Chapter 14

Getting Rich by Banishing Fear

A few years ago, after some years of adopting a lower profile, I accepted an invitation to speak at the giant Blanchard investment conference in New Orleans, which I hadn't done for several years. As I rode in the elevator at the hotel that was housing the conference, a woman looked at me and said, “You look just like Howard Ruff.” I responded, “You're the fourth person who has told me that today.” She replied, “That must be a real drag. Whatever happened to Howard Ruff?” I had no answer, but I realized that day how fleeting fame can be. Now I'd like to answer that woman, and hope she reads this embarrassing story.

I have lost two fortunes and ruined my businesses twice by taking counsel of my fears. Back in the early eighties, I was riding high. My newsletter, The Ruff Times, was the biggest, most influential newsletter in the known universe. My book, How to Prosper During the Coming Bad Years, had been solidly ensconced at the top of the best-seller list for two years. My cash flow was terrific. I had great political influence in Washington and in Utah because of Ruff PAC and Free the Eagle. We had bought a 10,000-square-foot mansion in Mapleton, Utah, and added 10,000 more feet to contain a near-Olympic-size pool, a racquetball court, a huge garage to house my boat and motor home, and a spare apartment. We were also spending money like water. I was on top of the world, and even bragged to my wife how we were in the top one-half of one percent of wealthy Americans. We had a million-dollar turboprop aircraft and a professional pilot on a generous fulltime salary in case I needed to fly to my California office or just wanted to go fishing.

This is exactly the time I allowed my fear to make the fateful decision that began the years-long downslide that eventually cost me my business and my fortune.

Let me share the most embarrassing thing I could ever admit—embarrassing because it shatters the carefully nurtured image I had created (and believed) that I was a wise, successful businessman and a great marketer.

THE WAGES OF FEAR

Direct mail was the tool that had made me rich. I had written a very successful piece to sell The Ruff Times and was mailing to about 200,000 rented mailing list names every month. The mailing consisted of an eight-page sales piece, a business reply envelope (BRE), and an order form in a number 10 envelope. We would test a list by mailing to a few thousand names. Then, if it broke even, producing enough revenue to pay for the printing, postage, list rentals, and the “fulfillment cost,” we would roll it out, mailing to the list as many times as we could until it failed to break even. Obviously, printing and mailing costs were a big factor in this decision. The only limitation was the number of names I could rent that would break even or better.

Then one day I learned about the web press. Using this new technology, we could produce a “self-mailer” that incorporated the BRE and order form and eliminated the need for a number 10 envelope. Because this reduced the cost of the package by almost half, the break-even cost came way down. This meant that the universe of mailing lists that could produce a break-even or better was hugely expanded. I could get even better list rental prices because of the huge volume and use even more lists if I was willing to print 2 million pieces at a time. The only problem was, I hadn't set aside enough capital to print and mail 2 million pieces. Because of this, I had to do the printing on credit so I would have enough cash to pay the postage, because Uncle Sam didn't offer any credit. The risk was huge, and the upside was hard to quantify exactly, although my gut told me it was acceptable. My decision to do this terrified my staff, who all advised against doing it because if it failed, the company would be broke and they would all lose their jobs. I ignored their fears and plunged ahead.

So far, so good! It worked like a charm. For years America's mailboxes were flooded with self-mailers that asked on the front page, “Can You Afford to Be without This Man's Advice?” and the money rolled in. I mailed 1 to 2 million pieces every month for several years. Then, in the late 1980s, suddenly results started falling off. We were no longer breaking even, and the universe of mailing lists that would produce at break-even or better was shrinking. I soon figured out why; every competitive newsletter publisher had figured out what I was doing and was doing the same thing. Mailboxes all over America were stuffed with self-mailer newsletter solicitations, and mine was getting lost in the general clutter. Also, the competitors were hiring a new breed of talented marketing writers who were writing more compelling copy than mine, and paying them huge amounts of money, which I was unwilling to do. After all, wasn't I the greatest direct-mail copywriter in the world? This is when I made a fateful stupid decision. I decided to cancel my direct mail campaign and concentrate on marketing other products and services to my subscribers.

