685: (Solo) The $500,000 Lesson I Had to Learn the Hard Way

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1:03So today I'm going to tell you a story that I've only shared in pieces and it's not a comfortable one, but it might be one of the most useful things that I've ever told you. So a few years ago, I lost half a million dollars in 30 days, not in crypto, not in some special speculative bet or some special mining stock in my actual business and this is a business that I built from my parents basement the one that I poured everything into for years like literally launched it off like three thousand dollars on a credit card and here's the part that makes this story worth telling is the loss itself wasn't the dangerous part the dangerous part was actually everything that led up to it, specifically a version of me that had stopped being careful because I thought I'd figured everything out.

1:54Nathan Chan:Hear the stories, learn the proven methods and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Chan. Your most dangerous moment as a founder isn't when everything's falling apart, It's when everything's actually working. And I've actually spoken to so many other founders. And it's so crazy when you feel on top of the world, when you are absolutely killing it. And it's like, I never forget, like I saw like a Facebook post where I was doing something and somebody wrote, oh my God, Nathan, everything you touch turns to gold. I actually started to believe it.

2:35And it's always during these moments I've spoken to many other founders when you think you're killing it and things are growing and everything's exciting and it's like go go go that's when you need to pay attention so wherever you're at in your journey right now i want you to listen up because this is super valuable and this is something that i've learned the hard way early days founder we started to grow the education out of the business and we're spending a lot of money on ads and we're peaking at about a million dollars a month and it was working you know we had like a really good return on ad spend and for those who don't run paid media basically we were getting like a really positive return like at least at least like a 1.7 to 2x and it was you know like a very very very high margin product and you know we were getting you know for every dollar we put in let's just say a dollar 60 to two dollars back and you can kind of do the math right And this is like, this is just on paid ads, right?

3:37And at that scale, a million dollars a month, a significant margin. Like the machine was cranking. We had like a team of like, I want to say at least like 40 plus people dedicated to building, stoking that machine, keeping it active, just cranking. Then almost overnight, basically returns halved and it actually got to negative. and we went basically from making money on every dollar we spent to losing every dollar and we had no back-end system set up no strong unit economics that you know like we were relying on being profitable on literally day one every day and basically we were hemorrhaging cash and I'd never done a restructure before I'd never you know had to let anyone go like I've let people go but not like let go of whole teams and the thing with paid media at that scale is you just can't flip a switch and we had a lot of operating costs relying on it had all these commitments and so by the time we fully pulled back that particular month we lost half a million dollars and like i was literally like broken i was in a long-term relationship as well at the time and my partner at the time just broke up with me out of the blue and I was broken.

5:00Like I'm not going to sugarcoat it. Like I literally was just like, I don't even know how I was going to get through this. And I like hit rock bottom. And the question I kept asking myself was how the hell did I get here? Like, how did I let this happen? And thankfully I come at the other side of that and the business had healthy cash reserves and all these different things. If you listen to the interview I did with Grant Cardone a long, long time ago, he asked me this question around like, you got too much money in the bank and all this kind of stuff. And I'm glad I did, but maybe he was right.

5:31Maybe, maybe he was right. I don't know, but it was a crazy interview. And anyways, we had healthy cashflow reserves. So I was able to keep the business afloat and survive. But how did this happen? The honest answer is my ego. And here's what I mean by that. In the months before the loss, founder was doing really well. Revenue was up, team was firing. And as I shared, people were saying things like everything Nathan touches turns to gold. I had quite an ego and I thought I could do anything. I felt invincible. And when you feel that way, it is so incredibly dangerous. Like I got extremely humbled guys.

6:05And it took me a good couple of years to kind of rework, build my confidence, all these different things to repair the business and rebuild the whole business model. And I think when you start trusting what people tell you that everything you touch turns to gold, something shifts inside it. You start to believe it, not consciously. Like I remember my mom always said, like the problem with famous people is everyone was always telling them how good they are. And over a certain period of time, they start to believe it. And subconsciously you start making decisions differently. You stop questioning.

