When you're not a "startup" anymore...
All of "Hamilton" is great, of course, but, among the multitude of great lines, there's one in particular that always speaks to me as a business owner. During Cabinet Battle #1 (a rapped debate about America's fiscal strategy), Hamilton states to Jefferson, "Thomas, that was a real nice declaration. Welcome to the present; we're running a real nation."
Though the line is directly referring to conflict between the Federalists and Anti-Federalists, it always makes me think of the challenges startups face after they've achieved their first measure of success. You start with your own personal "Declaration of Independence" (from your previous job), start a company, and then just fight to survive. One day you wake up and it's a real business. The question then is, "Now what?"
Speaking from our own experience growing a fast-moving startup over the past five years, I wanted to offer our advice on what to do next when your startup grows up.
Scaling economically.
Ironically, in a lot of ways, it's easy for a startup to be profitable. The staff is small and working like crazy, and no one expects a huge salary or a ton of perks, so you get a lot of bang for your buck out of the few people you have. You probably don't have an office yet (maybe just a co-working space), so there's not that huge monthly expense hanging over your head. The overhead in general is low, and you're really putting your A-game out there for every possible sale.
Sure, it's not sustainable in the long-term (unless you are cool with regular nervous breakdowns), but in those early days you can often at least break-even, even if you're not rolling in the dough.
Eventually, you realize that your staff does need to grow, or that you do need a place everyone can work centrally. (Though you have to be careful not to add those costs just because they're things you want. See our prior article, Living a Lie: The mistakes that make entrepreneurs go broke.)
Scaling is not without its risks, but there are steps you can take to mitigate those risks. Having a budget is key, obviously, but it is also helpful to map out conditional budgets for if you add various expenses, such as rent (or if you were to have a slow sales month). You can use those to establish a set point for when you're willing to add to your overhead. (For example, once we are regularly at x recurring revenue, we will sign a lease on an office, or hire support staff.) This can allow you to scale at a safe pace, without over-expansion.
Managing changing stresses.
When a startup is new, your main stressor is where the next sale is coming from. As the business grows and acquires clients in greater numbers, some of those stressors go away, and new stressors are added.
One of the biggest headaches in a growing company stems from managing a growing staff. When the company is small, you're operating in your area of expertise. As the company grows, you have to learn more about being a leader. Hiring and managing employees can take a mental toll, especially as you realize that the systems that worked when the company was smaller are no longer sufficient. (For instance, you will likely need to invest in a CRM that can help your new staff navigate their workload. Even if the original startup members don't need it, new employees will.)
Additionally, as you get more and larger clients, the clients themselves will require additional management. It can be hard to deliver the same level of personal attention when your time is spread so thin between them. It will become necessary to delegate some of the customer service duties to other staff (terrifying as that may be).
This is not to say you drop contact with clients, or aren't available when they need something; it just means you unload some of those duties onto other people, so the client can get what they need (even if they're no longer getting it directly from you).
Becoming who you are supposed to be.
It's not uncommon to feel a bit "lost" as your company grows. I experienced a small existential crisis the first time we signed and began work with a new client with whom I myself had never directly communicated. Once I got over the brief panic that I might no longer be needed, I realized how freeing it was, that I knew we could bring in revenue without my involvement. As we grew and hired additional staff, I didn't have to work on every single account; a new admin meant that I didn't have to manage the filing and calendar anymore.
I began to have something almost resembling "free time", and for me, that was terrifying. I had to figure out what to do with myself.
Fortunately, I really enjoy the study of business, in general. I began focusing on how we could improve processes, expand into new markets, and stay ahead of changing trends. I worked for us to become one of the first Xero-certified partners in our area, and began focusing on new business types (B-Corps, for example), so we could be prepared to serve upcoming businesses.
I also started focusing on who I wanted to be as a business leader, and who we wanted to be as a company. In a lot of ways, the company's growth has freed us to circle back to those original goals and mission statement. It's not enough just to grow a successful business; we want to stay in line with why the company was founded in the first place.
It's easy to imagine what you think a business owner should look like (see our article What makes an owner? for some prime examples) and fall into the trap of backing too far off from the company, or becoming an absentee owner. This is not what embracing your changing role means. It means that, instead of ordering business cards, you're calling referral partners (not that you're relaxing on a yacht while the minions do all the work).
It seems ironic that success should bring so many difficulties, but adapting to those new challenges is what sets companies apart. Be flexible, stay committed, and plan for everything you can, and you'll keep the fire you started growing strong.
Living a Lie: The mistakes that make entrepreneurs go broke
"You have to spend money to make money."
"Maintain the image of success."
"Fake it 'til you make it."
There is an ideal of the successful entrepreneur as a jet-setting globetrotter, someone living high on their quickly-amassed profits earned through their brilliant business insight. We want the overnight success and rock star-status of Richard Branson. (Comparatively, Larry Ellison, who has over eight times the net worth of Branson, took a less meteoric path to wealth, and is relatively unheard of.)
The unfortunate side effect of our idolization of instant-millionaire entrepreneurs is that many have come to associate that glamorized lifestyle with proof of product value. In other words, "If I look and act successful, people will assume I know what I'm doing and hire me for my services!"
