How To Grow A Business

Entrepreneurs like Elon Musk and Sergey Brin inspire, but leave few tangible clues for those of us hacking away at the underbrush of our own small businesses. So for those whose aspirations fall somewhere between “build a business that pays the bills” and “establish a profitable moon colony,” the following might be a useful map.

Here’s the “big idea”: as your business grows, there are different points of highest leverage. In other words, focal points where you get the most return for your time.

These points of highest leverage change as the business grows, and the faster that you move from one to the next, the faster you’ll be the established provider of chili-cheese fries in the Crater B moonbase.

By the way – there’s a cool/crazy thing that happens when you reach the “top”, but we’ll get to that down below ;)  For now, let’s jump in.

Phase 1 – Services

You’ve made the leap and started a business, and need some revenue. Time to start selling your services. Coaching, personal training, web development, plumbing, article-writing… you’re trading your time for money. And don’t let anyone tell you otherwise – that’s just fine.

You may not yet be a professional, and that’s also fine. When I started teaching dating bootcamps, I still had a lot to learn. But as I discovered, there’s always a market for a service provider with hustle, competitive pricing, and a burning desire to help someone else achieve a goal.

The cash you’re earning during this phase should be put into rent, and anything extra should go into education, or a shoe box.

Growing beyond this phase requires you to enhance your skills, learn the market, and look for product opportunities. Presumably, you’ll be doing this through your daily work – servicing clients, talking to new prospects, and studying the breadcrumbs of success that the market leaders have dropped. Hopefully, you’re also establishing a good reputation.

In some cases, services are the be-all end-all. Lawyers, doctors, media buyers and writers can earn six- or seven-figure incomes by “trading their time for money.” If you feel called to perform this service, and you work hard to be at the peak of your profession, you can have a very successful small services business, and a comfortable lifestyle.

Phase 2 – Products

There are many reasons to move beyond a services business. Chief among them is to leverage your time, by creating something once (your product), which many people can purchase over time. A song, an ebook, a software platform.

When we launched our first product, we were struggling to fill our coaching pipeline; the product was merely a low-cost way to get people comfortable spending money with us. If you had told me back then that products would completely supplant our coaching services business, I’d have been doubtful.

The quality of your product – and accordingly, the amount of investment required – will be driven by your assessment of the market. An ebook costs nothing but your time, while an enterprise software platform might call for venture capital, to fund development and rollout.

Product quality is usually, but not always, important – it depends on your market. To Steve Jobs, it was everything, and he set an incredible example for the rest of us. Google arguably won search because of product quality. Any product that’s subject to user reviews, word-of-mouth and “network effect” – an app, or a book – typically won’t last if it sucks.

But let’s not forget that Microsoft Windows – a bucket of fish guts for much of its lifetime – remains the most popular desktop OS in the world.

In fact, two common mistakes I see in this phase are perfectionism, and, uhh… product-ism.

Perfectionism is common, and laudable, but it also has a high opportunity cost… especially if the total addressable market for the product isn’t huge. There’s a slew of information out there about creating a “good enough” product – anything on lean development, and specifically, the book “Rework“. In my industry, product quality has surprisingly little bearing on success; more on that below.

Product-ism is the cousin of perfectionism: churning out product after product, under the misguided belief that more products = more revenue. That was us for a few years, until I figured out marketing.

In short, unless you’re shooting for the moon, subject to network effect, or building a black swan, a “good enough” product is typically enough to get going, and start getting feedback (and revenue!) from the market.

Phase 3 – Sales & Marketing

You need new clients and customers, so you need S&M – sales and marketing. This is the tinder that lights the fire of business growth… the proverbial “spreading of the word.”

But what form of sales and marketing? Again, it depends on your industry and what you’re selling.

You Did NOT Just Say "Marketing"

You Did NOT Just Say “Marketing”!!

Steve jobs famously disliked the term “marketing”, believing that amazing products “sold themselves” when their functions were highlighted. Some products, books, and movies are so good/viral that a little press, and lots of network effect, carries the day. Instagram hasn’t done much traditional “marketing,” but things turned out ok for them.

I tried different forms of marketing at The Social Man – branding, blogging, SEO, social media, referrals, etc. – but it wasn’t until we began to succeed in direct marketing that everything took off. I’ll dive into this in the future, but suffice to say that marketing was a significant leverage point, and my investment in marketing education has paid off – at least financially – way beyond that of my History degree. And interestingly, in our industry, it’s marketing – not product – that creates the first competitive advantage.

There were a lot of missteps along the way, and for those wishing to avoid them, there’s some simple advice. It worked for us, and it worked for Samsung: find what the market leader is doing, model it closely, and try to make it better. 

Much of the same can be said about sales, with the added burden joy of managing a sales team. You’ll find considerable leverage in poaching a top sales agent from a competing firm, paying them more, and doing your best to manage them.

