I'm just lucky because you you understand it, but so many people would would like make their make their parents feel bad. Like, do you not realize that they're working for you, like everything they do for you, like that's what they're trying to do, they're trying to give you a life that maybe they didn't have. And I don't know if a kid's gonna listen to this or anything, but like, you know, if you are and and you and your mom or dad are and they're they're business owners, and they show up late to a game or they they they miss a game, they can't make a game, don't make them feel bad. Like they're following you, they're asking you how things are. Yeah, you won't be able to play that sport if they weren't working. Well, there you go. Yeah, exactly. Travel ball costs what twelve hundred dollars a year. Fifteen fifteen something like that. Yeah, I mean it's and then every tournament, all the travel, all that kind of stuff. Yeah, food. And and and really, you know, think of you know, I mean that's the biggest thing, you know. I I'm sure you say thank you to your mom and and Matt all the time. But but really it's it's hard because you want to you want to be there for everybody as a as a person, and you always want to please everybody else, but sometimes you do have to focus on yourself, especially when you're going to business. And so, but that's a long-winded way to go back to your question, right? You know, the question of like what's the legal process or what's the process of getting started. Those are the first things to like really consider before even getting started. But once you decide that you're in it, you want to kind of consider a few things, and and this isn't legal advice, and I'm not an attorney, so if you want strict legal advice on this, talk to a business attorney. I know enough to be dangerous here. But ultimately, you know, there's there's formation. Like, how do you want to form your business? There's a couple different structures, you know. If if it's just gonna be a part-time gig to start, maybe you don't need to do you know any sort of formal structure, you just operate as a sole proprietor. But if you're gonna be doing things like for other people's business or you're gonna be doing things if you're doing maintenance at people's house or repairs, you probably want to form what they call a limited liability company, an LLC. And the beauty of that is if something goes wrong in the business, they can't take your personal assets because it's the business that right messed up. Now, another piece of not legal advice and advice. If you are have an LLC, you have to make sure that you don't mingle personal expenses with your business expenses. Because what a savvy attorney will figure out is they'll go into your like if something does happen, knock on right, knock on wood, right? But if something does happen in your LLC

