Episode Summary:

Scott Todd reveals his biggest business mistake: spending months building automation software when he should have been closing deals. In this raw confession, he shares how "productivity theater" cost him $75,000+ and nearly tanked his business - and why most real estate investors are making the same mistake right now.

What You'll Learn:

• Why automation is killing your deal flow (even though it feels productive)
• The 3-question test to know if you should automate anything
• The Investor's Priority Pyramid (IPP) and why sequence matters
• How Jeff Bezos built Amazon by doing things that don't scale
• When manual work is actually better than automation
• The real reason you're avoiding the hard work in your business

Key Takeaways:

• The Wrong Sequence: Most investors automate at deal flow level when they should be at order level
• The 10x Rule: Don't automate anything you haven't done manually at least 10 times
• The Bezos Model: Prove it works → Document it → Automate it (in that order)
• The Hidden Cost: Building systems for a business that barely exists wastes months and tens of thousands in lost opportunities

Resources Mentioned:

• Take the IPP Assessment
• Episode 2: Do Things That Don't Scale

ScottTodd.net

I have a confession to make when I started my business, I had very little deal flow that shouldn't come as a surprise to you because that's the way that it all starts. Now, back then, this is like 10 years ago. I was mailing a hundred offer letters a week. I was buying one property per week.

And I was selling a couple of properties a month. It was not consistent. Maybe once a week, If I was lucky,

And I was kind of bored. I felt like I needed to be doing something with my business. So you know I did? I built software. Now in the early days, there was not a good software for mailing offers. And what we did way back then, we used the mail merge function word.

to auto populate the Excel data. I then printed the offer letters. I stuffed them. I stamped them with the envelope and I carted them off to the post office. you know, look, it took time. I didn't have anything going for me at the time because all I had was time to invest in my business and to grow it. But I wanted to feel like I was doing something. I wanted to feel like I was making progress.

And I had heard about a company called Lob that could automate the mailings. And my inner techie kicked in. And the next thing I know, I started building a software that took the list, merged it, and then printed the letters and sent them out in an automated way. And I was all happy. Look at all the hours that I'm saving here. The problem is that I spent months building this custom solution.

And today that software has evolved into a service that is used by hundreds of users, I'm not involved in that aspect anymore, hey Scott, it worked out, right? yes no.

You see, I was doing exactly what I tell people today not to do, build automations when I needed deal flow. And here's what I've seen in all of the years of helping people start their businesses. I frequently see a pattern and now thanks to the IPP assessments, I can confirm my hunch. So many people, so many operators are stuck at the deal flow level.

They're stuck struggling with capital, lead conversion, deal acquisition, sales conversion. They're stuck in that area. But then when I talk to them, I find out they're working on their systems and their automations and they're building all these things. And look, AI has amped up the FOMO.

we're afraid that someone's going to bypass us. I was at a conference a few weeks ago and I heard people talking about AI and doing some cool things with AI, taking sales calls and doing all this stuff. And it's easy to get that shiny object syndrome and feel like I'm missing out or somebody's going to have a competitive advantage on me or I can save all this time if I just build these automated workflows.

But the problem is that we try to do it in the wrong sequence. You can point to me and say, you, Scott, you were guilty of this. And I was. You see, so many people are investing in their CRMs to manage 10 leads. We've talked about this in other episodes.

They're writing their SOPs for processes that they've done one time, because that's what everybody tells them to do. They're setting up marketing automations before they've proven that their message works.

I told myself, I'm building the foundation of the business. When deals come in, I'll be ready.

but little did I know how close to failure I really was. In looking back today, I can see that I was on a very slippery slope. See, I was procrastinating. I was using automation as a productive avoidance because building systems felt like work. It did. I felt like I was doing something, but it was the wrong work. In the Investor's Priority Pyramid,

Automation lies in the order level.

The IPP has five levels, deal flow, profit, order, impact, and legacy. fundamental level is the lowest level where you are stuck. It's where your vital needs live today.

And you can only work on order when you have deal flow that supports profit and your profit supports your order. but most operators today that I look at, they're trying to build order when they're stuck at deal flow. That's like building a penthouse before you've poured the foundation. Today, I want to show you

when automation actually makes sense and when you should be doing the work manually instead.

So let me tell you what I should have been doing instead of building software. When I had the one or two deals a month, what I should have been doing is marketing more, sending more offer letters, building a capital list, people that I could take deals to and get them funded. These are the things that actually generate deal flow. Instead, I was building a custom software solution.

Now, I will defend it. I will tell you there wasn't a good software available at the time. But I could have continued to use the old way. But I justified it by telling myself I would free up more time. And it did free up time for mailing. But I really didn't leverage it back into the business. See, it felt like I was building a real business by building the software.

But the truth was that I was trying to avoid the hard work. Writing ads and talking to sellers. I hated those two things, right? Like I hated writing ads. I hated talking to the sellers. Building software? Man, that was comfortable. I was using automation as a productivity procrastination. And there's a real cost to that. In those months that I spent building the software,

Looking back at it today, I know I could have easily closed an extra 10 to 15 more deals. And even if you say, hey, there's a $5,000 profit on every one of those deals, that's 50 to $75,000 I left on the table. And that's the minimum. I'm telling you, that is a minimum calculation.