Whether it ends up being marketing, sales, or good old hustle, cracking the code to selling the shit out of your product or service, and seeing it take off, is one of the most exciting moments in your entrepreneurial life.

Phase 4 – Team

The challenges of generating that initial revenue behind you, a new challenge awaits: managing growth. With customers come complaints and demands. With revenue comes accounting and taxes. With winning product and marketing comes more opportunity. It’s time to grow your team.

This is where your values and mission become more than a catchphrase. Great people want to be a part of something meaningful, from the moment their eyes land on your job posting, to that night they’re burning the midnight oil to hit a deadline.

You’ll be tempted to hire friends, and I have, with mixed results. The first four years of this business were a revolving door of friends, and while we had lots of fun, I was pretty singularly responsible for revenue generation and operations. I was happy with that balance for awhile, but there came points where friends had to be cut, for the greater good of the other employees, the customers and my own sanity ;)

Your first hires will depend on your need; mine were in coaching/product, then customer support, then technology, then sales and marketing, then operations and finance. In all cases, they started off as 1099’s, and eventually became full-time.

And speaking of full-time: when you’ve got someone great, it’s a no-brainer, super high-leverage move to bring them on full-time. When someone’s full mental efforts are devoted to your business, it’s like compound interest on your investment. They’re not “on the clock,” so you get the benefit of them thinking about your business without any other projects or clients in the way.

But what to pay them? My system seems to have worked out pretty well: we start employees with lower pay, but give them a clear path to move well above industry standard pay if they excel in their roles. I also pay for their professional education and training wherever possible. It’s taken some time to get this fine-tuned, and at present, it hasn’t been implemented in all of our departments. But in general, it’s solved a big problem: it separates the talkers from the do-ers (and believe me, you’ll meet many talkers along the way).

The subjects of hiring, team-building, and management can (and have) filled many books. Spending time on your team is tremendously high-leverage, and we’ll explore this topic in lots of depth in the future.

Phase 5 – Systems

You’ve been using basic systems since day 1 – email, web hosting, hopefully Quickbooks… but with a rapidly growing business and team, things are going to start breaking. It’s time for better systems.

A system can be your shopping cart, or your onboarding procedure, or your monthly accounting review – anything that runs more-or-less automatically, whether you’re there or not.

As you grow, systems spawn systems. A web hosting system needs a backup system, which needs to be supported by automatic bill payment. And that backup system should probably have a script or a human checking it’s integrity now and again.

More importantly, you’ll also need to develop your own systems… or in business-speak, procedures… for how stuff gets done.

Procedures are a critical form of leverage: taking something you (and your team) have done correctly, and building a step-by-step formula that others can follow. This should include training, which is a high leverage investment.

Done right, systems become a competitive advantage. My tendency has been to over-build our systems. This has slowed us down and increased my costs, but it’s also given us the flexibility to do stuff that others in our market can’t do. Choices and investments that we’ve made in systems have unlocked big opportunities for us, and we’re working to integrate everything into one big platform, which we can leverage in the future.

And while we’re still working on getting all of our procedures right, those we’ve implemented are already paying off in major ways.

Phase 6 – Deals

As with systems, you’ve likely been doing deals since day 1. But deals don’t become a singular point of high leverage until you’ve got two things: cash, and/or a platform.

Once you have a platform, whether for selling products online, organizing video game tournaments, or ferrying passengers across the Atlantic, you want to see it used at scale. And of course, if you scale it big enough, someone else might just come along, asking to take it off your hands.

On the flip side, if you’ve been saving your profits and find yourself with a big pile of cash, it might be time to make an investment, form a new venture, or make a strategic acquisition.

Truth be told, we haven’t made any big deals to date. I’ve not seen any great acquisition opportunities in our market, and we’re not ready to begin scaling our platform outside of our own business. Yet smaller deals are made regularly with affiliates, content creators, and staff and contractors.

But I hope to get there. Empire builders like Richard Branson, Felix Dennis and Donald Trump have all been masterful at big-picture dealmaking, which puts it at the top of my list for high-leverage skills.

A View From The Top Down

There’s something interesting about this pyramid: the more competent you are at a higher level, the more likely your business is to get the lower-level stuff right.

If you can create a good product, then you’ve probably been able to rock the services (even if you’ve gotten a little bored with them).

If you can develop great marketing, then chances are you understand your market enough to create a good product… or pay to have one developed.

If you can put a kick-ass team together, then you’ll have help building your products, marketing and everything else.

If you can get your systems right – from production to payroll to platform – then everything else should start running like clockwork.

And if you can make great deals, then you don’t even need to be around for execution or operations… just bring the ideas, the money and the people together, and make it happen.

Of course, those are all perfect-world scenarios, and it’s never perfect. You’ll still have product issues – remember Antennagate? – and you’ll still have to jump into the marketing when it hits a bump. A great team doesn’t guarantee great systems, but rather, creates the opportunity for them. And even great dealmakers like Trump, Branson and Buffett are known to get deep into product, marketing and teambuilding.

