Perhaps you haven’t heard the phrases “abundance mindset” or “scarcity mindset”, but sociologists are fascinated by them. In the pursuit of eradicating poverty, researchers want to know, “What keeps people poor?” And mindset is part of the answer.

 

A poor person sees a new car and says, “I can’t afford that.”

A wealthier person sees a new car and asks, “How CAN I afford that?”

The poor person has a scarcity mindset; the wealthy person has an abundant mindset.

 

A mindset of scarcity means you believe in the zero-sum game; that everything comes at the cost of sacrificing something else. A mindset of abundance means that you believe everything is possible without negatively affecting anyone else, or sacrificing what you already have.

 

The scarcity mindset also keeps businesses poor. Instead of thinking about growth, they fight to keep what they have. They accuse others of “stealing clients”. They badmouth former staff who open their own shop. They believe others succeed at their expense.

 

If that’s you, and you’re paralyzed, or afraid to make an investment, here’s what to do about it:

  1. Think about EVERY expense as an investment.
    What return on each investment will you earn?
    What’s the ROI on your front desk staff?
    What’s the ROI on your billing software?
    What’s the ROI on your front-line staff?

    For example, in the service industry, every client-facing staff person should generate at least 2x their pay. This is called your Labor Efficiency Ratio.
    Any new piece of software should deliver savings or opportunities that are more than 10x its cost. No software is hands-off. Automation should increase your profit…not just add another expense.
    Marketing costs should clearly show a return that’s far higher than your advertising spend. “Getting your name out there” is a marketer’s code for “We won’t be able to tell you if this works.”

  2. Determine the time to break-even on your new spend. If you have to invest $10,000 to make $100 more per month, find another way. If you’re going to buy a new CRM, ask the salesperson how quickly you should see an ROI (and even which metrics will tell you if it’s working.) If you’re hiring a mentor, ask them how their guidance will make you more money. Trust me: if they’re good, they know.
  3. Spend the money before you spend the money.
    Just like the Profit First strategy for paying yourself, create a separate bank account for your idea.
    Deposit the cost of your idea into this account every month. Does spending that money create a hardship? Can you hold out long enough to make your ROI?

 

Growth involves risk. When your margin for error is very slim, it’s easy to adopt the scarcity mindset. As a friend once told me, “Nobody cares about money until they need money. Then it’s ALL they care about.” But as entrepreneurs, what we should care about is value. And every purchase we make–a staff person, new software piece, or toilet paper–should show a new return. ROI is the answer to the question, “How CAN I afford this?”