LLC Basics And Protecting Yourself

Dave 33:38

where there's a big lawsuit or somebody wants to sue you for whatever reason, and they have a good attorney, they will pull up your financial records and go through them. And if they can pierce what it's called piercing the corporate veil. And so if they can find that you're paying all these personal expenses out of the business bank account, they're gonna claim that you're not a limited liability company and that that protection should be stripped away. And most often than not, courts will find with that and say, Yeah, you're right, this isn't a limited liability company, they don't have that protection. And therefore, right now you're you're on the hook for your personal house, your personal assets, your personal bank accounts. So you got to make sure that you're operating that efficiently. And but and so many people nilly-willy form an LLC and then they just use it as their personal bank account and they don't realize what that they're actually causing themselves a bunch of risk. So if you have an LLC right now and you're paying personal expenses out of your bank account, you are at risk, if something were to happen, to have that protection removed. And so it's really important to pay attention to these things and have good, you know, whether it's a business attorney or whatever, to listen. So that's one type, limited liability, especially if you're doing like repairs and stuff like that. And then depending on the size, there's you know S Corp, C Corp. So C Corp, it's beneficial if you're trying to grow something that eventually you want to sell shares to, like, you know, a public company, or you want to have investors, right? A C Corp is good for that because ultimately it's it's a bigger corporation. I don't really do a lot with C Corps, but you can have investors, you can sell more shares, you can issue more shares, all this kind of stuff. That the downfall of it, if especially when you're small, is that you're getting taxed at the C Corp level, like there's a taxation level there at the business side, and then you also get taxed on the personal side when you take your dividends out of the company. So there's almost double taxation a lot of the times there. Now, an S-corp is beneficial for a lot of business owners who are smaller, and that's why it's around, because of the fact that it can save so much on taxes depending on your size. Typically, and again, every person's individual situation is different. Once you get to about $50,000, $60,000 of net income in an LLC or a sole proprietor or whatever it may be, that's typically when I would say, hey, you should probably consider looking into an escort. And it's almost just a tax selection. So you can still be an LLC taxed as an escort. But the benefit of that is high level, if you're an LLC, 100% of that income, net income, goes to your tax return. And then you're taxed not only at your income tax bracket, but you're taxed on Social Security and Medicare. Like you were working wages for that, which is 16% roughly. It's about 16% for Social Security and Medicare, and then depending on the number, it can be anywhere from 10 to 30% of your income tax bracket. So you're basically paying, you know, if you're just staying in LLC, you you could, depending on your bracket, pay anywhere, you know, from you know, 28% of tax to 40% or more. And if you have $100,000 of net income, that's $40,000 of taxes. Well, the benefit of an S-corp is the S-corp simply just says, I have you have to pay yourself a reasonable wage for the position, for the income, for the size of the business, everything. And so if you have $100,000 of net income, say $45,000, $50,000 is your reasonable wage. Well, now the only thing subject to that 16% is that $50,000 of wages because you're paying yourself as an actual employee. And then the other $50 just goes to your income tax bracket. So you save about 16% on that $50,000, which is what, you know, about $80,000, $500 just by going to an escort. And so that's where like you know, there's all these different legal requirements afterwards, right? To really decide. But you know, to kind of go back, I mean, there's the biggest thing is get an idea, make sure the idea works. So if it's if it's something new or it's a service that's new, like test it. Like, you know, you don't have to form a strict company right away just to test an idea or to test a service you want to do. Do it as a sole proprietor, test it real quick, make sure that it works, and then once it works, then you can worry about like the legal formation of the business and everything. You know, another piece of advice too is you know, if you are out there or you know, if you're thinking about starting something and then it's not just you, right? Maybe you have a partner or two, like you're you and your buddies are sitting around a table and you're like, man, we should do this, right? Like the guys at Uber, right? They hear it sitting around a kitchen table and they developed Uber on the back of a napkin. The first thing that you guys have to do as a group is to really understand like what's everybody's piece and responsibility within that company. So many people have lost and broken down companies because there's been issues. Somebody thinks they're doing way more than everybody else, and now it's broken down, and then it dissolves, even though maybe it was a good business model and a good thing. And so if you have those things in place right away and you have an agreement signed by everybody, it's perfect, right? You know, but if you don't, you're you're at risk, you know, you're kind of just hoping that things work well. And and we all know what happens when you just hope for something. So cool project. What's that like school project? You get one person that's gonna end up doing everything, yeah. Exactly. It just kind of sits sits back and exactly, and then they think that they're doing everything, you know, they think they're doing everything, but if you put it down on paper, you know, and you put down that, you do this, right? You have your metrics, you have your outcomes and responsibilities, and then you have your your your business meetings and stuff, then you can really analyze what everybody's actually doing. But I hope that answered your question. I mean, I know long, long, long way

