About this Post
This post is for those of you who are sitting at home, isolating, and pondering on new business ideas. This post is also for existing business owners who need to either (1) bring their business online, or (2) bring things back to the basics.
Table of Contents
- Growth & Turnover
- Achieving Early-Stage Growth
- Financing and Retirement
There’s a lot of advice in here for technology companies. The types of businesses this advice will be useful for are:
- Video Streaming Platforms
- Video Sharing Platforms
- Social Networks
- Online Stores
Why Now? — Reflections on How to Access Opportunity
I decided to write this guide now for 2 reasons: (1) the world is in isolation with respect to COVID-19 meaning it’s an excellent time to explore new ideas, and (2) trying new projects can lead to unexpected opportunities later in life.
The biggest objection I hear from wantrapreneurs is that they lack time. They can’t work on their business idea because they have to work. They have to work because they have bills. Well right now with COVID-19 spreading across the world, all we have is time. The Canadian government is giving lump sums of $2,000 (available every 4 weeks) to people who aren’t able to work. EI programs have been adjusted to grant more flexible access. The Canadian Revenue Agency (CRA) is waiving 75% of remitences on payroll deductions.
If you’re one of the lucky people (yes, lucky) who are stuck at home and are collecting employment insurance, this is your chance to break past your barriers and achieve a stronger future for yourself.
If when COVID-19 ends and you, the currently unemployed wantrapreneurs, still haven’t made any traction towards your goals… the problem isn’t that you didn’t have time. The problem is that you lack self-discipline.
On Accessing Opportunities
I recently wrote an academic paper on the inequality of opportunity. Essentially, the ability to identify and access opportunities stems from how someone was raised along with their race, citizenship, and “luck”. Reflecting on my own ability to identify and access opportunities, I believe it has to do with key events of my childhood. Specifically:
- Working for my grandfather, an entrepreneur, from age 12-18
- Typing and selling my notes to classmates in grade 8
- Taking on leadership roles in school societies (NSSSA, Schwartz Business Society)
- Regularly exposing myself to other entrepreneurs and business leaders
- Starting my own businesses
Each of these endeavours led to new friendships, ideas, and skillsets. When combining all 3 together, opportunities present themselves. The only missing piece between identifying an opportunity and seizing one is your ability to say ‘yes’.
The motto “nothing ventured, nothing gained” is very true. I hope you read this post and decide to say ‘yes’ more often and pursue your ideas!
Growth & Turnover
Before learning how to achieve growth, it’s important that we cover what we mean by growth. We also should understand the implications of hiring staff.
Starting a Business vs Growing a Business
Starting a business and actually growing a business are 2 different trains of thought.
When starting a business, we start to think about the story we want to tell, the neat ideas for names, and how we want to position oursleves. However in practice of actually growing a business, the game is entirely different.
The early stages of a company are rough. Your brand doesn’t have reputation, you don’t have cashflow, and it’s hard to recruit talent. Often times I see founders make the move to hire an “expert” as a starting step. Expert-level employees will cost $10k+ per month in salary. This is a quick way to spike your burn rate.
Therefore, for the remainder of this post, I define growth as the pursuit of achieving a positive net opearting income.
Facing Early-Stage Layoffs & Employee Turnover
It’s unfortunate, but as a business owner your responsibility to is ensure the survival of your business. This means laying off employees when needed and facing turnover at the worst times.
It’s unlikely your first set of hires are going to stay for the long-run. Either you go the route of hiring “experts” who gradually get bored, dwell on inefficiencies, and slack off, or you hire juniors who bring less expertise, but are more affordable. Whatever way you cut it, employee turnover and layoffs are inevitable. Young people will want to travel or explore new skills. Older people will want retirement benefit packages.
The beginning stages of growing a business are uncomfortable. You might make a few enemies, get yelled at, or feel you’re not a good boss, but this is normal. Once your cashflow is in a good position, you can start to invest in benefit programs like beverages, gym memberships, retirement plans and more. The end result… happier employees.
Alternatively, you could budget for training to increase their capabilities, skills, and pace of execution. The only caveat falls on the business owner. If you’re going to allow training, it will use more work hours. As a young company in the immediate starting stages, any employees you hire need to execute (not learn). If there is idle time, sure… learn CRMs or advertising.