In other words, out of fear of losing money, I abandoned the business idea that had made me rich—direct mail—and I never got back to it. I didn't use the experience and marketing smarts I had developed in my own head and heart to come up with new marketing methods as I had done in the past. Instead, I was stuck in the past and afraid to bet the company and take a chance. Once the epitome of business courage, now I had become risk-averse—or, in other words, gutless.

In the meantime, my competitors, instead of pulling in their horns like I did, were exploring new methods, such as the “mag-alog,” a sales piece that looked like a magazine but was only a poorly disguised sales pitch. The concept worked like crazy. But it was so expensive to develop, print, and mail that I was too scared to try it.

During the years-long downhill slide that followed, I lost my subscribers at the rate of 25 percent a year, by far the lowest attrition rate in the industry—but the ultimate sure road to failure, given the inexorable math and the nature of time—while some of my tougher and more savvy competitors are still in business with varying degrees of success. Some of them are very rich now: One lives most of the year in his restored chateau in France, while my wealth became a mere shadow of what it once was. As the list of followers shrank, so did the sales of the other products and services I offered them that I was counting on, until in 2002 my list had shrunk to only about 3,000 faithful followers. And how about my glorious Mapleton mansion? I lost it to foreclosure, as I became unable to pay the $8,000-a-month mortgage and the $2,000-a-month maintenance and utilities costs. Yielding to my fears had destroyed my business and personal finances. As I relate this story, I can't even begin to tell you how stupid I feel. Because of fear of loss, the world's greatest direct-mail marketer could no longer market himself out of a wet paper sack.

I can see in retrospect that there was a time when I could have decided to make a few bold moves and end the attrition, but about then (1991) I discovered I had cancer—a slow-growing but incurable non-Hodgkin's lymphoma—and it demoralized me still further as it dominated my thinking, paralyzed me, and fed my fears. (I am cancer-free and in good health now, but how I achieved that is another story for another time.)

DOING IT RIGHT

My story is a horrible example of what not to do, but there are contrasting stories that tell you what you can accomplish if you refuse to take counsel of your fears. As this is written, we've been in a recession for three years, and still may be when you read this. In any recession, hundreds and thousands of companies fail. But hundreds of their competitors do just fine in exactly the same businesses, because, for them, a recession is the chance of a lifetime. They always do well in good times or bad, whichever the economy dumps on their doorstep. If they don't take counsel of their fears, that attitude opens up avenues of thought and creativity that make them successful in good times or bad.

The examples that follow don't only apply to businesspeople. The principle also applies to investors, college graduates making a career decision, and so on.

So what's the difference? What separates the winning sheep from the losing goats in uncertain times (and the times are usually uncertain)? Guts and optimism! They don't make fear-driven mistakes. In business, the failed competitors may have equally good products—sometimes even better. They may have more capital and more skilled financial management. But when times get tough and the goats have pulled in their horns, the winning sheep will have courageously outmarketed the losing goats! They will have made louder noises in a quieter environment, and they will have made money when their competitors were just sitting there paralyzed by fear and being nibbled to death by ducks, year after year.

Procter & Gamble is a classic example. P&G was a small seller of soap when the Depression of the early thirties hit. All of P&G's competitors, driven by fear of loss, cut their marketing budgets and hunkered down to wait for better times, and that's what most of Procter & Gamble's shareholders wanted them to do. After all, financially strapped customers were defecting to cheaper brands. P&G's sales dropped 28 percent in 1933, and their stock fell more than 70 percent.

But P&G was blessed with one of the most gifted presidents in American business history, Richard Deupree. Deupree noted that despite the Depression, some companies were prospering, and consumers were even buying luxury items like radios—and they still needed soap. To make a long story short, Deupree decided to ride the crest of this new wave—the radio—and use it as a new advertising medium. He knew that in that day, before the invention of all of our labor-saving devices, housewives had hours of backbreaking and tedious work, with little to break the boredom—until radio. He decided to use it to pitch soap, and, after a series of experiments, hit on the serial soap opera, which captured a growing army of hardworking housewives who had to know what was happening to Ma Perkins, Our Gal Sunday, or Mary Noble, Backstage Wife. The characters used Oxydol and Ivory and Rinso White, listeners bought it by the carloads in preference to cheaper generic brands, and Procter & Gamble became one of the giants of American industry. The company is still an icon of marketing to be studied at MBA schools.