6:37You stop listening to others. You stop running worst case scenarios in your head. I never forget one of my mentors was like, oh man, like I will do this. I'll double next year. And he's like, dude, he's like, you want to check yourself. Like that's not going to be easy. like you start to think like if everything's working why would it stop and i i stopped being paranoid i stopped being the guy who checked the numbers and you know what could go wrong and i stopped planning for the worst and yeah that's when the floor just dropped out and eventually i i cleaned everything up stabilized the business felt a lot of pain and moved on and there's something that there's a lesson here right you can feel the pain actually sit with it long enough to learn something and that's what I loved about learning from Ray Dalio.

7:20He talks about pain plus reflection equals progress and it sounds simple but it's not because most people and I include myself in this most people feel the pain and skip the reflection and that's because the reflection really hurt. You don't want to avoid your past. You don't want to escape your past. You don't want to not think about your past. You want to learn from it because the pain of losing money is one thing. The pain of failure is another thing. The pain of letting people go, it takes a lot of courage to be able to let go teams of people, right? And look somebody in the eye. They've moved a job, moved their whole life to come work for you.

7:56You've sold them a dream and a vision. And for you to say, you know what? I've let you down and you're not with this company anymore. Like that is one of the hardest things I've ever done. And that in of itself, right? Wanting to be liked and the thought of not being liked is so incredibly tough. and this is where the growth is. That kind of pain is the only way you can truly learn. You know, what did I learn? What came out of this$500 ,000 in tuition? Two things. The first is you want to build predictable revenue, right? You want to have a business where you're in the repeat business. When I spoke to JP, John Paul DeGioria, he's a billionaire.

8:36He's the co-founder of Patron Spirits Company. When I spoke to him, he talked about this concept of being in the repeat business. And that's effectively where you want to be. You want to create a product or a service or something that is so good that your customers keep coming back. You want to be in the repeat business. And that is what I focused on. That was my first lesson. And now when I build businesses, I'm always in the repeat business business. And then the second lesson is when you're winning and when it feels like everything is just working, that's when you need to be able to focus on going harder, not getting complacent, really focusing on risk planning, risk mitigation, not everything's working, let's relax.

9:19you need to be paranoid you need to be humble because you need to check your ego the hardest when you're doing your best like that's when you're most vulnerable not when you're struggling it's when you're cruising and you want to just always be constantly learning surrounding yourself with other founders that are a few steps ahead of you your proximity is power ed my let talks about this he talks about your thermostat and your identity and just it's so incredibly powerful Tony Robbins talks about this too. Proximity is power. The more you can hang out with founders that are a few steps ahead of you, it's just so inspiring and being in the right rooms.

9:57And, you know, when he interviewed the founder of Dropbox, Drew Houston, he has this concept that I think about a lot. And he says, founders must be learning machines. And to be honest, when I reflect, I stopped learning. Really, I really did. I thought I had it all figured out. And that's what happened to me. Like when I was early days found, I was just a constant sponge and I had to be, and I put myself out there. And then you get into execution mode and then you get so caught up, right? And I think the best founders I've ever interviewed over the 700 plus interviews that I've done to this point, they stay curious.

10:28They stay paranoid. They stay in learning mode, even when they're winning. So the thing that I want to leave with you guys here today is that half a million dollars that I lost, it was the most expensive education I'd ever received. And for a long time, I saw it as exactly that, a loss, a failure, a scar. But I've actually come to see it differently now. And this is a reframe that I studied from people that have been through much worse than I have. And it's not what happens to you. It's what happens for you. And that particular loss, it helped me build a better business. And, you know, your greatest adversities, if you stay at it long enough, I truly believe will become your greatest gifts and your greatest lessons.

11:08not because the pain was worth it in some abstract way, but because it forced you a level of honesty that you would never reach on your own. So if you're in a season right now where something's gone wrong, you're taking owls, maybe badly, I want you to know two things. One, it doesn't define you. It's a chapter, not the whole book. And if you never give up, you will find a way. And two, there is a lesson in there somewhere. I promise you that. But you have to be willing to sit with the pain long enough to find it. Don't skip the reflection. That's where the progress lives. Remember, pain plus reflection equals progress.

11:45If this episode resonated with you, shoot me a DM at Nathan Chan. We'd love to hear from you. Send it to another founder who's in the middle of something hard right now. I hope this helps you guys and I'll see you in the next one.