A new business is a fragile thing. Bringing it to life is hard, of course, and the world is volatile and uncertain. So, how might you design a more resilient business from the start?
THE UNICORN & THE CAMEL
On an episode of the HBR IdeaCast, from Harvard Business Review, titled: “How Entrepreneurs Succeed Outside Silicon Valley,” author and venture capitalist, Alex Lazarow, shared something that really stood out to me. He said:
“In Silicon Valley we have this obsession with the unicorn, which is the mythological creature that represents companies that are worth over a billion [dollars], but it’s also a representation of this philosophy of growing really rapidly. I talk a lot about the camel. And, the reason I talk about the camel is that unlike the unicorn, it’s a real animal, and it survives in some of the harshest environments around the world, and yet, it can still guzzle water faster than anything and sprint across the desert.”
In other words, he’s saying, build a business, not just for growth, but for resilience – something that’s built to last from the start – something that can take a hit and survive under harsh and even grueling conditions.
Lazarow briefly references several important and practical points of how to go about that, but here are 3 that I believe are worth digging into further.
01: BREAK EVEN, FAST
First, you need to be break-even from a cash perspective or have a plan to get there quickly.
Sure, there’s always up front costs to starting a business – that’s inescapable. But, if you’re just burning through cash, you may not be up and running for very long.
So, how much of your product or service do you need to sell before you make a profit? To answer that question, find your break-even point. Here’s the formula:
Your break-even point = fixed costs / (revenue per unit – variable cost per unit)
Let’s say you run a home-cleaning service.
Your fixed costs might include some of your equipment costs, like buckets, rags, a vacuum, a mop, and basic cleaning supplies. Let’s say all of that costs $840 up front, which you’ve paid before anyone has hired you to clean their home.
You don’t have any other monthly recurring costs to run the business but you do need to buy an average of $30 of new cleaning supplies for every home you clean. And, you get paid $150 per home cleaning.
Your break-even point, therefore, is: $840 / ($150 – $30) = 7 homes
You need to clean 7 homes total just to break even. By the 8th home, you’ll be making a profit. If you’ve only cleaned 4 homes, for example, keep going.
What’s your break-even point?
02: FOCUS ON UNIT ECONOMICS
Second, you need to focus on unit economics – that is, the cost and profit of every item or service you sell.
Profitability in the aggregate matters too, but to maximize your resiliency, think smaller. Every donut, every custom painted handbag, every package of coaching services, every repair job – every *thing* has to provide some return on investment.
I’ll skip the math and keep this simple: if you’re trying to grow with a leaky bucket, take a moment to patch the holes.
How profitable are you at the unit level?
03: DON’T SCALE TOO EARLY
Third, scale only when you’ve succeeded in delighting your customers.
As I’ve shared before, there’s always a gap between where you are and where you want to be. Take the pressure off of yourself and accept that you don’t have to be the biggest thing ever right away.
Instead, be patient. Take time to tinker and thoughtfully refine what you’re doing. You’ll know you’re ready to scale when your customers are happy and they’re spreading the word for you.
Yes, marketing is important and useful. But, here’s something to noodle on: people are 4x more likely to buy something if it’s referred by someone they know.
How are you delighting your customers?
DESIGN A RESILIENT BUSINESS
If you can tackle these three fundamentals, you’ll have a much more resilient business – one that’s capable of bouncing back from economic setbacks.
But, as an entrepreneur – the leader of that business – if you want to be able to weather the storm of change, and march forward stronger for the experience, you might find value in a previous post: How to Grow Your Business – But Not In The Way You Might Think, which is about helping you grow your personal resilience as an entrepreneur.
Now, as always, let’s direct your action:
It would be normal – and all too easy – to be overwhelmed by any one of these challenges. Don’t let your mind race forward about how to solve all the things at once.
Stay present. Don’t think about the next 30 years. Think about the next 30 days.
What’s one thing you want to do to create a more resilient business?
ONE MORE THING
Starting and growing a business is not a straight line.
It can feel messy. It zigs and zags. It starts and stops. It can feel frustrating even for the most seasoned business owners. And, that’s ok.
It’s also an exciting challenge. It’s going to stretch you. You’re going to learn a lot – not just about business, but about yourself.
And, that’s why it’s worth it.