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We’re building a business during a difficult time in the industry. How can I do this successfully with long-term growth in mind?
Hi Mathias,
I’m starting a company alongside another cofounder with a focus on growing the business slowly and sustainably, given the current recession. Our goal as cofounders is to set ourselves up for long-term success. Do you have any advice on things we should consider along the way?
Thanks,
Claude
Hi Claude,
It’s great that you’re thinking about how you can approach building a sustainable business from the get-go. While it isn’t always the most glamorous approach that gets you news headlines, in the end, what matters is whether your business can exist beyond its youthful and exciting phase of starting up. I’m happy to share some key lessons I’ve learned from building businesses several times over.
Keep one thing in mind, though, all advice, including mine, comes with survivorship bias. I’m able to tell my story because of my relative success, but we’ll never know if the principles and strategies I invested in led directly to that result. There’s no one playbook for building a successful business because everyone’s definition of success is different.
What’s your definition of success?
What is success? For some, it’s achieving a high valuation in a funding round or joining the ranks of billion-dollar revenue companies. For others, it’s simply having more money in the bank at the end of the day than there was at the start. Success might also mean working at a steady pace without burning yourself out, paying folks – including yourself – fairly, and offering a great work environment. Or it’s a good exit after several years of service that allows you to do whatever you want.
Thinking about success in this manner will help guide your decision-making along the way. For instance, if your motivations are financial and investors start knocking on your door with no funding in mind, you’ll be able to quickly say no and focus on what’s important.
More like this
Are you building for businesses or consumers?
One of the most consequential decisions you can make about a business is who you build for. If you are building a product targeting consumers, that’s most likely going to require outside funding. The market is large, but competition is fierce, and acquiring customers can be challenging.
Consumers can often be demanding and quick to move on to the next thing. Additionally, serving this market can put you under different and usually stricter laws.
Profit margins are potentially low as well. Sometimes, your revenue might rely on advertising or other business integrations, which also require a substantial customer base to be effective.
Building for businesses can be profitable within a likely smaller target market. You can charge more, increase your profit margins, and potentially need fewer customers compared to consumers to have a viable business on hand.
Remember that businesses are demanding, too, as they’re relying on you to increase revenue, save costs, or mitigate risk. So, you do need to deliver on that promise to make it worthwhile for them. Try to start by serving a small niche of businesses and then grow from there, as that’s often the more comfortable route.
Treat your first customers like royalty
Assuming you’ve landed your first few customers, treat them like the champions they are. After all, they’ve invested a lot of money and faith in you. In one of my businesses, we sent some of our first customer care packages with fresh coffee beans and hand-written thank you notes. It may sound cheesy, but these gestures go a long way.
This only works if your service or product meets high standards. Your customer support experience must be great. When an early product still has bugs and missing features, working closely with your first customer to get them up and running is time well spent. Not only does it feel personal to them, but it gives you valuable insights into how they’re using the product, what features they need, and what you might have missed in your initial build.
Never stop treating your customers well. In a sea of businesses that wall themselves off through artificial intelligence bots, user self-help forums, or promises of getting back to you within seventy-two hours, great customer support and customer experience set you apart.
Consider boring technology
When you’re building a new product, it’s tempting to use the latest technology that everyone’s buzzing about. However, this often leads to unexpected issues and side effects. You may end up spending more time bending the technology to your will or debugging issues in production without any meaningful explanation, let alone someone to help you figure it out, rather than actually building a product.
With the way that technology is rapidly advancing today, it does seem like what’s new now is already old by next week. Be prepared to explore trending tech like artificial intelligence language models if your market demands it.
But wherever you can, relying on “boring” or tried-and-true technology can save you a lot of time and hassle. Leaning on the languages, frameworks, and ways of doing things that have been around for a while means that there’s an existing body of knowledge and experience that you can build on, instead of having to learn the basics yourself.
That’s not to say everything will run smoothly but it does increase your chances of finding solutions when problems arise.
Starting up a business already incurs plenty of risk. While cutting-edge technology can be a key differentiator and provide value to your customers, in those instances where it’s not, keep your initial tech stack as simple and reliable as possible.
How much should you charge for your services?
One of the earliest lessons I learned in building and advising businesses is that people tend to charge too little for their product or services. A good rule of thumb is to double the first pricing you come up with and that will be a good place to start. Folks are afraid of potential customers saying no. But a no can simply mean that your price is too high, not a rejection.
When selling to other businesses, consider the value you provide them. Your product either allows them to save money or make more of it. Your price should reflect that. For instance, if you save them somewhere around $1000 per month, asking for $100 isn’t unreasonable. High-quality services and expertise justify higher prices, as this will prove more attractive to customers. At the end of the day, though, value is your true barometer for pricing, not your costs, or how much you think someone would or should pay you.
There’s another side to this money equation as well. Charging more means that you need fewer customers to reach your revenue goals.
Hire only when it hurts
The golden rule of any organization is that there are never enough people to do the work. Small businesses are no exception and are constrained by tight budgets. Whatever money is coming in needs to be spent on things that help bring in even more income.
It can be tempting to think that whenever you feel a squeeze in workload hiring is the answer. But the work may not be enough to fill an entire role.
In addition to that, hiring means adding more people to your team, which implies increasing coordination, communication, and collaboration. That in itself isn’t a bad thing. But consider that you can’t just hire and expect a person to be fully up to speed from day one. They’ll need a lot of support and extra time to help them get started. The more you add to the team, the more you need to think about bringing structure to your organization, and that’s worth considering before making a hiring decision.
Hire only when the work is essential and contributes to the bottom line, in particular in the early stages. Also, assess whether this justifies a full-time role or if you can distribute it amongst the rest of the team.
When considering your overall capacity, hiring is only one possible answer. Not going there first forces you to think creatively about how you could approach the work differently or if it needs to be done at all.
Focus relentlessly
Customers, especially potential ones, will tell you about their needs and what they think are nice additions. The market, your competition, and technological advances may tell you more or entirely different things. But just because that’s what you’re hearing doesn’t mean that these aspects will end up increasing your product’s value to its existing and potential customers. In fact, they can be more of a distraction rather than a value-add.
Any business, no matter if big or small, can lose focus easily. There are simply too many things you could be doing. Adding one new feature may seem enticing but you have to weigh up the support, documentation, and code base maintenance it needs. Distractions can pile up quickly.
Keep your priorities narrow and focused. Actively decide on what not to do instead of leaving ideas lingering. It’s easy to say yes to things to please people, but this can drain your resources. In the same breath, saying no can incur losses as it might mean turning down an existing or potential customer. But you’re not there to solve all problems, so if it’s not a match, find customers that are.
Final thoughts
Building a business is complex. You have to make a ton of quick decisions on what to focus on and what to discard. You only have so much time in the day and you need to use that to the best of your abilities to increase cash flow.
Having a set of guiding principles will help you reach your goals fast. Use them to make decisions along the way. Review the list and your decisions regularly and discard what hasn’t served you well. You will find that the principles that you start with might change over time, and that’s normal. It may even have been the complete opposite, and that’s ok too.
Do you have a work challenge that you’d like some additional perspective on? Submit it here, and it might feature in a future column. All submissions are edited for anonymity.