Here are the four most common ways entrepreneurs blow money on an image.
"I've gotta get my name out there."
Advertising is great. Advertising is essential. By all means, advertise! However...
Don't blow your budget on advertising. While seeing your company on a billboard or hearing your name on the radio is a great feeling, don't throw your money away on that illusion of the "big-time" without knowing for sure that you are going to get a good return on your investment. This is a mistake we have seen time and time again.
I once personally witnessed a (now closed) local small business flush away thousands of dollars on a radio ad which they were convinced would result in a flood of customers to their large weekend sale. They scheduled additional staff, opened early, and...no one showed. The ad was ineffective. In their frustration and desire to not have their money wasted, they played the ad on loop inside the store (i.e., the place where customers weren't), succeeding only in driving their employees crazy.
For the majority of small businesses, big-budget ad campaigns are not worth it in the early days. A local tv spot might make you feel like a celebrity (for better or for worse, given the quality of most local tv ads), but it cannot match the per-dollar effectiveness of a decent website, solid social media engagement, and positive word-of-mouth.
"I have to have a nice place to meet clients/customers."
The information age has transformed the world, and the way we do business in it. Meeting clients over coffee or lunch is a perfectly valid option, as is selling products online without a physical storefront. However, many entrepreneurs still seem to feel as if their business is less legitimate without a physical location.
Rent on offices and storefronts is a significant monthly expense, and that does not include furnishings, utilities, etc. Having a separate workplace to travel to on a daily basis has mental benefits in improving productivity, but it is not a cost to be considered lightly, nor is it a business essential nowadays. A gorgeous office with a big mahogany desk is a nice long-term goal, but it is not worth putting your company in the red.
"Yeah, I think I've got a place in the business for you."
We have written before on the dangers of expanding too early. However, this becomes doubly dangerous when owners begin creating positions for the sake of hiring friends and family. Middle management, and other positions which are not directly involved in revenue generation, are rarely necessary in a young company. It is good to be surrounded by people you like and trust, but, until your business has enough sustained profitability, employing people for positions you really can't support is like inviting people onto a raft with a hole in it. Everyone just starts sinking more quickly.
"The company's buying dinner tonight."
This is the big one and, really, the issue from which all the others stem. It appears that, since the invention of commerce, owners have fallen prey to the temptation to treat the company as a personal piggy bank, not realizing that they are essentially robbing themselves. Personal expenses being run through the company tanks profits, and can become risky from a tax perspective. (Inaccurately deducting too many things as "business expenses" sends up a red flag to the IRS.)
In some cases, a failed understanding of accounting reports results in owners bankrupting their own companies. For example, Owner's Draw does not show up on a Profit & Loss report. So, when an owner views the Profit & Loss report, they might see that the company is very profitable, and think everything is fine. Meanwhile, their overspending is bleeding the business's Retained Earnings dry. When an unexpected setback occurs, they suddenly realize they're out of money and the company goes belly up.
So what should you do?
Though stories of those who got rich quick are fun, it has to be accepted that, for the majority of us, success will be a longer journey. Just as we individuals must live within our means, so much our businesses function within their budgets. Slow and steady wins the race, a penny saved is a penny earned, etc.
"He worked hard and was patient, and eventually earned wealth and a comfortable lifestyle," might not be the most exciting story, but it beats that tired tale of the guy who tried to have it all right away and lost everything.
Stop Eating Frogs
Mark Twain famously said, “Eat a live frog first thing in the morning and nothing worse will happen to you the rest of the day.” In recent years this has become a particularly popular sentiment amongst entrepreneurs, used as a reminder to not procrastinate in completing disliked chores. Small business owners typically have to manage so many different aspects of their company, it's inevitable that there will be some tasks they dread.
For many, their "frog" is accounting.
But, here's the secret...for some people, frog is a delicacy.
We may be in the minority, but, at The Bookkeeper, accounting and finance aren't just something that pays the bills. We actually find a lot of it fun.
Here are a few of our services which, though business owners typically find distasteful, we really enjoy.
Developing Business ProceduresYou know the only thing more fun than reading a collections procedure manual? Writing a collections procedure manual. It combines several of the things we love, like research, technical writing, and custom-tailoring business practices to an individual company. What's not to love?
Of course, we've heard some people refer to research as "boring" or technical writing as "tedious". But we feel the same way about SEO optimization and, apparently, some people enjoy that.
Budgeting
Budgeting seems to have a negative connotation for a lot of people. A budget is seen as something constraining. But we think budgeting is awesome. You get to look at all your revenues and expenses, and figure out where you can save or earn more money. Who doesn't like having more money? A budget lets you make plans and take steps to achieve your goals. Not knowing your budget is like driving blindfolded. Maybe exciting for some, but too risky for us.
Debt Repayment Plans
A lot of people who are in a great deal of debt don't like to think about how much debt they're in. Of course, ignoring a problem doesn't make it go away.
For business owners overwhelmed by debt, figuring out a way to repay it all is too big a frog to eat. Much easier to just make the minimum payments and try not to think too hard about those rising balances. Fortunately, we love writing debt repayment plans.