Finally, note that you don’t need mastery in all areas to succeed. Let’s say that you were known in your family for the hilarious, home-made greeting cards you create. You spent years perfecting the craft with friends and family (services), even though you weren’t getting paid. You could make a few simple card designs (product) and jump into sales (calling up boutique card shops to see if they’ll carry your cards). Get a few customers like that, and you might just be able to ring up a bigger distributor and license your designs (dealmaking).

Personal Reflections

As my company has grown, I’ve developed expertise in some of these areas (product development, sales & marketing), proficiency in others (team, systems) and competency in a few (services, dealmaking).

I can usually tell when I’m bumping into my own limitations, but I’m also slow to hire. I’m typically looking for someone who has the skills (preferably) or the raw material and drive to do the job better than me… so much better, in fact, that I don’t even have to think about it.

But of course, I always think about it anyway.

I think about how we can give our customers the very best experience. I think about how I can help my team grow. I think about new ways to make money and reach more people. And not a day goes by when I don’t think about “what if” scenarios – things that would seriously disrupt or destroy the business.

The thinking, though, is the easy part.

DOING is the primary high-leverage move – the alpha and omega – and I hope this gives you some insight into where your time is best spent doing something in your own business.

About the author

Jonathan

Currently running a business, traveling through South America, taking some photography, and loving a woman. If you like looking at pretty things and people, you might like my photography.

4 Comments

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  • Jonathan, awesome article.

    You’re late though.

    Would have been nice if you wrote this article 6 years ago and also shared it with me back then. Can’t believe how slow you are in not anticipating my needs 6 years in advance.

    Top notch though, laying out all 6 phases like this is sweet. Very concise and detailed to which parts of the business we can focus on to grow it.

    Currently doing a combination of all 6 with heavy focus in 3 and 5. Working on 4 at the moment.

  • Hey Jonathan,

    Thanks for the article. I’m at the point in my company where I am looking to expand my team. I’m making a decent amount of money on my own, but I think I could do better by spending my time looking to bring on bigger clients while hiring someone else to manage smaller clients (& eventually more opportunities).

    When you talk about Team, and “we start employees with lower pay, but give them a clear path to move
    well above industry standard pay if they excel in their roles” Could you speak a bit more on what are some sample compensation packages + paths to move well above industry standard pay if they excel in the roles?

    Thanks

  • Very true… I started as a freelance web designer & developer, turned into a web agency and started by hiring 1 developer to help, then speicalized in e-commerce, but that was still a services business, one where revenue grows proportionnally to the number of employees. And where I am from – France – social charges are so high that employees are EXTREMELY expensive.

    So we became a software publisher, selling addons for the PrestaShop platform. Today we are the #1 seller on the platform. We did that by focusing first on building great addons / products and started building our reputation in the market.

    We then redid our website, made videos and demo websites, became more agressive with our customer data collection processes and started working more professionnally on marketing. The team grew from 2 full-time to 5 full time and 2 part time team members in a bit over 2 years. We are now into steps 5 and 6: redoing our site once more but adding high-level functionality that will completely automate the license renewal system and build in great incentives for repeat and bulk purchases. Finally, I am in the process of negotiating deals with large web agencies so they can purchase our addons in bulk from us at a discount, and become distributors / evangelizers for our products.

    By the way, Christian is an excellent marketer ! He managed to get me to sign up for the GFAS program on thesocialman.com even though I am married and very happy, with a sense of freshness, adventure, passion and feeling alive from day to day, even after 13 years together, 8 years of marriage and a 5 year old child (well, we did have our ups and downs like everyone of course :)). But some of his language just pressed a button in me, and I simply felt compelled to go and see if this guy knew things that I didn’t.

    I’ll tell you one little piece of wisdom I have learned in my own life: after 13 years, you need to keep seducing your wife EVERYDAY to keep a marriage alive and happy. The seduction never ends if you want to keep her in love with you and, most importantly, for you to stay in love with her as well… because it works both ways ! It’s like they say… The couple that plays together, stays together ! :) In any case, the program is very good and I have even learned a few good tricks which are applicable whether or not you’re in a relationship. I’ll be sure to use some of them with my wife ;)

  • Thanks! Best read I’ve had on business in a while. I just printed it out and read it all again, and highlighted.

    I loved;

    – Different leverage points as business grows
    – Breadcrumbs from market leaders
    – Highlighting the “leveraging effects of products”
    – Perfectionism traps, one of my favourites
    – Find out what the market leader in dong, model it closely, and try to make it better
    – Constant reference to “leverage”
    – DOING is the primary high-leverage motive
    – And the examples of famous companies

    Thanks Jonathan! If you’re looking for blog content ideas “From Coach to Big Time Direct Marketer” would get my vote.

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