Episode 14: Creating a sustainable business that’s here for the long-term

Transcript

Welcome to meaningful work remarkable life. I’m your host Brooke McCarthy, and I’m a business coach, trainer and speaker living and working on the unceded lands of the Cameragal people here in Sydney, Australia. In this podcast, we explore the paradoxes inherent in working for love and money, magnifying your impact, and doing work you feel born to do. We explore the intersections of the meanings we bring to work and the meanings we derive from work. business sustainability means that you are in business for the long haul, regardless of an economic downturn, political party that is not in your business’s best interest, regardless of all the particulars, the many and varied slings and arrows of outrageous fortune.

When you build your businesses sustainably, nothing matters. You’re there to weather all this and more and to thrive.

So in our next episode, not this one, but the one following we’re going to talk about personal sustainability. But first, before we get stuck into that, let’s look at business sustainability. So first things first, you cannot reverse engineer another business, believe me, I’ve tried. It’s very, very tempting. We look at other businesses on the internet. And we think, Wow, they look successful looks like they know what they’re doing. They appear to be making money more money than me, they must be using some special strategy that I’m unaware of, I just need to study them, and try and reverse engineer what they’re doing so that I too can be successful. This is a fool’s errand. Yes. It’s tempting.

Yes, we’ll try and do it. It is absolutely impossible. Unless, you know, a another business’s, very unethical accountant or psychologist, there is absolutely no way for you to know all the finer details that go into the back end of somebody else’s business, it’s quite possible that, for example, the offer that they are leading with on the internet, the offer that you see, is losing the money, and the back end offer that’s making them money, it is more than possible that they are losing money.

I’ve certainly seen that many times before, where a business has kind of come out of nowhere with a bang, a competitor has gone Tada. And I’ve gone wow, you know, and I’m intimidated. I’m looking at them thinking shit. And then a year later, two years later, they’re gone. So that’s a possibility as well, just because they look like they know what they’re doing financially doesn’t necessarily mean they do.

The other thing, of course, is that they may have different models of revenue. So what we’re looking at is not all of what we’re saying they may be making money in some ways with some offers and losing money in other ways or not needing to earn profit in other offers. That’s quite typical, you know, the business looks like it’s a particular business model. It looks for example, like it’s a membership model. But in fact, it makes next to no money from its members. And instead, it’s making money from corporate sponsors, from joint ventures from collaborations from affiliate marketing. And we are not to know that.

The other thing that’s super common, many years ago, I was coaching a lawyer, a business owner who owned a law firm, and he said to me, you’d be amazed Brook by how many Phoenix businesses there are out there, which means that, you know, a group of directors or a single individual start a business, they run up a lot of debt, and then they they go into insolvency, or bankruptcy, they declare bankruptcy, they closed the doors, they leave all of their creditors waiting to be paid. And then they open another business and they do the same or similar work and then so on and so forth, forever after.

The other thing is that the business might not be sustainable because it’s reliant on grants, it’s reliant on loans, it’s reliant on investors, it’s reliant on wealthy spouses. This is really, really common, really, really common. And not just in small business in large business as well. There are plenty of large businesses. I was just reading about Milk Run recently Milk Run was a tech startup. They were losing a lot of money hand over fist, they raised a lot of money. And it was costing them, I think it was 50 plus dollars to acquire a new customer. And they were losing $13 on each sale. And then I just recently read that they’ve been acquired by Woolworths. So, you know, that’s not uncommon.

It’s a little bit maddening, I have to say, for small businesses who are not reliant on wealthy spouses, investors, loans, grants, but you know, it’s also super, super common. So these businesses aren’t actually sustainable. And maybe they have a game plan, maybe they hope, you know, maybe they plan to be acquired or some such thing.

But just because you have a plan doesn’t necessarily mean it’ll work out. Of course, I think Milk Run got we’re very, very lucky. And then the other thing that I see a lot of personally is that the owner in fact has two businesses, and one business is propping up the other business, one business is making a healthy profit margin, the other business is not and so one business is propping up the other one.

