Don’t Fall for Entrepreneur P0rn
It’s exciting to dream of being a billionaire or disrupting an industry. But to accomplish anything you’ve got to wake up and get to work.
Here’s what growing a company looks like.
You sell something to someone who isn’t your Mom.
You make more sales. Enough that sales are dependable.
Next level is sales that are predictable not just dependable. You can predict the timing and cost of your sales.
Somewhere along the way you’ve made enough sales to eke out a living without killing the company.
You build something brick by brick.
Great. Now you’ve created a stage 1 company. You’re still involved in customer-facing work (sales and production) but you’ve started to hire people to help.
What to do next? Get a handle on your numbers
The cost of acquiring a customer (CAC)
The cost of servicing that customer (COGs)
The contribution margin that left so you can pay your fixed expenses
You Cash Flow Cycle – how long it takes from when you spend money till you generate cash
Break Even for the month – how much you need to sell to pay your expenses
Working Capital needs – what it will cost to grow
You probably need a CFO for this. The good news is there are plenty that work on a fractional basis. With those numbers in hand, you can start to evolve from a stage 1 company to a stage 2 company.
What’s the difference between stage 1 and stage 2?
In stage 2 you’ll hire people to do the customer-facing work you used to do. You’ll develop systems and processes so they produce those results as well (or better) than you. You’ll focus inward on building the company now that you have people to do the customer facing stuff. You’ll focus on the support functions. These cost money and don’t bring in revenue, but they keep the production and sales operating at peak effectiveness. These are things like management, HR, facilities, finance, legal, compliance and a few more.
Some people hate this kind of work. Others love it. No matter. Your company needs it if it’s going to grow. The good news is (unlike a child or a puppy) your company doesn’t have to grow.
It’s OK to stay at a size you like.
Just know that if your company does grow it gets to a point where bigger is not more of the same – it’s completely different. And it will probably dip into unprofitability before it grows to new heights
At some point it reaches a place where you are free to do the kind of work that you want to do and make the kind of money you want to make. That, to me, is the freedom of entrepreneurial life. I’ve spent my career building companies like that and helping other business owners do so. Feel free to reach out if you’d like to see if I can help you.
What Motivational Speakers Get Wrong
There’s a story they tell of walking down a road and seeing a person whacking on rocks with a hammer and chisel. When asked what they’re doing they reply “I’m making bricks”
Further down the road is another person doing the same thing. When asked what they’re doing they reply “I’m building a wall with my bricks”. Further down the road is a 3rd person – there’s always a 3rd person in stories like this. They reply, “I’m building a cathedral for the glory of God.” And the motivational speaker says, “You want to be that 3rd person. Dream big. Imagine you’re building something grand.”
The business coach says, “Not so fast bucko!” In business you want to focus on the bricks. If they’re not solid, square, and uniform, your wall will crumble, and your cathedral will come crashing down. It’s happened to many companies who focused on the big, grandiose vision and neglected the nitty gritty details.
What are the bricks in every company?
Your Business Model
Unit Economics
Your people
And not always in that order. The moral of the story? Pay attention to the bricks, and build from the bottom up.