Partners, Roles, And Clear Agreements

Dave 39:52

to get to that answer, but you know, there's a lot of things that I, you know, so it definitely does answer the question. Anything else that came up that you think about that that you're like, man, are really this I had this answer about entrepreneurship. I mean, is it something that you I mean, you're taking these classes, you know, whether it's accounting and entrepreneurship, etc. Like what what about those classes like interest you? Like, what do you where do you see yourself? I mean, obviously you're you want to play baseball, which we talked about later eventually. So, like, what are you planning on potentially how do you see those classes helping you form your plan for the future? Well, I know entrepreneurship, it gives you a lot more directions where you can go with stuff because if you take those classes, you can like pretty much because they're not like censored on like entrepreneurship in this part or this part, it's like a generic entrepreneurship class or marketing class. So you can kind of go into like you can make a business for anything, really. So then like thinking because I'm gonna do something sports related, and then taking that and going on with that and make some sort of business for that if baseball doesn't go, or doing some sort of like agency thing for baseball or sports, like sports agency thing, like a sports agent or whatever. That that you definitely need to get into legal well, yeah. Yeah, you definitely gotta go to the legal route for that. So become a lawyer first, and then yeah, you gotta get all the legal attorney, all that fun stuff for those, but yeah. I mean, I mean getting the good basics is is obviously the best way, right? And really thinking about the biggest thing is finding a problem and solving it, you know. And and right now it's so easy to just like come up with an awesome next idea, but in reality, people are are still overwhelmed with change. So it's like, how can you solve a specific problem? Right, and maybe you're you're in it, right? So, like maybe there's some ideas there that you don't have to share, or maybe you know, it'll pop up eventually of like, man, this is an issue, right? This is a problem. How can I come up with a solution to solve this? And then that becomes your business. The most successful businesses have solved a problem, they haven't just necessarily you know come up with something grandiose and brand new, right? They've all, if you look back at all of them, they've all solved some sort of specific thing or an issue in a different way. The most successful ones, right? You know, they're not the average Joe. So really kind of keeping your eye out as you're going through, especially because you know you want to do sports, you know, keeping that in mind of where are my opportunities? Where do I see something breaking down? You know, is there anything like when you think of that, like over the tournaments, all this you know, that you do on a regular basis throughout the year, is there any opportunities that you have seen right now that like a problem that is out there that you're like, man, it we could potentially do something for that. I mean, I haven't seen like problems, but like there's definitely stuff like you can do. Like, I don't know, like you look at baseball back like bats like back grips, right? Right. From what I've seen, nobody lets you make customized back grips. So that could be something you're right, like just make a whole company around like making not only like top-tier bat grips, but also ones that you're able to customize and make them have like look how you want them to look to match your bat. I don't know. From what I've seen, it's just like pretty much everything's like so much of like stock, same generic back grips. You mean like the like the colored grips at the bottom that you can use? Actual the handle grips. Gotcha. Interesting. Okay. Anything else in terms of like outward any any other things you've seen? I mean, if you could like somehow come up with a way to make good baseball gloves that aren't five hundred dollars for like the best gloves, like I guarantee you it does like the brawlings from them for men for the for them to make a heart of the hide, I guarantee you it's no more than $150, $200 to make a single heart of the hide. Yeah, depending on the actual like quality and everything that is for sure. Yeah, and considering from what I've experienced, their laces aren't good at all. Considering the one lace is broken like four times in less than a year of having the glove. Right. Yeah, I mean, I mean, I think that comes down to a lot of things is is how can you do, if you can do better quality and then other prices at a better, at a better cost to the consumer while still making sure that you have right room for for growth and and and margin. And I think you know it's it's something that I think is important for everybody to consider is you know, all those different opportunities. Obviously, you know, glove making is a little bit different. Yeah. You want to research and kind of yeah, and kind of look and you know, kind of figure it out. But like you could always, you know, kind of research. It just and a lot of times it starts off with, you know, you mentioned like just getting started. Like a lot of times it could start off with, you know, like just deciding, you know, I don't want to necessarily spend $500 for a glove and realizing that maybe you'll pay $2,500 for a glove because you're gonna make it yourself. Like, you know, which is yeah, which is crazy. But then what you realize is like, oh, okay, when I when I yeah, when I get through the process, it's like, man, this is higher quality. Now, how do I make it more efficient, right? How do I make the process, the buying of the leather, you know, you know, making sure that the you know the all the the ties are good and all that kind of stuff, but good laces. Yep. Oh, we just lost uh we lost the camera. My phone. Uh oh. Uh-oh. Technical. Yeah, technical issues. Uh-oh. I forgot to plug it in. Well, you're a genius for that one. Yep. It died. But yeah, go ahead and for any other ideas that you've thought of? Any other ideas that I've thought of? I mean, not really, just kind of looking about baseball stuff like that. Like gloves or something of that sort. That one's dead. Well, we lost that one. It's okay. At least we got at least we're both still visible. Yeah, we're both here. That's all that matters. You know, so when when you when you think of you know entrepreneurship, kind of going back to that a little bit, you know, obviously paying attention to your opportunities and and where you know, kind of all that lies. But was there any other questions like that you had on entrepreneurship? Like what is I guess what is something that you had initially thought maybe that maybe working or coming in and having conversations like this has maybe changed your mind about when it comes to you know entrepreneurship and business in general. I will say one thing, and it's definitely made it like think like it's not as simple as you would think it would be. Right. Or some some people would think it would be, because it's like, oh, I want to start doing this. But it's like, oh, you have to do this, then you have to market it, then you have to find somebody who's gonna want to buy it, then you have to all that kind of stuff, and then it just over time it's like that took way longer than I would have expected that to take, or that was actually more difficult than I thought. Some people they're like, oh, you can just make a prototype for something if that if you're doing that, or if you're doing a service, just do that and then just immediately start making thousands of dollars a week. Right. But then really so realizing that right is not is not as as cut and dry.

SPEAKER_02 49:03

Yeah.

Dave 49:04

As as everybody makes it out to be, right? You know, everybody. Everybody wants right that that clip. Everybody wants to be to be known as you know that person that's got all the money or that's successful. But it takes time. Yeah. It takes time. And and we we kind of hit on it a little bit at the beginning, right? About how ultimately, you know, it comes down to being willing to put in that work, being willing to put in that time, and and realize that there's a sacrifice related to it, and that it is probably gonna take a you know reduction in your lifestyle if if you're if you're doing it full-time to make it work. So what about accounting? I know you're you're doing accounting class and all that kind of stuff. Is there anything out there that you have you taken accounting? Do you know anything about accounting yet or what? I know there's math involved, and math is fun, so yeah. That seems like something I would there's not a lot. I mean, sure, there's there's math, you know, but it's not rocket science math.