Now, there are many, many things that we can do if we are committed to being in the business being in business for the long term, there are seven key things that we can do to ensure that this is the case firstly, is profit margin is the most honest of the different metrics, not revenue. Revenue, of course, is easier to track and revenue is important revenue gives us cash flow revenue, shows that there is a market there is a demand for our offerings, great, wonderful. But I’ve seen the back end of many, many businesses where they have a very healthy revenue, and a profit margin, which is non existent, or you know, pay per sin.

So profit margin is absolutely critical. And of course, one of the major levers to increase your profit margin is to raise your price. There’s other levers of course. But this can be one of the most direct and most straightforward ways of doing so. The second thing to think about is customer acquisition costs. So how much does it cost you, as I said earlier, Mel Chrono was costing them about $57, to acquire a new customer. And that’s not uncommon. It costs a lot of money, to attract new people to help them become new paying customers or clients. This is really, really common, how much higher that is, is sometimes quoted as seven times as high to acquire a new customer as it is to retain an existing customer. So we have to keep our eye on that we have to try and keep those costs as low as possible. A lot of businesses default to ads. Right off the bat, they think, right? I’m in business, I need to advertise. And this is a very expensive and very, you know, I’m obviously generalizing here, but a very ineffective or tricky way to acquire new customers. It’s not just you know, a surefire guarantee of return.

The other key metric is we need to think about customer lifetime value. So these two things go together, customer acquisition plus customer lifetime value, because you may lose money in the first transaction. It’s not uncommon, especially in online business models, whereby the online business is selling at the front end to the very first offer that the potential new customer sees, is $7 or $27. Or, you know, otherwise fairly low cost, right. And so the business may be losing money in that first transaction, that first sale, but they’ve done their sums, they’ve done the numbers, and they know that the lifetime value of a customer is much, much higher than that the average customer lifetime value. So this is why we want to see these two things hand in glove because if we know that a certain percentage of clients will buy a second and a third time, and we know what that average customer lifetime value is, then we can afford to spend more money to acquire the customer in the first place. This is all maths and it’s not complicated maths, I promise. It’s not you know, the maths that I quit in year 10.

And it’s practical maths, right. There’s something in it for us. Now, the third point I want to make is integrity, trust and credibility. I will keep keep saying these things until my voice is hoarse. You must take your integrity, your credibility, seriously. Yeah, you You have to align, you have to have your beliefs, your thoughts, your words, your actions in alignment. Yeah, now there’s always humans are complex, we will have competing values that kind of clash with each other. But at a minimum, you do what you say you’re going to do. Yeah, you do what you say you’re going to do.

If you purport to have a particular value, then for God’s sake, demonstrate it. It’s not enough to say, Trust me, the moment you say trust me, people start to suspect that you are not, in fact trustworthy. And they start to think, Oh, my goodness, there’s something amiss here. If this person saying trust me, I’m number one, I’m the best, I’m most awesome. It is actually, it’s not credible at all right? We are smarter than sometimes businesses zoom. And I believe it’s always a good idea to assume intelligence on behalf of your audience. So make sure that your integrity, your trust, your credibility, and make sure that your thoughts, your words, your actions are in alignment, because trust is hard to build, and very easy to destroy. And honestly, it’s easier, I believe, to just be consistent, right? It’s hard to introduce dishonesty or wise, it makes it harder and more stressful for the business owner to try and keep up with all of the complicated things that they’ve been professing to be. So just be yourself.

There’s somebody for everyone. Fly your freak flag, and you will attract the perfect fit people to you stop thinking you need to be somebody different. Your brand needs to be some something distinctly different from what you actually are. Because the right people will find you when you fly your freak flag.

Number four, systems and processes. Yes, this is absolutely critical for business sustainability, because systems and processes bring you consistency. And consistency is not only smart, it is a measure, if not the measure of quality, there’s a consistency, if you think about it, even with a low end product or a low end brand. You know, it’s consistently the same, it’s the expectation that yes, it’s not going to be the best and the most awesome. It is, you know, lower price point. But the quality is what you expect. There’s a consistency with expectations with customers. So systems and processes make this quality, more robust or reliable.

