Starting a business is hard. Finding your first customer and closing that first sale seems like an insurmountable task when you’re just starting out. But once you figure it out, you reach a level of success that previously seemed unattainable. You’re a founder, a freelancer, an entrepreneur. You’ve achieved the first level of needs: Survivability.
The celebration doesn’t last long: a single sale isn’t enough to sustain a business. So we’re thrown back to square one—off to search for a second, third, and fourth customer. Each time the process of prospecting, pitching, and closing gets easier, and our sales cycle grows tighter and more efficient as a result. Our business is growing, revenue is increasing, and times are good.
But then growth stalls. There are only so many inefficiencies you can squeeze out of a process before hitting diminishing marginal returns. And you can’t spend all of your time on sales—at some point, you need to deliver the product or service you’re selling. For freelancers, this stall expresses itself as the infamous “feast or famine” cycle. For startups, it’s Paul Graham’s “trough of sorrow”.
Many entrepreneurs solve this the unhealthy way: they buy into “hustle culture” by working harder and longer. Grinding may help you maintain growth in the short-term, but cramming as many working hours into your day as possible for weeks or months on end is a recipe for burnout. Long-term you, your business, and your clients will suffer the consequences of your exhaustion and faltering motivation. If you plan to be an entrepreneur for the long-haul, you have to find another way.
The traditional way forward is to grow horizontally: bringing on more people to help you get your work done. Hiring someone to whom you can delegate certain responsibilities so you can focus on your most essential tasks is a great way to increase your business’s overall output. But there are risks involved here too. First of all, new employees take time to source, vet, and train. And if you haven’t grown past the needs of survivability, that’s time you aren’t spending to sell and execute your offerings. In your attempts to grow beyond your base needs, you actually may be threatening them.
More importantly, employees mean obligations. And while growing your company through hiring can increase the revenue coming into your business, it will increase the dollars going out as well. This is fine when times are good, but if you face a downturn for any reason, the liability of employees exposes your business to risk. Liabilities can be useful tools for growth—debt wouldn’t exist if that weren’t true—but relying on them for growth limits our ability to move beyond the need of Sustainability. This isn’t to say that horizontal growth is always wrong, just that we need to be sure that we’re approaching it from a position of stability.
The smart way forward—at least early on—is to grow vertically, not horizontally. When we say vertical, we’re talking about taking the resources we already have available to us and squeezing more value out of them. At first, we can achieve this by finding efficiencies in our business. But eventually, we reach the point we need to switch strategies.
If horizontal growth is about taking on liability, vertical growth is all about creating assets. Assets are resources we can use to grow our business without having to spend other resources to utilize them. They’re products, processes, and systems that we can develop once and leverage forever (or at least as long as they retain their value). They’re how a business grows and moves up its Hierarchy of Needs without having to increase it’s exposure to risk and allows us to progress through and beyond the types of stalls we mentioned earlier.
“Assets. Great. But what kind of assets?”
Investing in the creation of assets is sound advice. But without a clear idea of what assets we should create, this advice isn’t actionable. How do we know what we need to create for our business, to accelerate growth now?
Many of us turn to Google to answer this question. The internet these days is chock full of business advice. No matter what challenge you’re facing, thousands of opinions on what you need to do next are just a quick search away—many of them presented with catchy headlines and littered with kitschy memes and other clichés. At times, this endless source of advice can be helpful or even inspiring. At others, it’s overwhelming and exhausting.
The problem with most business advice is that a lot of it approaches Business as if it were a universal concept, with each company having more in common than in contrast. While that may be true when discussing business fundamentals—the basic tenets of sales, marketing, and accounting that all businesses are built on—the basics aren’t typically where most challenges arise. Most founders get stuck on the details.
The truth is, each and every business is a unique mix of its founders, their goals, and their capabilities. Agencies vs. startups, VC-funded vs. bootstrapped, partnerships vs. sole-proprietorships, these distinctions introduce thousands of possible combinations. Combine them with time, place, technology, and myriad other external variables, and you end up with an unimaginably large number of potential business states, each with its own unique needs.
Before we identify what we need to do next, and begin filling in the rest of our Hierarchy of Needs, we need to understand two things in-depth:
1) Where we are, and 2) where we want to go.
These two questions might sound simple, but they’re the key to describing what our business needs next once we’ve reached Sustainability. Without knowing what assets we have available to us now—the skills, capital, time, and resources we can leverage today—how can we know what we can afford to invest in the creation of further assets? And without a clear understanding of our ultimate vision for our business, how can we be sure those new assets move us toward it?
When looking at a business’s hierarchy of needs, we’ve already discussed how the bottom of each hierarchy looks the same—Survivability, followed by Sustainability. In Maslow’s hierarchy, the final level of needs is that of “self-actualization,” what Carl Rogers called one’s “tendency to actualize himself, to become his potentialities.” For our business, this sort of “self-actualization” is its founder’s ultimate vision. The layers in between are defined by the states we need to unlock as we move towards that vision, and the assets we need to create to secure each level.
Today, we’re going to start by fully describing our start and end points, so we can begin filling out the middle next week.
Your homework for this week is to answer these questions:
What is your ultimate vision for your business? It’s okay to dream big here: self-actualization is about potentiality, not about practicality.
a. What does perfect success look like to you? Is it doing what you do now? Are there other products/services you want to offer down the road?
b. Do you want to run your company forever, or do you want to sell it? c. Do you want to seek investment and assume the responsibilities of investor oversight that this entails? Or do you want to keep things held closely, working only for yourself and your clients?
d. Did you start your business to enable a specific lifestyle? Or are you more interested in conquering the world?
e. What do you want to be known for?
f. Do you want to build a team and have a swanky office? Or are you more of a laptop-on-the-beach, 4-hour-work-week guy?
What assets do you have already in your possession?
a. What skills do you have that you can apply to your business’s growth? Sales, marketing, tech skills, etc.
b. How much capital do you have available for your business, both to support yourself as you grow, and for any external help you might need in developing new assets? How much time can you afford to invest in creating those assets?
c. How much time do you have available for asset creation versus tasks that are purely expenses (such as client work, or internal operations tasks like managing your books)? Question 2 and 3 are very closely tied together here—we can trade capital for time (by hiring help, or saving/raising enough money to support ourselves while we build assets) and vice versa (by working ourselves to generate more capital through sales).
d. What other assets do you have available to you now? Do you have a website? Social media presence? A strong network? What sorts of things do you possess or have access to that can help you as you grow?
Add as much detail to the questions above as you can. Next week we’ll use these details to identify and describe the needs that occupy the layers of our hierarchy situated between Sustainability and our Vision and conclude our Next Steps series.