$80K From a Bit of Thinking

Back in January I wrote about the Profit Window and the process of profit optimization.

I used that writing as a prompt to look at our business again and identify areas where we weren’t as efficient as we could be in generating profit.

Based on that thinking, we implemented a handful of changes.  It took about a week’s worth of work to execute.

Now, in June, we’re on track to capture $75 – $80,000 in additional revenue with margins of over 50%.  

To provide a concrete example of how boosting efficiency works, I’ll explain my thinking and how this came about in this short case study.

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Fear in Business

I spoke with an entrepreneur out of Detroit named Ray recently.  Ray owns an Allstate agency.  He drives a brand new Escalade that is a fleet vehicle from a side hustle transportation company he started.  He’s in the process of buying a large building for his agency.  Most of the space he’s going to lease to other businesses.  And he’s planning on having his company build him a house to live in which he’ll rent from the company.  

All of this is bank funded.  Ray exhorted me to take out a loan and buy something.  “It’s free money! Whatever you’ve been dreaming of doing you can do it!  Start a transportation company and buy that $100,000 Lamborghini you always wanted.  Develop some assets.”  

In my imagination, I was watching the bank take Ray’s home because his business had run up against some loss he hadn’t foreseen.

How affected by fear do you think you are?

How does fear impact your business decisions?

For myself, I’ve almost never felt scared or anxious in business, but fear has had a larger impact on my choices than any other factor.  Bigger than luck, bigger than the market, bigger than the limits of my skill or knowledge.

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How to Approach Product Ideas

The first product I created was a poll over email plugin for a CMS.  

The idea came from a discussion I participated in as part of a tech user group about how to decide on a course of action affecting the group.  I thought, “If someone could just send a poll over email, we’d be able to come to a decision immediately.”

I was looking for a product idea and leapt on this.

Over the next 9 months, I wore myself down writing the plugin in my evenings, weekends, and vacations.  I traded work with a graphic designer to create a polished website design to sell it and build that too.

I launched it to crickets. After a month working on the website and marketing and was able to improve my 0 sales to 2 purchases.

It sucked hard.

Ideally, product opportunities organically present themselves to you:  

  • You scratch your own itch.  
  • You build something for a client that everyone needs.  
  • Your boss tasks you with building something that’s not in the market (looking at you Bezos.)

But most of the time, for most of us, that’s not going to happen.

So how can you deliberately identify product ideas that are winners?

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Finding Business Opportunities

I was talking with a friend about my plan to invest in developing WordPress plugins as products recently.

“That’s a tough market,” he said, “Everything has been built.  Customers don’t want to pay anything.  You make $100 a year off a plugin and still have to support it.”

He’s right.

We built a WordPress plugin four or five years ago and the market was saturated then.  Because of the scope of functionality, it was a pain to support and actually cost us to maintain it.  

Natural opportunities that are inherently accessible and rewarding don’t seem to exist anymore.  

What I’m striving to learn is how to identify hidden opportunities.

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The Pirate’s Advantage

I’ve a friend who is in the early stages of developing an innovative app.  Recently, he was disheartened when he was looking in the app store and discovered that someone had already built it.

I’ve been there several times.  You think you’ve identified an opportunity or unexploited idea and get really excited.  And then a couple weeks into working on it you stumble across someone who has already done it.  Fuck!

In our current age, it’s incredibly difficult to find unexploited opportunities.  

There are massive incentives to create solutions and few barriers to do so.  Products continuously spawn in this fertile environment- all the way down into the crevices of every microscopic niche and razor thin vertical.

First mover advantage is not going to happen for most of us.

But this isn’t bad, because there are some real advantages to being a Johnny-come-lately.  Not only should you not be dejected by our high competition environment, you should embrace it.  

Because it’s ripe for pirates.

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Optimizing for Profit

In the book “Built to Sell” John Warrillow explains how approaching your business as if you’re going to sell it will help you to maximize the value of it- regardless of whether you actually intend to sell the business.

Pretend for a moment that you were going to try and sell your business within the next quarter.  What would you change?

It’s like getting divorced- all of a sudden you’re on a diet, in the gym, and doing all sorts of stuff that would have kept you from getting divorced.

Pretty funny.

If you were going to sell, it’s a safe bet that you would clean house:

  • Updating systems
  • Updating SOPs
  • Reevaluating your employees, costs, customers
  • And seeing what changes you could make to improve your value

All of this in an effort to appear more valuable… really to be more valuable to a buyer.

The thing is:

The opportunity to be more valuable was always there.

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The Profit Window

Growth.

Most business owners are obsessed with it.  

Early stage entrepreneurs focus on top line revenue.  As they gain experience some of them shift priority to profit.  As they gain more experience, some veterans shift back to revenue (or back and forth.)

Many entrepreneurs focus on vanity metrics like headcount.

For the past five years, I’ve managed a small team and been stuck under the $300,000 revenue ceiling.  The entire time I’ve worked diligently to grow the company and have continually invested in sales and marketing.

Superficially, it doesn’t seem like much has changed.  We certainly haven’t grown from the perspective of revenue or number of employees.

But we’re actually much more profitable than we were five years ago. 

We’re more productive at creating value.

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Profit Isn’t the Bottom Line

Profit isn’t the difference between revenue and costs.  It’s not a line item on an income statement that is black or red.

Profit is the capture of excess productivity in value creation.

There’s a functional difference between the ideas.

The first is a measurement which can be gamed.  The second speaks to the underlying forces that drive a business.  

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Folding Nothing

Folding nothing is a core entrepreneurial skill that concerns transforming value starting with nothing.  

It’s how you get from $0 to $1 to $10 to $100 to $1,000 to $10,000, and so on.

It’s a bit esoteric to think about in abstract, so I’ll explain how it works through a story.

Zero

Two years ago I forked a company named, “Resurgent,” off from our original Blue Bridge dev shop.

Resurgent is a consultancy that helps member based associations transform their website into a tool to grow membership.

Because I was approaching it as a consulting model, based on trust and expertise, I knew that speaking would be key.

I started Toastmasters and began to develop my speaking skills.  That was easy enough- just a matter of commitment.

The larger obstacle was how to get speaking gigs.  

Conference organizers are evaluated based on the quality of their speakers.  They need to put solid people on the stage who entertain and educate.

Consider your current situation.  You probably don’t speak at conferences.  You probably know very little about member based associations.  You’re actually very close to the spot I was when I was facing this obstacle because we had only one previous association client.

If you were me, starting at zero, how would you convince someone to let you on a stage? 

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The Thousand Day Rule is Dangerous

Update 10/3/2020: You can hear Dan and a guest discuss the risks presented here on this podcast.

My all time favorite podcast is the Tropical MBA.  I’ve been listening to it for most of my entrepreneurial journey.  It’s an entertaining and insightful look into the modern small business.

The podcast hosts Dan & Ian have developed lots of useful frameworks to think about decisions in business.  They’ve coined concepts like “Rip, Pivot, & Jam” about innovating within proven value chains and “if it makes you money you shouldn’t be doing it,” a rule of thumb for where an entrepreneur should spend their time (and money.)

I’m a huge fanboy.

But I take issue with one of their key theses, “The Thousand Day Rule.”

The Thousand Day Rule is a pattern that they noticed where entrepreneurs needed about a thousand days, or 3 years, to build a business that surpassed their job income.

At best, the Thousand Day Rule is incomplete.  At worst, it’s destructive to new entrepreneurs.

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