I can't tell you how many of the companies I have acquired over the course of my career came from leaders who took too much money out of their own companies. 

These were CEOs taking huge salaries, driving nice cars, living in massive homes and taking outlandish vacations, taking out such a large percentage of profits there wasn't any capital for growth left over.

And they could never understand why their company stalled. 

But I could.

To me, it was clear as day. My first business, Wilmar Industries, earned $5 million in 1995--and I was paying myself a $150,000 salary. I had a mortgage. A family to feed. And while all my peers and other business friends would be "living the life," their businesses would be hobbling along. Meanwhile, I continued to reinvest and reinvest in Wilmar, until the day I sold half the company at a valuation of nine times its earnings.

This is one of the hardest parts of entrepreneurship. And it's the death of so many could-be-great companies.

Keep putting what you earn back into growing that business for a long, long time.

It doesn't matter how profitable your business is. You're going to get paid eventually--but only if you keep grinding. 

Don't loot the treasury and start living like a king before the paint's dry on your kingdom.

Except for my relatively modest salary (all things considered), that was one of the things that differentiated Wilmar from a lot of competitors that we eventually acquired. Almost every business I acquired was way smaller than us--but the funny thing is, their CEOs were paying themselves ten times what I was paying myself.

Here's a quick story for you, which I tell in full in my book, All In. in 1997, one year after Wilmar had gone public, I was interested in buying this company based in the Midwest that had $25 million in sales. The two owners were paying themselves annual salaries of $600,000. Each. And they couldn't understand why they weren't able to grow their company.

Their bad habits became my gain. 

The difference was that when I ran a $25 million company, I still paid myself $150,000--not $600,000. Do the math. They were paying five percent of their annual sales to themselves. And when I bought their company, they wanted to come work for me--but it didn't work out.

Why?

I wouldn't pay them enough. 

Even with my current business, LendingOne, we reinvest the vast majority of our profits into growth initiatives for the next year and beyond. Because this is how you grow a company.

Too many entrepreneurs sacrifice long-term success for short-term rewards.

This behavior is only encouraged by social media photos of "young successful entrepreneurs" who spend their company's earnings on exotic cars and gold watches. Little do they know that someone much more frugal, and much more patient, is plotting to scoop them up for a discount. 

There's a cliche: "Live like nobody else will, so that you can live like nobody else can." What very few people explain about that quote though is it's not just about working hard. It's not just about grinding.

It's also about having the self-awareness to remain frugal, to keep money within the company, to withhold that "lavish lifestyle" until you really, truly deserve it.

You don't build an empire through a business that barely breaks even--after paying the CEO or founder a huge salary. You build an empire by watching all your peers make that very mistake, while you slowly but surely reinvest and reinvest, until one day, your company's value is quadruple theirs. 

Don't get sucked into the bad habit of "keeping up with the Joneses."

Instead, ask yourself what it's going to take to build a business that will be around two or three decades from now. 

That's what entrepreneurship is really about.

Published on: May 29, 2018