The point is, all of P&G's cheap competitors are gone, and P&G owns the cleaning products industry—all because one man decided to not take counsel of his fears and marketed aggressively and creatively in the face of the worst depression in American history.

A cat that has been burned on a hot stove won't get on another one, but it won't get on a cold one either. But what about you? You aren't Procter & Gamble, or even Howard Ruff. How does this lesson apply to you? Here are a few examples.

Let's assume you were one of the new stock investors that got burned in the recent and still ongoing stock market collapse. This may have been your first venture into the stock market. You followed the advice of your stockbroker. And why not? He's a professional, isn't he? He was following the advice of the analysts working for his employer, and they were uniformly dead wrong. In fact, just as the market was peaking in March 2000, 98 percent of the recommendations of Wall Street analysts were bullish. Then we found that some of these positive recommendations were for the stocks of companies that were big consulting clients of the broker. Then, to add insult to injury, we found that hundreds of companies were fudging—to put it mildly—their earning reports with accounting methods way beyond the abilities of the typical investor to even understand, let alone analyze. TV scenes of handcuffed Wall Street executives on their way to jail were not exactly confidence-building. It was a big shock to find out that the executives of the companies we invested in were really crooks.

So, will you ever get back into the market again? After your losses, will you even have the money to do it if you wanted to? Should you? Most people won't. They are too scarred and scared by their experience. They are afraid. But should they be?

Markets go up and markets go down, and money is made by savvy people no matter what, but you shouldn't jump in unless you are willing to burn the midnight oil to become self-educated. The stock market is no place for people who don't know what they are doing, and sometimes the right thing to do is to wait on the sidelines until the risk/reward ratio is right. That takes patience. Every bear market is followed by the opportunities of a lifetime. But will you be on the sidelines because you are patiently waiting for an opportunity or because you are scared? If it's just fear, when the opportunity comes you won't even see it. Those whose vision isn't dimmed by fear will make fortunes.

OTHER VICTIMS OF FEAR

Let's assume you are the typical middle-class American with the typical $150,000 house and to-the-hilt mortgage, a secure job (you hope) at a big company, and the typical 2.2 kids. The odds are that you are ridden with fears. What are you afraid of? Getting laid off in hard times? Not getting that raise? Worried about your pension plan and its big investments in the stock market? Worried about your debts? (See Chapter 4.) How will you pay for 2.2 college educations starting in 8 or 10 years?

Those fears may have chained you to your own job treadmill like a hamster on a wheel, which runs and runs and never gets anywhere. You think you are only prudent, that starting a business is too risky. You choose security above all. You are afraid of losing money. Yet, every rich man or woman I know, without exception, was willing to cast off the golden handcuffs and launch out into the unknown, armed only with a desire to be rich, faith in God and themselves, and the belief that the world needed what they had to offer that was apparently of no interest to their employer. They believed, as does best-selling author Robert Kiyosaki, that they shouldn't work for money; their money should work for them. Besides, how secure are you if you put your present and future in the hands of a heartless, downsizing corporation that decides you must be sacrificed in the interests of preserving their profits or shrinking their losses?

The ones who will survive hard times are those who realize there is no security when your destiny is in the hands of other people. There is no security when J.O.B. stands for “Just Over Broke.”

If you won't stop listening to your fears, you will never be rich. Your only hope is to have a good job and work hard enough to be indispensable to your employer. You pretend to work hard, and your employer pretends to pay you a lot, while you pretend to be rich while piling up consumer debt. Maybe if that's good enough for you, that's what you should do. There's nothing immoral about it; after all, we're not talking about right and wrong here, just about professional and financial choices. If it wasn't for the fact that most people have made that decision, I wouldn't be able to hire the workers I need for my business. If you follow the counsel in the first four chapters, you can be prosperous and much more secure, even if you decide not to take a chance by leaping the gulf that separates the Safely Prosperous and the Really Rich. That's OK. You can stop reading here and go back to Book I.

YOUNG CHOICES

Let's assume you're in college deciding what course your life will take from here on. Will you prepare for a good job with a big, safe corporation—like, say, Enron—or will you be laying the foundation for an independent life in business? Will you prepare for security and possible prosperity, or do you want to be rich and truly independent?

