Most businesses are unpleasant to operate, and make far less money than their founders would like. Here’s the exception.
You’ve likely heard founders echo the sentiment that “business is hard” or the idea that “no company is perfect”. As someone who’s built multiple companies — some I hated (despite moderate success), some I grew to dread and shut down (due to impending dealbreakers), and some I’ve tweaked into enjoyable and rewarding models — I’ll be the first to admit that running a horrible company that takes more than it gives absolutely sucks.
Ironically, even the smartest, most well-intentioned, entrepreneurially passionate people can wind up building and running a company they low-key resent, wondering if that’s just “how entrepreneurship is”.
Spoiler alert: It’s not.
While every business may come with its own challenges, constraints, and necessary evils, it is possible to deliberately engineer a company around 6 rare, underappreciated factors that can significantly improve your startup experience, growth opportunities, and profitability. Here’s the 6-factor checklist to build a business that doesn’t suck.
Anyone who swears by the phrase “the customer is always right” must never have heard the counterpoint: Customization is the enemy of scale. In fact, I’d go a step farther to say both customization and customer interaction are the enemies of scalability.
Here’s why: The more customization you offer customers, and the more individual back-and-forth interactions you grant them, the more time and money you’re allocating to that one customer. Thus, in order to rapidly and massively scale your operation, you’re going to have to hire a boatload of those customer servants to take their orders, make product or service modifications, and pat them on the back each step of the way.
I’m not suggesting you should in any way shortchange your customer or give them products or services less valuable than the price you charge. I’m simply implying that perhaps there’s a way to build a scalable product or service specific enough that it overdelivers in value, while also being generic enough that your entire customer base can use it themselves. Think do-it-yourself (DIY) products and services rather than done-for-you (DFY).
If you want to minimize overhead as you grow and scale quickly, you want to sell one thing to many, not many versions of many things to one client.
I made a completely involuntary mistake in one of my companies that only came back to bite me years later, when I realized why I couldn’t benefit from the same organic growth as some of my peers’ businesses. For years, I wrote off word-of-mouth growth as a small, sporadic, low-priority growth channel that wasn’t worth much attention, since business owners can’t control it. In other words, since I can’t crank a lever and make all my customers emphatically evangelize my product to ten friends a day, it wasn’t worth my time.
While that isn’t completely untrue, I had yet to diagnose the true problem.
My customers for the business in question loved our product, and I had the piles of glowing testimonials and feedback to prove it, alongside countless heartfelt “thank you” letters that reinforced the value we provided. The problem, however, resided in the fact that those customers were somewhat shy to spread the message about our product, at least initially. Over time, we did amass some brand evangelists, but at a far slower clip than most other successful businesses whose customers love their products.
Here’s why: We served an audience of customers that would consider each other competitors and a threat to their own success.
If one customer got a great benefit out of our products, they were disincentivized to tell their peers or recommend us, since we would be arming their enemies. Plainly put, we served customers who wanted to keep the “secret” of our services hidden away from the competition, at least until a few months or years post-purchase. Years later, many of those customers have publicly credited our company for playing a material role in their success, but until then, we’d shot ourselves in the foot as far as organic growth goes.
How can you avoid this? If rather than building a product or service for individuals who view one another as competitors, you build a product or service with network effects, you can bake organic, word-of-mouth growth into your business, so long as you deliver a stellar customer experience.
What do I mean by network effects? This means offering a product or service that becomes more valuable to each customer as more customers partake. For example, social networks are only valuable if all your friends or people you follow are on them, hence why they can grow organically and like wildfire: The people who use them get more utility the more they share the product; voila, free referral marketing at your doorstep.
Building a successful business with perpetual recurring revenue is kind of like writing a successful television series that goes on for countless seasons: You can never provide a complete and finite resolution. In other words, you can’t fully solve their problem all the way. Before you jump down my throat accusing me of creating subpar solutions for customers, let me elaborate:
If you offer a one-time, finite solution for a problem, you know customers will purchase once and be gone forever. That only works if you price that solution sky-high, have an endless stream of leads, and perhaps have a pipeline of other finite solutions you plan to produce for different audiences to augment the company’s future growth prospects.
If instead you tackle a recurring problem or address an issue that will never go away, you create the opportunity for perpetual recurring revenue without the pain and expense of having to recreate the wheel with a new product each time. If you’re thinking finding recurring problems or issues that never go away sounds difficult, let me debunk that in about two seconds:
- Food and drinks: People will never eat or drink so much that they’re satisfied and full or their thirst quenched forever; thus, consumables provide a great opportunity for perpetual recurring revenue.