Like so many problem, debt seems a lot bigger when you're in the middle of it. That's why we enjoy taking an objective, mathematical look at the problem, and coming up with a tangible, step-by-step solution to eliminating it. And it is so exciting to show someone how they can, often without even spending additional money, be debt-free and have savings built up in, frequently, as little as five years.
Profitability Analysis & Pricing Strategies
Some people may be put off from some aspects of accounting because of the math involved, particularly when it comes to things like calculating gross profit margins. We at The Bookkeeper are huge fans of math, perhaps because of its consistency and objectivity or, perhaps, as the great philosopher Cady Heron stated, "Because it's the same in every country." (Yes, both Mark Twain and "Mean Girls" quotes in one article. Small business accounting can be very culturally relevant.)
Math is especially useful when it comes to looking at which products or services provide higher revenues or greater returns, and where prices can be raised to improve profitability. Using a little bit of math and research to make more money, without having to sell more or perform more work? That's fun.
These are just a few of the services we provide for our clients, not just because our clients find them difficult or loathe doing them, but because we actually do find them interesting. Where the client sees a live frog, we see a perfectly seared filet mignon.
If there's some chore in your business which you simply despise completing on a daily basis, whether it's finance-related or something else, consider whether it's worth it to you to pay someone else to eat that frog.
You're in business for yourself, so why do something you hate?
What makes an owner?
If you're reading this, chances are you want to be a business owner, or you already are one. And, if you're the sort of person who wants to run their own business, it's probably not because you plan on working a daily grind into your 60s. You probably have a dream for your business, and for your role in it.
Maybe you see yourself hanging out nightly in the VIP section of a nightclub you opened. Or managing your wealth long-distance, answering emails on a satellite phone while you recline on a tropical beach. Perhaps your vision of success is your business doing so well that you can yacht away to somewhere without any cell phone reception at all.
Here is the problem we see time and time again...A new business owner spends so much time daydreaming about what their position should be, they don't put in the work to make their dream into a reality. The result is owners frustrated because, "I didn't start my own business to work myself this hard!", and failing businesses.
So, how does an owner achieve success? A few things to keep in mind...
You should be your most dedicated employee. No one has more stake in your business than you. So why expect anyone else to work harder for your business than you do? Employees take their cue from the boss. An owner who puts in their hours and maintains high levels of work ethic and professionalism shows the employees that the business is being taken seriously, and inspires them to follow in that same example. Unfortunately, many owners adopt a "Do as I say, not as I do" style which lowers employee morale and motivates them to do their job...when the boss is looking.
To assess your success in this area, take a step back, and think of yourself not as "the owner", but as one of your own employees. Ask yourself these three questions:
- Would you hire you?
- Would you write you a letter of recommendation?
- Would you fire you?
If what you're giving your business would be unacceptable from anyone else you hired, it may be time to reimagine your role as the owner. And...
Play to your strengths. You know a business type that makes a killing? Dental offices. So why don't I open a dental office? Because I am not a dentist. It makes no sense for me to try to start a business about which I have no knowledge, just because I'm hoping it will somehow prevail and make me a lot of money.
Unless you're simply a brilliant, Richard Branson-esque entrepreneur (in which case, Thanks for reading! Need a bookkeeper?), your business should involve a field in which you are an expert, or at least be something you have a strong passion for. Also, you should be leveraging that expertise and that passion in the most appropriate area of your business. (You are your own best employee, remember?)
For example, say you have a business detailing cars. You are a dynamite car detail-er, and, between word-of-mouth recommendations and repeat customers, business takes off. So, you hire four more people to detail cars, and you step back to do "owner things", like marketing and money management.
Only problem is, you have crippling social anxiety and couldn't add 2+2 without a calculator. So, you end up not doing the marketing because you hate it (and, truthfully, aren't that great at it) and you get your finances in a huge tangle. Meanwhile, customer satisfaction slips because those car detail-ers you hired can't match the level of service you're provided in the past. And in your rush to get to what you envision is the role of the "owner", you've hired too many additional people, anyway.
So, how should you play it? First, stop thinking about what an owner is "supposed" to do and just do what you're supposed to do. Keep detailing cars yourself (take on one or two people you can train) and hire somebody else to do the marketing and the books. If detailing cars is what you know and what you're good at, why take your best employee (again, you) off of that to do something else?
And, sure, maybe you don't want to detail cars forever. Maybe you really want to reach that place where you're just relaxing on the yacht. That's why you have to...
Have patience. So many businesses fail when they attempt to expand too quickly. (We recently compared this to buying hotels too soon in Monopoly.) Likewise, we see a lot of businesses run into trouble when the owner decides they'd rather work like Don Draper than Peggy Olson. (If you're not familiar with "Mad Men", then just substitute anyone who doesn't work very hard versus anyone who does.)
If there's something your business needs which isn't being done, and you refuse to do it yourself because, "I don't do that; I'm the owner," you're not likely to find long-term success. You can't just rely on your employees' hard work; you have to contribute your own.