The most successful business operators understand which knobs to turn and levers to pull to tune their business to operational perfection. They have cultivated powerful business acumen through years of failure-induced learning.
This guide saves a few years for the budding entrepreneur by introducing the most important business frameworks and tools.
Editorial Note
My knowledge is limited to my experience consulting with business owners, operating my own businesses, and now running an impact-focused business incubator. If you would like to contribute your experience-earned knowledge, please email me@curtisfisher.com.
The 5 Most Common Mistakes in Business
1. Optimizing too early
Many business owners (especially those with technology backgrounds) make the mistake of prioritizing efficiency too early. A hyper-efficient business with zero dollars in sales has a negative net profitability.
When I started my first business, I was hell-bent on making it perfect. In the early-days, almost all of my time went towards creating beautiful business process documents, searching for contractors on Upwork to create hyper-scalable infrastructure, and automating as much as I could. There was only one problem; the business was barely generating revenue.
Optimize your business when the time is right
Efficient business practices are incredibly important, but there is a time and a place for that work. By focusing on efficiency in the early-days, you are robbing your business of your much needed attention towards generating revenue.
2. Lack of a right-sized business plan
I've made by fair share of multi-page business plans with the details thought out to the dot. The thing about plans, is they don't go accordingly. Most business plans I've created have been useless, they were far too specific about unimportant things, and strikingly unclear about what was essential.
Great business models beat great products
Have you ever seen a really sh*tty product, yet somehow the business behind it is thriving? As a web developer, I can't count how many pieces of garbage software I've seen netting millions in recurring revenue. That's because the business model is far more important than the product itself.
I'm sure, like me, you've heard somewhere that great products sell themselves. This is false.
Fact Check
Great products don't sell themselves. Great business models sell products, and great products make sales a heck of a lot easier.
3. Overspending - Not managing expenses properly
A good test to determine if your overspending is to start paying yourself a living wage. In the early days, profit margins often look great because business owners don't pay themselves. We have this belief that we should be investing money back into the business to grow it. The problem with that belief is that if you don't focus on creating a profitable business model from day one, the business will remain unprofitable for years to come.
Here's a tool to help you better understand how you should allocate your revenue based on the size of your business.
Revenue Allocation Calculator
This calculator uses the target allocation percentages (TAPs) recommended by Profit-First Accounting* to compute your unique revenue allocation.
Once we start to pay ourselves, we quickly realize that we're not making enough to cover our business expenses (a large part of those expenses being our pay). When you can't afford to pay yourself, then you certainly can't afford to pay employees to do the same job. If you can't afford to pay employees, your business is only profitable because you're working for free! If you don't change course now, you will be working the same long hours with little/no pay that you were probably trying to avoid in the first place by starting your own business.
If you want to create a cash-eating soul-sucking monster of a business, that's totally fine and you can stop reading right here. If like me you don't want that, then you need to start focusing on profit.
The book Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz is a great deep dive into creating a profitable business. The basic premise of the book is that Revenue - Profit = Expenses. In other words, expenses are what's leftover after we pay the business and ourselves.
Parkinson's Law (modified)
Expenses expand to fill the revenue available for spending.
By prioritizing profitability over expenses, we limit our business spending to only what is essential.
4. Incorrectly valuing your product/services
Pricing is a notoriously difficult business problem to navigate. With many different pricing strategies, structures, and dollar amounts to consider, it can be difficult to figure out what's right for you. One thing about pricing seems to commonly ring true; first-time business owners typically underprice their products/services.
Essential Business Formula
If you want to increase the profitability of your business you can either increase your revenue or decrease your expenses. If you're wondering which one to focus on in the early days, please refer back to business mistake #1.
In, "The Personal MBA", author Josh Kaufman highlights the four knobs we can turn to increase revenue in our business:
- Increase the number of customers.
- Increase the average transaction size.
- Increase the frequency of transactions per customer.
- Raise your prices.
Raise your prices today
Many first-time business owners focus on bullet one, two, and three. It feels intuitively correct that taking on more customers is the sure-fire way to grow your business. This approach often leads to business owners with way too much on their plates and far too little compensation for the work they are doing. There's one trick to solving this problem...
Raise your prices!
The Futur (Youtube) has a lot of fantastic content on pricing. Here's one of my favorites:
More money equals better work
When I started my first web development agency, clients were sparse. Eager to grow my business, I would accept work as it came in. Prices were based on what I thought I could reasonably ask for without upsetting my client. After-all, these were the people paying my bills, why risk losing their business?
My clients absolutely loved me in the early days (or so I thought). To them, it was the deal of the century to have a young eager web developer building kick-ass sites for them. This is what I told myself to keep going. Truthfully, what my clients loved was that they could get a website built for a fraction of the cost.
You can't over-promise, under-deliver your way to business success. I've written a brief article on this phenomenon which I call "The Perfect Promise Paradox"
Once I started charging more, I was able to afford contractors to help complete the work. The first project that I hired a designer for was a game-changer. The quality of the website was 10x what I could produce on my own, and because I wasn't worrying about design I could focus on more important things. The website also was completed in far less time than it normally took, and the client was much happier.