- Business services: Many business marketing, sales, and operations services require an ongoing stream of attention, effort, and capital, since businesses always need to bring in new customers and fulfill new sales. Thus, B2B services can present high-ticket and perpetual recurring revenue opportunities, and this is where some of my 9-figure founder friends cut their teeth.
- Health and fitness: Like eating, health and fitness is one of those things you can’t “cure” once and for all or apply a silver bullet one-time-solution such that clients instantly maintain peak fitness forever. Thus, this represents another opportunity for perpetual recurring revenue.
If you want to minimize your CAC (customer acquisition cost) in contrast to your LTV (customer lifetime value), one of the easiest ways to do so is by offering a product or service customers never stop needing. You market to acquire them once, and you reap the financial rewards forever. The more value you add and pain you remove from your customers on a weekly, monthly, or yearly basis, the more they’re willing to spend to pay away their frustrations.
Though this could be controversial and misaligned with some entrepreneurs’ goals or visions for their ideal company, the truth is that minimalism is strategic in business. The more SKUs, the more headaches. The more physical products, the more overhead. If you want to offer 10,000+ SKUs and pay for warehouse storage space and a team to manage all that inventory, be my guest, but you definitely aren’t setting yourself up for a walk-in-the-park entrepreneurial experience.
As an entrepreneur with a financial background, it’s hard for me to be a proponent of high overhead businesses when I know just how profitable low overhead ones can be. If many SKUs and storage space are integral to your business, you can be strategic about keeping costs minimal and streamlining operations and overhead, but if I wanted to build the least-annoying business, I’d probably try to avoid them as much as possible.
The other week, I had a friend randomly drop in from across the country for a completely unplanned impromptu visit. It wasn’t her plan nor mine, but circumstances put her in my living room, and I was happy to accommodate, despite the Tuesday surprise. However, her coastal stranding coincided with the recent hurricane that shut down all airports and kept her trapped in our rooftop suite for the better part of a week.
Being that this was a friend from business school who I hadn’t seen in nearly a decade, I was torn between being a great host and being a productive entrepreneur. I probably ended up about 70% host, 30% productive entrepreneur, and I felt guilty the entire time. This friend ironically praised my “work ethic”, though I assure you this was at most 30% to 40% of my usual capacity. Nonetheless, my business didn’t exactly fall apart nor really skip a beat. That’s because I’ve built and attempt to run businesses that are largely automated, so I can actually take a day (or even a week) off without my absence making a dent.
Does that mean I can chill on the beach forever? Sure, in theory, but I wouldn’t, since the time I spend working is dedicated to building new endeavors that definitely won’t automate themselves into existence. Regardless, once they get built, launched, or integrated, they, too, should represent revenue streams for which I don’t actually have to show up.
I’m not telling you to seek out “passive” income over actively selling products or services; I’m simply encouraging you to work automation into your marketing, operations, and sales processes so that your business can run whether or not you show up. This can be in the form of technology, outsourced labor, commissioned salespeople, or many other tactics, but if you want entrepreneurial freedom, it’s a crucial step along the journey.
This last secret may rub some entrepreneurs the wrong way, but I’ve heard this advice echoed from some of the most successful people I know, and I’ve personally tested it myself. I’ve spent $30k+ pre-launch building a platform for products with a $3 profit per sale. I’ve also spent under $1k pre-launch building entire businesses in which the profit per sale always exceeded $500 and in some cases was six times that. It wasn’t easier to build the cheaper product business, but it was a lot harder to make a fraction of the income $3 at a time.
If you catch my drift, the moral here is that I’m not a huge fan of selling cheap, low-value, bottom-of-the-barrel, low-profit-margin products or services. In my humble opinion and experience, it simply isn’t worth it. Once you’ve gone through the headaches of building something from the ground up and seen firsthand the difference in the single-digit profit rewards versus the higher-ticket sales, it’s pretty hard to go back and get excited at $3 a pop.
Again, this isn’t blanket advice for pricing across all products or industries; it’s simply a suggestion to make your entrepreneurial experience a little (well, a lot) more enjoyable. You want to build a business that’s immensely valuable for your customers, and that’s only going to happen if you’re willing to give it your all for each and every customer. Are you willing to give it your all and get out of bed for $3? If not, you’re doing both yourself and your customer a major disservice.