SPEAKER_02 50:23

Well, yeah, yeah.

Dave 50:24

You know, it's more, yeah, it's more or less like, you know, hey, here's your here's these numbers, add it together, make sure everything ticks and ties. And there's no like E equals M C squared or whatever that is. I would say, you know, ultimately with accounting though, accounting is more recognizing and understanding how things flow in a business. How do I want to say this? How the information that you're given about your activities in the past can help you inform your decisions in the future. Like that's really what a good like accountant or financial person support person will give you as an advisor. Is it's not so much like making sure that 100% of your transactions are categorized 100% correctly, right? You know, ultimately there's no real benefit or you know, extra savings if a hundred percent of your you know subscriptions are ticked and tied to the dues and subscription column versus something slipping through and getting into your miscellaneous column. Like that's not that big of a deal, but your accountant or your bookkeeper or whatever in accounting, the the important piece of this is understanding the main things that impact the business. What are those main numbers, those main margins that are going to impact your business and making sure that those things are correct? I've seen so many people's financial statements who have a bookkeeper that they're not classifying cost of goods sold, you know, in order to classify what is our actual gross margin. And that's

Accounting That Drives Better Decisions

Dave 52:13

the number one. I say this to if you're a business owner, like if you don't know your gross profit margin, you're missing. You you're you have no idea what you're doing and if you're profitable or not. Your gross profit margin is more important in anything in your business than your net profit. I'm just gonna say that. Gross profit margin is way more impactful to your business than net profit. And here's why gross profit tells you out of every new dollar that comes in, how much of it is actually being kept by the business to run the business, or you know, for the owner in net income, right? Uh if you have no idea what that number is, you're basically operating as, oh, I got ten thousand dollars of new revenue. Great, I got 10 grand, I can run, right? When in reality, if your bookkeeper or your accountant, or you, if you're doing it yourself, hasn't classified how much money goes into actually providing that service, you could be overspending by four or five, six thousand dollars, depending on what it is, right? Especially if there's there's time, there's labor, et cetera, that goes into that providing that service. You know, so that 10 grand that yeah, you see it hits your bank, your gross gross profit is gonna tell you how much of that is spent before it even hits your bank. So if you have a 50% gross profit margin and you have 10,000 come in, 5,000's gone. It's not yours, right? It's already spent in order to make that 10,000, that 5,000 spent. And what so many people don't I've seen it time and time again, they don't have that number. Their financial statements are all just operating expenses. And so they have no good, clear understanding of every dollar that comes in, how much do I actually get to keep? Right. So whether there's an extra subscription that you have to buy every time somebody signs up for your service, or there's an extra employee that you have to buy to provide that service, right? All those things need to be classified correctly. That's the important part about accounting and bookkeeping. It has nothing to do, yeah, sure, the math is okay, but there's so many things out there right now that math doesn't fucking matter. No, pardon my French, right? Math doesn't matter in accounting as much as understanding what's impacting a business and how it's gonna impact the business and how to analyze that. That's the most important piece about accounting. And really realizing how can I take this information I'm given, analyze it in a way that's gonna make and provide either myself a better decision if you're the business owner, or provide my clients, customers, or my the company you're working for better information around those numbers. That's the most important piece about accounting. Not the math. Anybody can do the math, the software can do the math. Yeah, the math is easy to do. Yeah, you know, plus one. Pretty much. Well, I obviously there's math, yeah, there's calculations and stuff like that in terms of like you know, equations, way in-depth stuff that we're not gonna talk about here. But in in general, accounting comes down to how do I make sure that we're doing and having the numbers and the KPIs that we need and doing things correctly to make the best decisions. That's the most important part about accounting finance. So, and you don't have it, you don't have your KPIs, you don't have your your metric, you don't know what your CAC is, your cost of acquisition, you don't know what your customer lifetime value is at a gross profit margin, right? So many people look at customer lifetime value, they're like, Oh, yeah, we got 20,000 of customer lifetime value. Great. How much of that are you actually keeping? I don't know.

SPEAKER_02 55:50

Well, probably shouldn't know that.