There was no automation. There was no robotics. He himself packed in ship books. He'd take the orders. He'd pack the boxes. He drove them to the post office. And back in episode two, I shared the clip of that venture capitalist, Paul Graham, who says,

do the things that don't scale. And that's what Jeff Bezos did. He stayed all manual. In fact, he built his first desk out of doors from Home Depot.

because he was obsessed with staying lean until the revenue proved his model. As the business grew and as revenues proved that his model was working, then came the automation. first he did something with the warehouse and then employees to pack boxes and then he put in a conveyor system. And then, next thing you know, he's...

Blowing up into robotics and full automation. But Bezos didn't start by building the warehouse automation. He started by packing the boxes himself. He proved the business worked first. Then he automated. And I think that that's the right sequence.

We want to do it manually. We want to prove that it works. Then we want to document it. Then we want to automate it. Automation comes last. I tried to skip to the automation part. look, I love technology. I love automation.

But at the same time, I built systems for a business that barely existed. Bezos did it right. He proved it first, and then he automated.

Now we can use the IPP to help us figure out what to automate next. If you take that assessment and you come up with a deal flow level core need, here's what I want you to do. I don't want you to automate it.

I want you to do it manually. you're using tools today like software, that's fine. If it exists today in the world and you can just plug and play, let it go. But if not, do it manually. Prove your system works.

You don't need a CRM for 10 leads or even 50 leads. You could use a spreadsheet. I talked about it before. I used my index cards. You don't need automation for a couple of deals a month. You need to put in the reps. Manual, manual, manual. Now, when we get into the profit level, that means that you have your core needs of DealFloor done.

you've got deal flow that's enough to support some level of profitability. When we get to that point, then we can automate to improve margins.

You see, now we're strategically implementing automations in order to do some outcome, improve margins in this case.

so if a task is taking you 10 hours to complete and it costs you $500 and you say, Hey, look, if I automate this, it's going to save me, eight hours of time and another $400 in savings. That's a margin improvement. Now the automation makes sense. When we have profitability,

And now we're looking for order, and order is all about efficiencies. When we're trying to build efficiencies, now we can automate the scale. See, now you can say, hey, I'm doing, I don't know, 10 deals a month. I can't manually handle any more. The automation's gonna let me go from 10 to 50 without adding headcount? Yeah, let's go do it. That's when you build systems to scale, but you can't scale what doesn't work.

and you can improve margins on a business that isn't profitable. The sequence of this completely matters and it completely matters to your future success. So there is a way that you can diagnose this and there's a way that I should have done this back 10 years ago and I didn't do it. And it comes down to three questions. Question number one is, have you done this process manually at least 10 times?

If you haven't, then don't automate it. You don't know at less than 10 times, you're not sure what exactly you're automating yet. Okay, so you've got to go through the manual process a few times before we can start to build out a system that can be automated. question number two is this, is this process proven and repeatable?

If no, we don't have a solid system that we can automate. And if we automate something that's not proven, guess what? We're gonna end up having to change it, which is more time and expense, even if it's your own time. Question number three What is your IPP's vital need? If it's deal flow, then automation that you're gonna do, you're just procrastinating doing something else.

If you're in the profit level, well then the automation might improve your margins, but only if you answered question one and two with a favorable yes. And if you're in the order level where you're purposely trying to build efficiencies, then automation will enable us to scale. If your foundation is solid, when I built that software way back in the day, I would have failed the third question test. I wasn't there yet.

I was building the penthouse too soon and I don't want you to do what I did. I don't want you to allow FOMO to take you down the wrong path. And I see that all the time. I'm telling you, I see it all the time. what I want you to do instead. First, step one, let's start off by taking the IPP assessment.

Again, the link to that is in the show notes. And that's going to tell you what your fundamental level is.

Step two, I want you to look at what you're currently automating and ask yourself, have I done this manually at least 10 times? Is it proven and repeatable? Does it improve my fundamental level in the IPP?

And if you answer no to any of those, I want you to stop. I don't want you to procrastinate. Because you see, when we're focusing on automation, we're procrastinating with productivity theater. Step three, I want you to follow the Bezos model, not the Scott Todd early days model. See, I want you to stay manual.

I want you to prove that it works. Then I want you to document it, then automate it. Not before. I want you packing the boxes yourself. I want you shipping 100 boxes a day. And when you can't keep up, then you hire someone. And then when you're drowning in deals, then you build the automation. Not a two-deals-a-month.

not when you're just starting. Prove it first, automate later.

And here's something that no one's going to tell you. Manual is okay. You don't need fancy automations to run your business in the early days. When I started, I should have just stayed with Excel and Mail Merge.

And when I finally did build the software, it shouldn't have been because I needed it to do deals. It should have been because I had done so many deals manually that I knew exactly what to build. That's the difference. Bezos didn't guess what the warehouse automation should look like. He knew because he had done it thousands of times himself. You can't automate what you don't understand. And you can't understand it until you've done it manually.

So go to the manual method, prove it, then automate it, and that's the sequence. So again, Take the IPP assessment. It's gonna take you five minutes. It's gonna tell you what your vital need is and also what your fundamental level is. Know your vital need. Work on that. Ignore everything else.

I'm Scott Todd, and I'll see you next week.