Achieving Early-Stage Growth
Advice on what moves to make, when to make them, and for how long they should be made.
1. Start Small, Stay Small (Then Inch Forward)
Real talk, the first project of a new business will likely be its website — but not a complex website.
Make a simple homepage and obsessively improve it. Improve the design, use better images, test the mobile and web versions, try different labels on call-to-actions, etc.
The homepage is likely be your most visited webpage. Make sure the messaging is good (not perfect).
Elements of a Simple Homepage:
- Page Header — what you do at a high level
- Features — how it works (build expectations for how to buy the product or service)
- Benefits — short and sweet, why is it a better choice?
- Testimonials — show that other people have tried it or vouch for you
- FAQs — questions that address reasons why someone wouldn’t buy it
- Call-to-Action — Buy Now, Shop Now, Schedule a Call
2. Startup Marketing 101 — Don’t Hire an Agency
Is your homepage built? Are you spending too much time on it? Remember, these are the early-days. We want a version 1.0 going, not the Monalisa.
Now armed with a website, it’s time to learn who your audience is.
You might’ve considered who your audience is during the creation of your homepage; selecting an intended audience. For example, if I’m selling men’s football equipment, it’s very likely my audience will be men who are interested in football. However, for many products and services, the receptive audience is not know. To overcome this hurdle, we want to quickly learn who our audience is.
Learning The Basics of Your Audience
An audience is collective of people who listen, read, and interact with your brand. Expert marketers can dive into the fine details of an audience, calculating their exact make-up, but as an early-stage company, we simply want to know the basics.
- Gender: Male, Female, Other, Prefer Not to Say
- UX Preference: Mobile, Web (Desktop/Laptop)
- Age Bracket: 18-24, 25-34, 35-44, 45-54, 55-64, 65+
Knowing these simple demographics will give you enough insight to reach your next wave of traction. You can learn these demographics by surveying audiences, doing in-person/phone interviews, hosting a focus group, or running digital ads. In my own experience gathering these demographics, digital advertisements have been the cheapest ($100 per item):
- Ad 1 ($100) – Advertising your homepage to men only
- Ad 2 ($100) – Advertising your homepage to women only
- Ad 3 ($100) – Advertising your homepage to other gender only
- Ad 4 ($100) – Advertising your homepage on mobile only
- Ad 5 ($100) – Advertising your homepage on desktop/laptop only
- Ad 6 ($100) – Advertising your homepage to people between 18-24 only
- Ad 7 ($100) – Advertising your homepage to people between 25-34 only
- Ad 8 ($100) – Advertising your homepage to people between 35-44 only
- Ad 9 ($100) – Advertising your homepage to people between 45-54 only
- Ad 10 ($100) – Advertising your homepage to people between 55-64 only
- Ad 11 ($100) – Advertising your homepage to people 65+ only
The total cost to acquire these answers should be $1,100. This is why I don’t recommend hiring an agency/consultant. After having multiple calls, receiving a proposal, settling on a price, and actually having the work begin, you’ll be out more than $5,000 (not including the cost of the ads themselve).
Do yourself the favour and either hire a freelancer or watch a YouTube a tutorial to build the above set of ads. You can stop all ads once you’ve learned your audience (this step is meant for only reserach purposes).
3. Add CTAs, Text-Ads, & Display Ads
Now that you have your audience insights, you can start adjusting your website CTAs and re-run ads to optimize for conversion. Another feature you might want to add are text-ads which can be created and placed in your blog posts, press releases, and opt-in content. Lastly, it’s wise to implement display ads (image ads) to appear on the side menu of your blog posts and press releases.
The content of your ads and CTAs should be optimzed to either (1) target your audience with your products/services or (2) utilize Google Adsense to allow others to advertise on your webiste (earning revenue).
As a new website with low traffic, it’s unlikely Google Adsense is going to pay enough to cover operating expenses. If Google Adsense is your intended revenue path, you’ll want to spend more on marketing and advertising to drive traffic up.
If selling products or services, you’ll want to make your ads and CTAs point to your product page or service page. Once done, earning revenue becomes a game of optimizing CTAs and advertisements for conversion. I personally consider this the hardest part of growing a business.
Without a steady flow of traffic, optimized call-to-actions, and a decent conversion rate, scaling your business becomes extremely difficult. Once sales start, your cashflow grows. Until this moment is reached, all operations are at a loss.
