A couple of weeks ago, I was chatting with Aaron Andersen, founder of Linkpitch, about how challenging it can be to know what your business needs next. One of the things he said really resonated with me, as it’s something I’ve felt myself:
“I’ve never had a hard time getting clients before—rather, I’ve constantly been turning down work. But as my company grows, I need to start thinking more strategically about sales and the best way to move forward with marketing the business.”
As entrepreneurs, each time we achieve a new level of success, we’re often rewarded with a set of new and unfamiliar challenges. When you’re starting out, getting your first client seems like an insurmountable hurdle. But once you have that down—when you’ve become comfortable with the process of prospecting, selling, and closing—you have to learn an entirely new set of skills to keep your business growing.
First you focus on getting your first client. Then you focus on making sure you’re booked solid. But what comes next?
Last week, we introduced the concept of Maslow’s Hierarchy of Needs, the idea that human needs can be arranged into a hierarchy, with material & survival needs (such as food, water, and shelter) taking precedence over emotional & intellectual ones (like the need to feel loved). This week, we’re going to start applying the same concept to our business—beginning with a discussion of the needs all businesses share.
What needs do all business share?
Like Maslow described for individuals, every business has certain needs that must be met before we can afford to pursue others. Afford is the key word here: as we work to build a Hierarchy of Needs for our business, we’re trying to decide how to best spend our limited capital in a way that allows us to continue operating and—ideally—growing.
Just like a person, a business’s primary need is Survivability. Whether we’re talking about a freelancer’s ability to pay his rent or a startup’s ability to make payroll, all companies need to have enough capital available that they can afford to finance their operations today, tomorrow, and the day after.
From there, a business’s next need is Sustainability. After the short-term is taken care of, we next need to make sure we have enough of a capital runway to continue operating in the mid- to long-term. For freelancers and “lifestyle” businesses, this means creating systems for generating leads and moving them through our sales funnel. For Startups, we’re talking about making sure we’re hitting our goals as we work towards our next fundraising round.
This may sound like an obvious next step, but many businesses never grow past Survivability. Many startups are able to raise (or personally invest) an initial amount of capital, but squander that money before hitting the growth metrics required to close their next round of financing. And the majority of freelancers spend their entire careers cycling between client work and sales, burning through their savings each and every time they need to find their next project.
Some freelancers are lucky enough to grow out of this first layer of needs on their own. Through referrals and word-of-mouth they’re able to slowly build enough of a reputation that they’re able to cycle directly from one project to the next without much work in between. Ideally, however, we’re building something we have more control over. Relying on luck may be okay when times are good, but reliable systems of sales and marketing are important to have for the rainier days.
The difference between companies that make it from Survivability to Sustainability and those that don’t, is that the former use their available capital to make investments in their business, building a base of assets that continue to pay out as they grow, while the latter spend all of their capital on expenses.
What do we mean by expenses and investments? When we’re working on our business, every action we take is somewhere on the continuum between an expense and an investment—the former being things that deliver value in the short term, but provide none over the long term, and the latter working the opposite way.
The time it takes to perform billable work is almost purely an expense—it gets you paid, but it doesn’t really result in more work down the road. Other things are pure investments: marketing efforts, like updating your website or writing blog posts, are unlikely to increase your revenue this week but may help you close more business down the road. Other tasks are somewhere between the two, e.g. sending cold outreach emails may close you business in the short term, but you could also use them to open long-term relationships with your prospects.
When we’re operating at a lower level of needs, most of our actions are going to be expenses. We simply can’t afford to spend our time and money on things that won’t immediately pay off. But as we move up our hierarchy, we should be looking for ways to use more of our capital to invest in asset creation—those actions that will produce lasting, long-term benefits for our business.
Beyond Survivability and Sustainability, things start to branch off—unlike with people, not all businesses share the same Hierarchy of Needs. Each hierarchy is unique to the type of business we’re running, and to who we are as founders. Agencies vs. startups, VC-funded vs. bootstrapped, partnerships vs. sole-proprietorships—each type of business faces different challenges, and each has a unique hierarchy of needs. In order to make this concept useful, we have to learn how to construct one for our business.
Next week we’re going to walk through the process of creating a hierarchy specific to our own business, working to identify what sorts of assets we need to create to unlock each level of successive needs. As we grow upwards, we’ll get closer and closer to our ultimate vision for our company—our business’s very own “self actualization.”