I recently watched a fascinating segment from The Ramsey Show where Dave Ramsey delivered some much-needed tough love to a young entrepreneur who had dug himself into a $300,000 debt hole. The exchange perfectly illustrates a critical business lesson that many new business owners miss: spending money doesn’t automatically generate income.
The caller was a 21-year-old dog trainer with a baby on the way who had accumulated $300,000 in business debt in just two years. His question was whether he should focus on expanding his business or paying off his debt. Dave’s answer was swift and direct: “No. You need to make some money with all this money you’ve spent.”
This response highlights what I believe is the fundamental mistake many entrepreneurs make. They confuse spending with investing and expansion with growth. There’s a world of difference between the two.
The Spending Trap
The young dog trainer had fallen into a common trap. He had spent $225,000 from a home equity line of credit, borrowed from his father, plus $30,000 on a van. The spending included:
- Renovations to a rented facility (between $50,000-$65,000)
- Employee salaries for a business that is not yet profitable enough to support them
- Marketing expenses
- A $30,000 van
What struck me was how he had invested significant capital into leasehold improvements on a building he didn’t own, with only a five-year lease. At the end of that lease, all that investment could potentially be lost if the landlord decides not to renew.
His business generated $300,000 in revenue but only $40,000 in profit—a mere 13% margin for a service business that should be seeing much higher returns. With a monthly overhead of $17,000 (including $4,200 for rent alone), it’s clear why the margins were so thin.
The Growth Mindset Mistake
What this young entrepreneur misunderstood—and what many business owners get wrong—is that growth doesn’t come from spending. It comes from building value and reinvesting profits.
Dave pointed out that Ramsey Solutions grew from “a card table in my living room to a $300 million business, and we’ve never borrowed a dime. Profits have funded 100% of our growth.” This organic growth approach is what builds sustainable businesses.
The secret to business success isn’t fancy equipment or facilities—it’s your expertise and ability to deliver value. As Dave bluntly put it: “In business, if you are not the secret sauce, you’re screwed. The other stuff around the dog training is window dressing.”
The Path Forward
For this young trainer—and any entrepreneur in a similar position—the solution isn’t more spending or expansion. It focuses on what works and maximizes profitability with existing resources.
The advice Dave gave was spot-on:
- Stop expanding and focus on increasing revenue without spending more money
- Find the most profitable areas of the business and grow those specifically
- Consider selling unnecessary assets (like the $30,000 van) to pay down debt
- Work on turning a $40,000 job into an $80,000 job, then a $100,000 job
This approach requires discipline and patience—qualities essential for long-term business success, but often overlooked in the excitement of entrepreneurship.
The Balance of Business and Family
The caller was also concerned about being present for his new baby while managing his business debt. Dave’s response was straightforward: “Fathers, since the beginning of time, have gotten up and gone to work, and babies have survived.”
While this may sound harsh, there is wisdom here. The best gift this young father can give his child is financial stability and the example of responsibility. Working hard now to fix his financial situation will create a better future for his family.
The reality is that entrepreneurship requires sacrifice, especially when you’re trying to dig yourself out of debt. No shortcut or magic expansion plan will solve the problem—just focused work and smart business decisions.
This exchange reminded me why Dave Ramsey’s advice resonates with so many people. He cuts through the noise and gets to the heart of the issue: business success comes from providing value, managing costs, and growing organically through profits, not from spending money you don’t have on things you don’t need.
For entrepreneurs at any stage, that’s a lesson worth remembering.
Frequently Asked Questions
Q: What was the main mistake the young dog trainer made in his business?
The main mistake was confusing spending with growth. He invested $300,000 (mostly borrowed money) into renovating a rented facility, buying an expensive van, and other costs without focusing on profitability first. He mistakenly believed that more spending would automatically lead to business success.
Q: Why was Dave Ramsey concerned about the leasehold improvements?
Dave was concerned because the entrepreneur spent $50,000-$65,000 renovating a building he didn’t own on a 5-year lease. If the landlord doesn’t renew the lease after five years, all that investment would be lost. This represents a significant risk that wasn’t properly calculated into the business plan.
Q: What should service-based businesses aim for in terms of profit margins?
Service-based businesses should typically aim for a margin much higher than the 12% this business was achieving. Since service businesses don’t have high costs of goods sold (like manufacturing or retail), their margins should often be in the 30-50% range or higher. The low margin in this case indicated serious problems with overhead costs.
Q: How can entrepreneurs balance new family responsibilities with fixing business financial problems?
The key is to recognize that providing financial stability is part of being a good parent. This means focusing on making the business profitable through hard work and smart decisions rather than seeking quick fixes or expansion. Setting clear work boundaries, maximizing productivity during work hours, and creating a sustainable business model will ultimately allow for a better work-life balance in the future.