Number five is mitigated risk. So you cannot ever fully see into the future, you cannot entirely mitigate a risk. Be careful, you might just be a pessimist. There is you know, there are a lot of pessimists out there. I think this is the way we are hardwired we are hardwired to be negative. Oftentimes, you know we have business owners how they kind of go doom and gloom, everything’s always you know, it could be better or the industry is very competitive. And as a downturn right now, bla bla bla bla bla bla bla bla bla. So be careful with that. Because you know, the grass is not always greener. Perhaps the grass is greener, I don’t know. My point is, you know, there is no such thing as thinking, okay, there’s a surefire industry or there’s a surefire business model, or there is a robust business out there where nothing ever goes wrong. That’s an impossibility. Yeah, that’s a pipe dream.

But you can also mitigate risk with your clients. For example, you want to spread, you know, your revenue across more clients, you don’t want one or two clients that you know, dominate your revenue and profit margin. This is high risk. When we do this, when we rely too heavily on one, one or two clients, we want to spread that around, we may consider also different revenue streams. So again, this is general general kind of advice, general information.

Don’t just diversify your revenue streams because you think you need to, but it could be a way to mitigate risk, it could be a way to ensure that if one offering stopped selling, or slows down, that you have, you know, a second or third different revenue stream that you can amp up. The other thing, of course, that we want to reduce the risk of is relying too heavily on particular suppliers or staff, we want to have backups, you know, yes, it’s wonderful when we have a second second in charge, who’s awesome.

We have a manager who’s amazing, but of course that person can up and leave at any time and I’ve seen this happen with my clients over and over again, you know, and it can leave business owners in the doldrums not just from a pragmatic perspective, but from an emotional perspective, they were too heavily reliant. And of course, you as the business owner are your biggest business asset.

So you have to look after your attitude and mood, it’s absolutely critical and imperative to work words that mean the same thing, you know, if you are to create a sustainable business, number six, personal sustainability, and this flows in nicely from what I just said, which was not planned. Now, I’m going to talk about this a lot in the next episode. So tune in for the next episode to really delve deep into what I mean by personal sustainability. But in brief, I am talking about your emotional capacity. I’m talking about your emotional intelligence, and I’m also talking about your emotional capacity.

Now, Final point number seven, business sustainability, may How do we do this? How do we amp up our businesses sustainability? Number seven, we need to look to the future. And this again goes hand in glove with personal sustainability with emotional robustness with intellectual agility, we need to attempt to anticipate trends to know what’s coming up to anticipate our customers unmet needs before they realise they have them. So that we can create products and services to cater to those needs. As they emerged. This is really critical to sustainability. And I see this mistake made over and over again, where a business owner, it’s a bit of a, what’s the word I’m looking for. It’s the opposite of mental agility, right? It’s the person is so stuck in this once worked. It was brilliant for a moment in time, for a moment in time, my business was booming, I was very, very popular.

Now I’ve experienced this myself in my business where I’ve taken too long to act have taken too long to evolve. Because I’m just wedded to this idea that pay but this used to work. This was once marvelous. This was great. Why won’t it work again, keeping that focus on the future. And this doesn’t mean of course, you know, reacting and responding to every tiny thing that happens. That’s not what I’m talking about here. This is taking a deep view, a long view, a pragmatic view and open minded view, to evolve the business towards the future, and to ensure that it continues to be as deeply relevant as it possibly can be to the lives of our clients. So sustainability, sustainable businesses are good for people. They’re good for profits, they’re good for the planet. They’re good for the owner, and they’re good for the future. We haven’t spoken you know too deeply about the planet here. But I think just because of business calls itself eco just because a business sells bamboo toothbrushes does not make it a sustainable business. Yeah. Just because it looks on the surface of things to be about the planet doesn’t necessarily mean it’s going to be in business next year. And you know, we cannot help the planet if we are constantly scrambling to keep the lights on and to keep cash flow happening. So I hope you found this episode helpful.

Next episode, I’m going to talk about your personal sustainability as a business owner