A temporary way to earn cashflow while optimizing your revenue operations is to arrange a partnership with a client or buyer. For example, I partner with other marketing companies to act as a sub-contractor for their CRM and marketing automation work. This gives me enough cashflow to carry on while I optimize my website.
4. Review Your Finances Each Month
Operating on a net loss for a few months is acceptable. Operating on a net loss for a few years… not good. But even that depends on the scenario.
First and foremost, keep your eyes open for unneccessary charges, subscriptions, and fees. Next, consider how much you’re investing into your product/service.
When it comes to companies that require product development (app startups), they face a lucrative earn and burn nature to their operations. Founders in these businesses will need to carefully balance resources to start and stop revenue operations in order to invest and develop their product — this can be very back and forth.
The important thing to know is when you’re in revenue-mode or development-mode. As an early-stage business, it’s hard to be in both modes — you will need to choose one. Revenue-mode is when your business is focused on sales and a positive net operating income. Development-mode is when you consciously take a hit on loans and finances to further the development of your product. Eventually a business becomes large enough and profitable enough that it can equally pursue revenue and development without sacrificing net operating income.
I recommend checking your finances every month; especially when in development mode. Letting your development efforts run for 2 months too long can result in dramatic losses to operating income which in turn can lead to unexpected layoffs or needing a loan.
Investor Perspective: A founder pitching a business with a massive net operating loss is unattractive. To overcome this, founders will need to instill mass amounts of hope that (1) the founder’s vision and market is obtainable, and (2) the founder is competent enough to turn things around; getting growth back on track.
Be Smart, Don’t Chase the Money — Think of Your Retirement
This is my final set of advice regarding government programs, venture capitalists, and retirement.
Over the last decade, entrepreneurship has become an economic development strategy. These programs are often structured to favour employee-producing industries that, frankly, are very high-cost and high-risk to begin.
Is 21-year old Johnny going to go start a billion-dollar factory? Nope.
But what if the universities are involved and a massive non-payable loan is issued by a government funding group? Possibly, but doesn’t sound like a a job for Johnny to tackle!
Don’t become the instrument for your local government’s economic development strategy.
Take advantage of programs when you absolutely need them, but don’t make your entire work week about chasing them.
Venture Capitalists (VCs) are on the hunt for profits, users, valuations, and acquisitions. But when should you go to a VC?
Earlier in this post I mentioned knowing when you’re in revenue-mode (making money) or development-mode (spending money). If you’re in revenue-mode, you likely won’t need venture capital unless you want to place a larger-sized investment into a new project (a new product or feature set). These types of investments are favourable to VCs because the business model is already proven and it’s very likely that new development will increase the company’s valuation. This means the VCs will earn more profit when dividends are issued or when the business is sold.
However, the above scenario isn’t the case for most early-stage business owners.
The reality is that new businesses often have flakey operating models. That it works some days and doesn’t on others. As a result, venture capitalists are hesitant to place investments unless the team and vision are very strong. But even that’s a risk.
My end recommendation for VC financing is to only take it if you’re in development-mode and need to take month-over-month losses in order to achieve a stronger, more viable product or service. But remember, you need to know when to switch gears and get back to revenue-mode.
Retirement & Being Responsible
The true mission of the entrepreneur should be achieving a net operating company, pay off outstanding loans, retain some amount of equity, and to pay dividends into their retirement. Second to that, the entrepreneur could/should develop community-based programs to address skill gaps and increase their local talent pool.
Let’s say your business has a bank balance of $1,000,000 and you have a VC partnered in for 40% ownership. If you decide to issue a $100,000 dividend to help fuel your retirement fund, $40,000 goes to the VC and $60,000 goes to you. Now imagine the same bank balance but this time you have 3 VCs partnered in for 70% ownership. Your $100,000 dividend gets split up, giving you only $30,000.
Understanding how your business influences your retirement is important.
Sometimes entrepreneurs get caught up in the valuation game; making the whole focus of their business to drive valuation up and be acquired (so they become rich). This is a dishonest path to take. Eventually the whole business becomes a game of hot potato and trying to find a fool that believes the inflated valuation.
Be real about your market, operations, and assets. These 3 areas will reveal problems with your business model, your market penetration strategy, and the extent to which your product or service solve a real consumer need.