Why we need to get over small-business poverty mentality.
I talk a lot about small-business poverty mentality. I recognise the symptoms, hear the tired old excuses, and see the look of exhaustion that accompanies those who don’t charge enough for what they do. I recognise this in others because I started my business journey with the same mentality firmly entrenched in my thinking.
I bought my first business, a dive shop when I was a kid, 18 years old. I inherited the pricing model, the limiting beliefs and the lack of a better strategy from the man who sold me the business. He was a good guy, but he had a well developed small-business poverty mentality, and I just kept it going.
It took a radical and desperate shift for me to break the cycle. I was broke, going downhill and, long story short, I moved from being the cheapest to being the most expensive dive shop in Sydney. And it was the best thing I ever did. Everything changed in the business, but what changed the most was my attitude.
Ironically, in the 35 years since that experience, I’ve travelled the world as a business author, speaker and coach. I encounter small-business owners everywhere battling this small-business poverty mindset, and I see it more today than ever. It scares me a lot because I see so many businesses that lack any financial resilience and that will fall over with the first financial hiccup. And there are always financial hiccups in business, it’s only a matter of time.
“When we undercharge in our business, we build a less profitable business.”
What does small-business poverty mentality look like in a business? Typically the business owner struggles to charge what they are truly worth. They are quick to discount (often before a customer even asks for a discount) and their pricing strategy is to be the cheapest. This might be because of a lack of a better alternative pricing model, it might be self-worth issues, it might be the stories they are telling themselves (my customers can’t afford to pay more, the market is down, it’s so competitive, etc).
So, what’s the big issue here? Well there are a few. Let’s start with the most significant problem: when we undercharge in our business, we build a less profitable business and that is problematic. It’s impossible to build up cash reserves, to invest appropriately in the business and the people – to the point where at the first major hiccup, like a GFC or a pandemic, the business rapidly goes broke.
Second, I see businesses like this bumble along, where the business owners somehow manage to scrape by, year after year, getting more exhausted and fried, never really getting ahead, but getting stuck in the rut of learned helplessness. And unless they are prepared to take massive action, the business will limp along until it is closed or sold for next to nothing. They can be great at what they do, but this doesn’t transfer into profit because of their limiting beliefs.
So, what can be done about small-business poverty mentality? Clearly, it takes a shift in thinking and we need a better strategy. That takes time. Here are six things any business owner can start doing right now to begin the shift that will help move them from a poverty mentality to an abundance mentality.
#1. Stop being cheap
When I was in a poverty mentality mindset in my business, I was cheap. I was always looking for a cheap way to do everything. It took almost going broke several times for me to realise that when you act cheap, you attract cheap. When you change your own buying habits and mindset, start appreciating people who are good at what they do and who charge accordingly, and being prepared to start thinking more abundantly, you attract more people who are the same.
#2. Look at the evidence
Grab a piece of paper, a comfy chair and a quiet place to sit undisturbed and write a list of everything you have done to get you to where you are today. Think about the hours spent, the courses done, the money spent, the mistakes made, the lessons learned, the experience, the knowledge – all of it. Look at precisely what it has taken for you to get to this point in your life and in your business. If you’re giving away your knowledge, products and expertise after all of this, you need a better plan.
#3. Stop discounting today
Please, please, please stop discounting. And even worse than just discounting out of habit, stop discounting before the customer even asks for it. Always look for ways to value add instead of the lazy way out – offering to reduce the price. If you don’t value what you do enough to charge the full price, don’t expect your customers to value it either.
#4. Understand that winning every job you quote for isn’t a good thing
I often encounter small-business owners waxing lyrical about how they get every job they quote for – as if that’s a good thing. They always get a shock when they proudly tell me this and I say to them, “That’s a shame”. The reality is that if you get every job you quote for, you’re too cheap. Simple as that. My rule of thumb is that you should get about 50 per cent of the jobs you quote for – that tells me you’re charging about the right amount.
#5. Surround yourself with people who don’t have small business poverty mindset
We’re all familiar with the concept of “you become like the people you spend most of your time with”. If you’re spending most of your time with people who have a poverty mindset, who are cheap, who don’t value themselves and what it is they do, then it’s hard for you to break out of this mindset yourself. Look to spend more time with people who value themselves, who have a healthy sense of self-worth and are generous and abundant in their business.
#6. Commit to being the best at what you do
Once we really make the mental commitment to be the absolute best at what we do, regardless of what it is we do, something shifts within us. Being the best at anything takes conviction, hard work and commitment and, to some degree, a little obsession. While this kind of mastery can become a lifetime of work, it can’t help but make us appreciate what we do so much more. Those who are aspiring to be the best at what they do value themselves and others of a similar ilk all the more.
Small-business poverty mentality is a real issue. As business owners if we get stuck in this place of limited belief and scarcity, everything we do will be much more challenging. In fact, it will be exhausting. There is a much better path. That’s charging what you are worth. To do that, first and foremost, we need to value who we are and what we do.
Change will take time, and it will undoubtedly need the removal of a few old and limiting beliefs. But the reward for going down this path is monumental in every way. And as a recovering “small-business poverty mentality sufferer”, I can say with absolute certainty, you can create a much better reality where everything in your world changes.
This article first appeared in issue 34 of the Inside Small Business quarterly magazine