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Tired of working so hard day after day and not feeling like you are making any progress? Always one step behind instead of one step ahead? How do I get out of this hole?
In an earlier post I did a review of the book Scarcity: Why Having Too Little Means So Much. The reason that I liked this book so much is the ideas that came up that made it clear to me some of the problems that businesses have in the early years. Most of them are caught in the scarcity trap that they don’t know how to escape from. When you are in the trap it is easy to get tunnel vision on today and not see the opportunities to escape from the trap.
You are grinding away in your business day after day, thinking if you could just get one step ahead, how much easier things would be. But what is keeping you from getting that one step ahead? It seems like it should be easy to get that small distance from one step behind to one step ahead. It is only two steps…………….or is it? In fact it is an exponential leap. But what it really takes is understanding that there are probably opportunities that you have everyday that you don’t recognize to move you toward that one step ahead. The problem is that they appear too small to seem to matter……so you dismiss them.
The Scarcity Trap
The example that they gave in this book was of street vendors in India that bought and sold items like flowers, fruits, vegetables, etc. Their business model was very simple. They bought about 1,000 rupees ($20) of inventory every morning and sold the item throughout the day for about 1,100 rupees. Some vendors had their own money to purchase the inventory they needed but most did not. They were very poor and had to borrow money every day to purchase their inventory. The money they had to borrow didn’t come cheap. They were charged about 5% per day!
So about half of their profit went to pay the interest on the loan so the vendor had only about 50 rupees per day of profit. So how does this person get ahead? They seem to be caught in this cycle of continually giving half of their profits to the lender. But when they looked at the data, they realized that most vendors had some slack in their budget and spent about 5 rupees a day on some small thing, a cup of tea or a candy or something like that. It is easy to think that the person worked hard all day and thinking that they should give up that cup of tea, a small “luxury” is just too much. It may be the only pleasure they have for the day.
How do you ever get out?
But what if that person gave up that item and used the money instead to reduce the amount that was borrowed every day? Ugh! How could the person be expected to give up this one item of pleasure for 200 days to get the 1,000 rupees he or she needs to fund their purchases each day? Is that what you calculated? That is the quick math that most people would do if they did any math at all. They may simply think that 5 rupees really isn’t ever going to amount to anything significant and doesn’t really matter.
But that is where they were wrong. The real answer is that it would take only 30 days to eliminate the daily borrowing. And from that point forward, they would have twice the profit that they originally had! The reason for this is the power of compounding. Each 5 rupees that isn’t borrowed in a day works harder for the merchant because they don’t have to pay the interest on it and give away half their profit.
Where are your leaks?
You may not be in this specific situation, paying 5% per day interest. But there are probably other ways that you could make some small changes that could compound over time that could make a difference. Look though where your money is going. Where are you paying extra? Late fees? Not taking advantage of all the vendor discounts offered? Interest? All of these are places that could really make a difference if you go rid of them.
Time to go look for those opportunities hiding in your numbers that can make your money work harder so you don’t have to.
What ideas do you have?
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