The market is shifting from aggressive growth-focused companies (scale before profit) to ones who actually generate profit… right from the commencement of commercialization.
The renewed focus on the bottom line, I think, was brought about by WeWork’s failed IPO. Or perhaps that was the straw that broke the camel’s back. Either way, investors and entrepreneurs are once again focusing on speed to profitability. This happens after a cycle of significant VC investment. Risk aversion is back. And this makes sense given the extended bull market we’ve been in (10 years+ - the longest in history).
For the entrepreneur, it should always be about making a profit as that’s your most fundamental, non-dilutive source of growth.
Shave Off a Bit Here and a Bit There
From my experience, entrepreneurs who have the highest likelihood of turning ideas into profitable ventures are efficiency-obsessed. They find ways to improve margins (compared to competitors) by implementing processes and initiatives that shave a percent or two here, and a percent or two there. Seemingly small tweaks make vast differences.
The Efficiency-Obsessed Entrepreneur
A friend of mine has been an entrepreneur pretty much his entire adult life. He barely graduated high school, and almost immediately afterward decided to open up a restaurant. Truth is, he didn’t know what he was doing when starting that first restaurant - he just liked the idea of being an entrepreneur. Within 6-9 months of opening, it nearly bankrupted him. And that was the scare he needed to go on to become one of the smartest entrepreneurs I know today…
The scare of being left penniless made him efficiency-obsessed, always looking for ways to do business just a little better than competitors.
For decades now, he’s been the entrepreneur who focuses on maximizing margins by improving processes - thus adding small percentages (sometimes even fractions of a percent) to the bottom line via simple changes to the manufacturing process, distribution, marketing, and so forth. When he decides to venture into a new business, he rolls up his sleeves and becomes obsessed with the minutia of the industry, so to find areas his competition has overlooked. He believes, and I’m paraphrasing, “you would be shocked how many industry-leading companies waste money every day on shit they don’t need.”
Entrepreneurs Have No Room For Waste
Eliminate waste. That, in a nutshell, is what my entrepreneur friend does for a living… instead of defining him as a serial entrepreneur, a better description is ‘waste remover.’ And I think he’d be proud of that title.
He’s in everything now from farming, real estate to consumer technologies. And while not everything he touches turns to gold, his track record is among the best I know…
My friend studies businesses within sectors he gets involved in and then obsesses over ways to make his operation the most efficient in the industry.
“You would be shocked how many industry-leading companies waste money every day on shit they don’t need.”
Pitches That Make You Sleepy Are Not Always a Bad Thing
He’s an entrepreneur who doesn’t sugar-coat challenges, and his pitches are boring for all the right reasons. They’re focused on how his method of operation has, say, 3-4% higher margins than the competition (as one example I’ve personally heard). Not exactly riveting, but more often than not, his businesses are reliably profitable. His pitches have no blue sky. Instead, they lay out a systematic growth plan that is relatively slow and steady in an already well-established industry. No mention of taking over the world, getting bought out by a major corporation, or being a first mover. Just real meat and potatoes. He focuses on documenting where the industry and competitors are wasteful and inefficient, and how he can eliminate those hindrances with his company (backed by real evidence). Simple. Effective. And he’s been doing it for decades while helping employ hundreds of people and making millions.
A Message for New Entrepreneurs
New entrepreneurs have a tendency to dream big and enter the fray wearing rose-colored glasses. In recent years, they’ve been led to believe that starting a business is sexy and fun. And that scaling fast is priority number one - profits can wait…
Reality is, starting a business is lonely, can even be scary, and profit is the most important thing.
While it’s a must to dream big, entrepreneurs need to focus on the near term efficiencies they can improve upon, and prioritize profit ASAP - particularly in today’s climate. Implementing this mindset/business strategy will give entrepreneurs optionality (and thus, staying power) when the economy slows while providing the opportunity to scale quickly when things boom.
Stay hungry,
Aaron
PS - Successful entrepreneurship has a lot do with the little decisions we make on a daily basis. Let me help with some of those. Subscribe to my free email newsletter below. Only my best content will land in your inbox.