Here's what I would do if I were in college. It's a darn good idea to go to college and learn the academic lessons of discipline and hard work necessary to get good grades. Just bear in mind that most of us end up doing something quite different from what our degrees prepared us for. I majored in music education, but the classes that helped me the most were those that dealt with written communication and research, like freshman English. Just make sure you acquire the skills you will need wherever you find yourself: basic accounting (if only to help you analyze and keep track of your own personal financial progress), computer skills, and communications (English literature, creative writing—the most valuable skills and disciplines will be acquired when you write a term paper). You will need all these skills whether or not you offer yourself in the job market or plunge into the maelstrom of entrepreneurial life.

Take a job with a company that will give you the experience you will need to draw on when you decide to become an independent businessperson, and learn everything you can from them. Then stay out of debt. Live a lifestyle below that which you could achieve with the liberal exercise of credit, and accumulate a stake that will give you the independence to choose the life you really want and support yourself while a new venture finds its legs. Above all, don't take counsel of your fears. Independence and calculated risks can be exhilarating fun and immensely profitable.

My favorite character in all of literature and musical theater is Don Quixote. He saw virtue where others only saw vice. He wasn't afraid to follow his impossible dream, despite the ignorance and criticism of those who were “only thinking of him.” He was even willing “to march into Hell for a Heavenly cause.” He marched to music others could not hear. And above all, he was courageous. There was no place in his heart for fear, as he pursued his single-minded quest of virtue. And that mad quest changed all the lives he touched as people found in themselves deep wells of goodness and courage they and all who knew them didn't know they had—even the common slut, Aldonza, who literally became the Lady Dulcinea.

I repeat: No rich person I know of took counsel of his or her fears.

THE GODS MUST BE CRAZY

One of my favorite movies of all time is The Gods Must Be Crazy. A game biologist in Africa is studying elephant dung to analyze the animals' diets. One night as the biologist is camped out in the jungle around a small fire, a rhino runs into the camp, destroying the tent, then stamps out the fire and runs off. According to the script, rhinos are Africa's self-appointed fire control officers, stamping out little fires before they can become big fires. (I can't vouch for the truth of this, but it helps make my point, so let's not be too critical here.)

The world is full of rhinos willing to stamp out your creative fires when they are still small. If you have big dreams, stay away from the rhinos in your life when the fire is still small. Don't listen to the naysayers who are always willing to feed your fears and tell you why you are a fool to abandon the allegedly safe, well-traveled rut you are in. Only share your fire with those who can contribute real insights that can help you correct course, and only when necessary.

Don't be afraid of failure; the road to wealth is paved with failures. J. C. Penney failed in business five times before he finally made it. Abraham Lincoln lost every elective race he entered before he was elected President. When, after testing 1,000 substances as filaments for his electric light bulb without success, Edison was asked about his project, he said, “It's wonderful. I now know a thousand things that won't work.” It's a very rare and lucky guy who strikes oil in his first well. Remember the Linkletter Principle: “I never learned a thing from my successes. Everything I know I learned from my failures.” (See Chapter 15 for the Linkletter story.)

So where am I now? I have written this book. I am the board chairman of a company started by my son Larry, which helps people get out of debt, including their mortgage, in nine years or less. I have launched a company that sells a natural product called Hi-Q that has been the result of an almost obsessive interest in nutrition to stave off mental decline in the golden years. By the time you read this, it may have made me rich again. Each one of those things involved taking a calculated risk when I could have just sat on what I had and nursed it until I died. But if I hadn't done those things, I am convinced I would die a few years sooner, and my final years would be ones of mental, emotional, and physical decline and terminal (literally) boredom. I am not interested in a comfortable but penurious retirement, always counting my pennies. If any of these ventures fails, I will just pick myself up and try again, and find joy in the trying, as long as God gives me breath.

We are all vulnerable to fear when we are exploring the unknown, and well-meaning but lesser humans are pointing out all the dangers that might be lurking in the darkness. Don't listen to them! I was approaching an airport the other day and saw a sign with an arrow that read, “Terminal.” I wonder if that's why people are often afraid to fly!