Dave 55:52

You probably need to know that. Because again, if you look at your customer lifetime value and then your cost of acquisition, those things go together. So your CAC, your customer acquisition cost is basically how much does it cost you, the owner, to bring in a new client, to bring in a new customer. So in a month, if you spent $10,000 and you brought in 10 people as new clients, you may have talked to 100, but if you brought in 10 new clients, your CAC is $1,000, $10,000 divided by 10. So it's a thousand dollars per person. Now, in our example, you typically want to have a minimum of a three to one ratio of lifetime value to CAC. However, that's only if your entire acquisition process is like automated, it doesn't have any human element. You have no other costs related to that. Now, if you start throwing in, if you look at your customer journey, and let's say there's three, four, five different steps along that journey that they go to, the more of those steps that have a human involved, the higher that ratio needs to be. So if all five of your steps are human element, where you know it's it's a it's it's an exploratory call with a person, it's a deep dive, it's a proposal, everything, that's when you have to start getting into the the 10, the 11, the 12 to 1 ratios to really make that work. And so when you look at that and you say, let's just say they it's all human element, it's a thousand dollars. They may look at a customer, like, yeah, we have a customer lifetime value of $15,000. They may be like, Yeah, I'm $15 to one, I'm golden, even though the whole process is manual, right? Human element, maybe some things are automated at the end, but they're like, I'm golden. However, if they operate at the same 50% gross margin, they're only bringing in $7,500 per new customer because $7,500 is spent just to do the service. So really they're only at seven and a half to one. So their ratio is not right, their pricing is too low. Either their pricing's too low, they need to focus on retaining customers longer to increase that lifetime value, or they need to look at ways to decrease their cost of acquisition. So that's why that ratio, that knowing that number, that ratio can really truly point you in the right direction of what you need to do with your business in terms of pricing, retention, marketing spend, etc. And that's why also looking at it at a gross profit is really important. Because if you're not looking at a gross profit, you and you know that company owner is looking at, oh yeah, I'm for 15 to 1. Great. Is that top line revenue or is that gross profit revenue, you know, lifetime back? And so many people are focused on the top line, it's not the one that matters. Gross profit was the one that matters, and so knowing those numbers, and and so you probably won't get into those things in in basic intro accounting, but moving forward, those are the things that you want to kind of make sure you have in the back of your head because that's the important piece. So, but well, you know, as as we always get through, we're we're about we're about an hour in, and and I know we were a little bit late today, but what's one thing that basically what we chatted about today? You know, we always like to wrap up with what's the one thing we hope everybody walks away from with today's episode. So, what's one thing yourself that you're hoping that people walk away from today's episode with? One thing that they should walk away with making systems is more important than just letting it go like by itself, like making something efficient with a system is more important than not making a system and letting it just happen happen by coincidence. And and and I'll kind of add on top of that. I think the thing that I want people to take away from as well is that not once you just create the system, it's not just set it and forget it, right? It's it's ultimately update it. Yeah, you gotta you gotta have your processes of review, you gotta have your processes of updating, improvement, etc. And that's where like AI can take a system that's been flushed out, not something that's broken, but been flushed out, and can really begin to you know kind of transform that into the next level of you know kind of business support and business efficiency. So yeah, but I appreciate it, brother, you know, joining me. I know it's always a joy to have you on and have a good chat. So hope you get something out of it that you can take to your classes and and feel a little bit more informed than everybody else there. But for those of you that are watching, we appreciate you again. If you have any questions about any of this stuff, drop them down below. Our email is also in the description. Feel free to reach out, whether you're watching us on Facebook or LinkedIn or you know, YouTube, or you're listening to us on any one of the you know the fun you know audio ones as well. Feel free to reach out. You know, we're here to support you. And then obviously, just as you know, this is obviously supported by Tri and Business Solutions. So just a quick word, you know, if you're looking for your business to kind of have some support to talk through, like where you're at, maybe you want to help understand what your systems are, where you can actually make those adjustments, feel free to reach out as well. We're more than happy to sit down and kind of give you some pointers and point you in the right direction. And if it might be the right next choice for you to decide how can we develop something in our business, maybe we can chat about what those next steps might look like as well. So feel free to reach out, talk to me, any one of us. We will be willing to help you and help you grow in your business, make those better decisions for yourself and reach that next level. So until then, we love you all. We we appreciate you being here. Do us a favor, do all that fun algorithmy stuff, give it a like, give it a subscribe. And if there's something you got out of today's episode, make sure you share it with your network too, because you never know. There might be somebody you know who's looking at your feed and sees it and listens, and it may be a piece of advice that they need themselves for their business. So we appreciate it. Hope you guys have a wonderful and amazing rest of your week for all you fathers out there and first time fathers. I know I got a couple uh people in my network that are first time dads. Happy first father's day for y'all. I hope you guys enjoy your Sunday and uh you guys have a great holiday weekend as well. And uh we'll see everybody, we'll see everybody in the next one. Thanks, JJ.