A few years ago, a former employee dropped by and said casually, “You guys are really good, but should be better off. Just work less and charge more.”
I thanked him for his sagely advice and tried to change the topic, but he pressed. “If I were you, I’d be rich now.” From the outside in, it seems a trivial task to just “make lots of money," right?
According to Forbes, eight of 10 entrepreneurs have their businesses fail within 18 months. (The US Small Business Administration pegs the number closer to 50%, mind you). Regardless, the ones that make it record a fairly modest rate of ROA (return on assets) of 8% when aggregated over a decade. This doesn’t mean people aren’t making money – plenty are – but it’s an exceedingly rare “Field of Dreams” business that hits the perfect confluence of luck, timing, and unique value proposition – with proper funding and capitalization and strong leadership. The rest have to work both hard and smart.
Businesses within the knowledge economy have to tread a balance between having a coherent and resilient business model, cultivate/motivate the staff (who represent the business’ IP and produce the work), and clearly fulfill the value proposition that clients are buying. Also, they need to be well capitalized. A surprisingly frequent death of would-be companies is that they simply run out of cash…
Businesses that generate less than $2 million of revenue usually have owners who wear multiple hats. Almost universally, entrepreneurs aren’t prepared for the breadth of new challenges that await them. This could be anything from bad partnerships to getting caught in the trap of reaction vs. acting to plan (or conversely, being steadfast in jamming square pegs into round holes). Often, it’s not the business model or craft/product that pose the biggest challenges, but the actual business of business.
Almost all aspects of your business need to be monitored for performance metrics: data analysis on everything from customer retention and employee churn rates to tracking profitability amongst individual skills within your teams and clients over their engagement life cycles. In short, there’s a lot that business owners need to get a grasp on.
The useful thing is that there are a number of tools entrepreneurs can leverage to gain access to the intelligence they need (while ideally introducing/enforcing organizational discipline). For virtually every pain point, there’s a solution – the key is to recognize which are viable, powerful, and culturally coherent for your organization.
As our grizzled controller has often said over the past dozen years, “if business were easy, everyone would be doing it.” Consistently making the right/informed choices will mitigate losses, generate time/opportunity, and ideally, get you one step closer to increasing your net profit margins year-on-year. It may lack the sexiness of “easy money," but it’ll be resilient, predictable, and with longevity.