Why entrepreneurs should drive old cars

About 10 years ago a friend of mine was starting a new training company. He called me in January asked me to come on a 1-day course on goal-setting the next week, for free; all he wanted was to get some feedback and to actually start his business. I had some free time and promised to attend; a course on goal setting sounded useful too.

The following Wednesday I arrived at the venue, a little early as I’d over-estimated traffic. As I sat there in my car the other attendees started to arrive. A new BMW pulled in, followed by a new Golf GTi and then a Mercedes. All new. More arrived, more very well dressed people with designer sunglasses and the latest mobile phones in new shiny cars. My first thought was that my friend had managed to attract some very successful people to his course: after all, everyone was giving up a full day of productive mid-week time to help a friend, and judging by the cars these were all people who were clearly already well-off. I hoped I could learn something from them.

The course duly began and we spent a very useful day unpacking our ambitions and making them into a single tangible, but stretch goal. At the end of the day we were asked to share our goal with the rest of the class. Here’s the surprise: for over 80% of the class, their single biggest goal was to ‘get out of debt within 5 years’. One guy even cried openly as he realised that he might be able to do this. I was astounded: all these well-dressed, well-bespectacled people in these bling flashy cars were drowning in debt. The worst part – in not one of their ‘plans to achieve’ there goals did any of them mention getting rid of the new car and buying a second hand model. No one mentioned cutting back on his or her addictive lifestyles. Every hope depended on earning more to clear debt. I’m pretty sure they’re still out there now, looking good, driving new cars, drowning in debt and making the auto-dealers and banks very wealthy indeed.

I’ll contrast that quickly with a man I know who voluntarily retired 10 years early (how many people ever really achieve that with financial independence?). This same man never bought bling, he never spent lavishly and he paid off debt while friends (who are still working now) took overseas holidays. When he retired he took over the company car he had driven for 5 years and has driven it for the next 20 years. He remarked to me last week that it’s time to sell the car, which he’s now driven for over 400 thousand km and had for a third of his life. That man is my father. He worked hard to earn money, and he worked hard not to spend it on lifestyle when he was young. He got to retire early and enjoy his retirement.

You can choose to spend money on bling or you can choose to scrimp and save now. Compound interest (a regular theme on this column) will make those choices not seem very different initially, but they make a huge difference in the long-term.

So back to cars: a friend who sells businesses told me that the best businesses he sees are run by people who drive old cars. It’s the first test he has when he visits a prospective customer. He knows that when people spend on their own egos then they’re stripping cash out of the business that could be used instead to accelerate its growth. He knows that when people buy new cars they immediately lose 20% of value in depreciation. He knows that cars are tools – they get us from A to B in comfort and safety but they carry on-going maintenance costs. They carry finance costs, or opportunity costs if you pay in cash. When you sell your old car and buy a new one the value is much higher so insurance costs jump too. The smell of new leather and shine of new paint makes you feel good, no doubt, but how many clients ever see what car you drive?

The right time to buy a new car is never, but if you really can’t resist then at least be aware of the trade-offs you are making. Would you rather spend the money on a depreciating asset or invest it in a well thought-out marketing campaign which has a 200% ROI? Would you rather drive a nice new car now, or bootstrap for a while longer and drive a really nice super car in 5 years time? You can buy the bling and look good now, probably attracting friends and lovers who demand that you maintain that lifestyle and will keep you in that trap until you die. Or, like my father, will you be sad to sell a car you’ve driven for 25 years yet have retired 10 years before your peers? Are you an ideal bank customer or are you an entrepreneur striving every day to build something more impactful and more valuable?