At this stage of our business cycle, you are profitable and growing organically. Maybe this is the end game for you, you are earning a nice living for you and your family. But many entrepreneurs want to continue to see their businesses grow. And to stand still means to go backwards in this every changing world. You do not need to grow like crazy, but you do not want to stagnate either.
As a minimalist entrepreneur you have a built a business that you enjoy working on, it’s a pleasure to go to the office every day. But sustained growth presents its own set of challenges. One tool that may help you decide the best path for your business in the Ansoff matrix which I discussed in episode 29 of season 7. To listen to that podcast CTRL Click here
When a business fails, it is not usually due to a tide of unforeseeable events, its usually for a handful of reasons. The most common of which is running out of money. In his book Sahil talks about how to avoid these mistakes.
The first piece of advice seems so obvious that it hardly needs saying “Don’t spend money you do not have”. But we live in a society where spending money you do not have is encouraged, consider the number of credit card offers you receive. So, it’s not too surprising that this extends to businesses too. The most important equation in business Profit = Revenue – Costs. But all too many entrepreneurs forget profitability in favor of product development, growth, hiring, fancy offices etc. When you first launch it is likely that you will have zero revenue and some costs. But how long can this be sustained? I think of this as runway, how long do I have before I need to be at least at breakeven. In his book Sahil quotes Paul Graham, founder of Y Combinator, saying he can size up a company by whether they are “default alive or default dead”. If the status quo of revenues and expenses is maintained, will the company live or die. Amazingly 50% of founders do not know the answer to this question.
Costs fall into two buckets, variable costs that increase or decrease in line with production, and fixed costs that remain constant regardless of the output, typically these include staff costs, buildings, etc. Note in my world there are no such things as fixed costs. You can always change fixed costs, sadly people can be let go, leases can be terminated. But the best way to avoid having to reduce fixed costs is not to let them get too large in the first place. Some ideas put forward by Mr. Lavingia:
- Pay yourself as little as possible until you achieve sustainability. Seems common sense but I once worked with a client who had grand plans for their business and paid themselves based on the projections rather than the actual business performance
- Hire software not people. Software is cheap, people are expensive. In the US you can use Pilot software to do your accounting rather than hiring an accountant. There are many payroll software offerings available. A word of caution, again from my own experience, there are some so called global payroll systems providers whose products do not work well in all countries. Be sure that any system you are considering can meet your local requirements.
- Don’t get an office. This was good advice pre covid, it is outstanding advice post covid. But again, tailor this advice to your location. In some parts of the world the internet infrastructure is not well established and that makes it difficult for people to work from home. In these cases, consider hiring space in a co-working facility. In will be much less expensive than having a dedicated office.
- Choose your location wisely. Establish your business in an area where costs are lower. This not only will keep your costs down, but it could also give you a better lifestyle.
- Outsource everything beyond your businesses core competency. Even the largest of companies do this. My favorite example is IKEA who keep their design function in house and outsource all product manufacturing to folks who specialize in this area.
Do not get caught up in the hype of what a successful company should look like, keep focusing on what has got you this far, and improve processes that are not ideal. Keep an eye on your numbers.
Stay focused on what your customers want.
Your customers do not want your company to get bigger, they do not care how much money you make, they want your product to get better and for your company to stick around. Your customer should remain the focus of your customer. Amazon has a nice way of thinking about this. At every board meeting there is an empty chair that represents the customer and the voice of the customer. So, everything that is done with the customer in mind. Why is the product important for me? What value does it bring? Do we really need this service or product?
Raising Money from your community.
Growing businesses – even minimalist businesses may need to raise capital at some point. Raising money can make sense if you know how you will spend it to make the lives of your customers better.
Shopify for example raised money several year after their business launch. Because Shopify was profitable they were able to keep their vision aligned with their investors, keep the dilution low and retain control of their business.
If you are doing business in the US consider Regulation Crowdfunding which allows a business to sell up to $5 million in securities to small investors. The learn more Ctrl+Click here
This is a new way of raising funding and the author of The Minimalist Entrepreneur used this in March 2021 to raise $5 million from over 7,000 investors.
A downside of raising money from venture capitalists is that you create two distinct sets of stake holders, your investors and your customers. Also, you lose some control over your business as they begin to have a say in how your run your business, what are your expansion plans and what return on investment is acceptable. By raising money from your customers, you have only one group you are responsible to, your customers.
Maintain your energy and your sanity.
Some folks say you must grow big to avoid being eaten by bigger businesses. This is just plain wrong. Some of the longest running businesses are small. These are often family firms or midsized enterprises who are content to grow within their niche. Being profitable allows you to grow at the rate you wish. It brings confidence, it brings you runway. Have the confidence to build the business you want, not what “common wisdom” tells you. It is the aggressive voice and their plans that grab the headlines and like Fab.com they often hit the rocks and sink. The smaller business that delivers an acceptable income for their owners and quietly delight their customers do not make the headlines, and that should be alright with you.
What have we learned:
- Growth is required to stay viable but that does not mean rapid growth. Grow at a rate you can manage.
- Keep costs under control, starting with your own salary
- If you raising money find investors whose vision aligns with yours, consider crowd funding
- Maintain your energy, profitability gives you confidence and options.
If you want to learn more from Sahil Lavingia please consider buying his book from my Amazon affiliate link below. There will be no additional cost to you and I will receive a small commission on the purchase. Thanks