Charging more gave me the freedom to hire better talent and do better work. I was also less focused on the nitty-gritty details and instead focusing on the things I enjoyed most. This was a dramatic improvement to my quality of life.
5. Spending too much time working in the business, and not enough time working on the business
As you grow your business, you'll start to hear the phrase, "Work on your business, in addition to in your business."
This idea was popularized by Michael Gerber's "The E-Myth Revisited" which emphasizes the importance of adopting a systematic and entrepreneurial approach to small business management. Gerber argues that many small business owners fail because they focus too much on the technical aspects of their work (the "technician" role) and neglect the strategic and operational components (the "entrepreneur" and "manager" roles). He advocates for creating standardized processes, clear job descriptions, and a well-defined business structure to enable the owner to work on the business, not just in it.
The Entrepreneur, Manager, and Technician
Gerber argues that many small business owners fall into the trap of becoming overwhelmed with the technician role, which involves doing the hands-on work of the business. While this role is crucial, it can hinder business growth if it becomes the sole focus. To achieve success, you need to balance this with the entrepreneur and manager roles.
The Entrepreneur thinks strategically and envisions the future of the business. They set goals, create a vision, and determine the direction the company should take.
The Manager is responsible for putting systems and processes in place to achieve the entrepreneur's vision. This role ensures that the business operates smoothly, with clear job descriptions and well-defined structures.
The Technician role, which you're likely passionate about, involves the actual work you do, such as providing a service or making a product.
Creating Standardized Processes
Gerber advocates for creating standardized processes within your business. This means having clear, repeatable procedures for all aspects of your operations. Standardization reduces chaos, ensures consistency, and allows the business to function efficiently even when you're not personally handling every task.
Building a Scalable Business
The ultimate goal is to build a scalable, successful enterprise that can operate independently of your constant presence. By implementing Gerber's principles of entrepreneurship, management, and a systematic approach, you can create a business that grows and thrives, even when you're not in the technician's role all the time.
How to run a business and live well
Define your why
We all go into business for different reasons. We start businesses to address a critical social issue, to free ourselves from the tyranny of working under someone else, or even simply to get filthy stinkin' rich. Running a business is NOT EASY. For some business operators on a good day, they earn enough to cover their expenses and no more. On a bad day it can be far worse...
Like any living system, businesses take time to grow and mature. When things suck, and they inevitably will, having a crystal clear purpose goes a long way towards helping you power through the suck.
He who has a why to live for can bear almost any how.
If you haven't already, take some time to remind yourself of why you went (or want to go) into business in the first place.
Spend plenty of time outside of your business
Your life is about so much more than running a business; that's especially important to remember when you love your work.
Make time for all kinds of joy in your life. Spend time with friends, go for an introspective walk, sit down for a relaxing picnic in the park, jump headfirst into a new book. Like sleep, when we don't have enough joy in our lives, our judgement becomes clouded.
Take a break from business every once and a while (and hopefully as often as possible), and work on some of the other important areas of your life. More often than not, when we take breaks from things, we tend to come back inspired in new and exciting ways.
Learn to say no to wonderful opportunities
In business and in life, there are countless opportunities that come our way. If you say yes to every single one of them, you won't have the time to give a single one of them your full attention Our attention is a finite resource and one of the most important assets we have as business operators and owners. We give our attention away at the opportunity cost of everything else we have going on.
Focus is an incredibly powerful tool in the world of business. If you can figure out how to focus on one priority at a time, it will prove to be your greatest asset in accomplishing your goals.
Don't do things you won't be proud of
There is a beautiful Mary Oliver poem, The Summer Day which ends with this fantastic line:
Tell me, what is it you plan to do with your one wild and precious life?
I think about this line often. We get one chance at life; do you want to spend it doing things that you won't be proud of it. Intuitively this reads as minimizing our harm. It can also mean leaning into the things that will make us proud.
Plenty of people spend their lives working a nine to five, they go home and watch television and retire for the night. The continue like this for years, until they completely retire, and then they die. There is absolutely nothing wrong with this. It's a comfortable life, it's a good life.
But knowing that I only get one of these lives to spend, there's something about living a comfortable life that doesn't sit right. There's a primal itch, egging me on to pursue something greater. To have the courage to fail, but to fail at something meaningful.
You can be comfortable, or you can be courageous. You can't be both at the same time.
So, tell me, what is it you plan to do with your one wild and precious life?
Business Owner Resources
If you're looking for more personalized advice, I offer business consulting services. Let's set up a time to chat and see if we can work together.
Most Helpful Business Books
These books are a fantastic resource for business operators to expand their understanding of leading a successful business and a successful life.
- The E-Myth: Revisited
- Profit First
- Zero to One
- Shoe Dog
- Essentialism
- Personal MBA
- Never Split The Difference
- Extreme Ownership
- Principles
- Meditations
- Man's Search for Meaning