.10 Tips for Building a Profitable Business
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| Steven in ‘05 with our first 6 figure ad deal |
In the last two months there has been a rush to exhort start-ups to get to profitability, yet we’re hearing very little advice how to do that other than simply slashing expenses and finding revenue channels.
Dogster & Catster were born in a period when web properties were considered loss-leaders, but we decided to find out how big a business it could be. In July of 2005 we first achieved profitability and ran in the black for next 13 months before putting to use the proceeds of an Angel round we closed in September 2006. We returned to profitability a year later and we’ve been in the black ever since.
Here are our best lessons and strategies for growing a business in the technology era that focuses on earnings and profitability
- If being a business person is not your goal find a business partner immediately. Without someone on the team that relishes sourcing customers, closing revenue deals, perfecting sales messages, it will always be an afterthought.
- Consult anyone you know that has run a earnings-based business (VC funded companies are rarely helpful here). The concerns of a restauranteur, law firm, or even landscapers are entirely applicable when it comes to long-term strategies for profitibility. Anyone running a business for years will know volumes about hiring, cashflow, and compensation.
- Spend your money when it’s in the bank, not when the deal is agreed to. To know what you actual profit margin is you must know both how much you made and how much it cost to provide. If you spend the money prematurely you’re likely going to be spending more than you earned leaving yourself with a shameful net loss.
- Spend at least 50% of your time selling. Many technology companies assume if they built great product it will sell itself yet that almost never happens. Usually we’ve found that incorrect assumption is a rationalization of people who love building product, but secretly loathe the business side of running a business. Such a strategy is a great way to lose a lot of money. So constantly ask yourself, are we spending 50% of our time selling? I bet you’ll always realize you’re focusing too much on the product and not enough on finding customers that want it. (Of course the inverse is true. If you love selling you need to make sure you spend at least 50% of your time building product or your sales effort will be for naught.)
- Know thy accounts! At any given moment know how much you have in the bank. Know your accounts payables and accounts receivables. Know your forecasted cashflow position. Know both your monthly finances in both GAAP and cash calculations. This is the only way to know how much you have to spend, and if you are truly in the black or misleading to yourself.
- Prove your revenue models before investing in them. Spending investor money on an assumed revenue stream is a very risky proposition. If at all possible prove that there is a firm, interested marketplace for your product before digging yourself into a hole you may never get out of.
- Don’t lie to yourself. We find a lot of entrepreneurs practice their elevator and investor pitches for so long they believe their rosy sounding forecasts are actually going to happen. The only thing you know is what you’ve proven. Everything else are items that still need to be proven or listed as false starts. While it’s important to strive for the big potential, it’s critical you protect yourself against the much more likely realities.
- Fail fast. Find out what is going to fail as soon as possible. Every business person has been wrong. You will too. Get over it and be emotionally tied to nothing. The key is to find out what works without losing much money then you’re in a much shallower hole to get out of. In fact you might find there is no reliable revenue for the product you are building and profitability would come sooner if you scrapped it and considered a new business
- Hire slow and fire fast. Training an employee that isn’t going to be great is a tragic waste of money and time. Likewise, keeping an employee around that isn’t excelling at their position loses you money every week you you do not replace them. So, take your time to find the great person and free your company of the person if it turns out they weren’t. If you ever find yourself saying ‘Well this person isn’t great, but we have to fill this position’ do not hire that person, they will never give the long-term benefit to compensate the short-term gain. Don’t fill position simply because investors were promised growth.
- Be frugal about everything. Get the black and white printer instead of color. Skip the flat screen show-off TV. Buy used furniture and equipment. Rent office space by price not neighborhood. Get by with what you have. Until your bank account is growing consider every purchase above $50 as if it might break your business.
We sincerely hope this is found beneficial,
Ted, John & Steven
Steve Blank prepared a great series of slides giving guidance for companies that would have once considered user growth their most important goal, but have now made customer spending their top goal.
http://bit.ly/YasL
Thanks so much for sharing your wisdom!
Wise advice. Thanks for this. Bought desks at Ikea and surplus chairs and pedestals. Can’t beat the price or quality.
great blog post from @tedr @stevenreading @johnv: 10 Tips for Building a Profitable Business http://bit.ly/ii8u
great blog post from @tedr @stevenreading @johnv: 10 Tips for Building a Profitable Business http://bit.ly/ii8u
[...] tips from Dogster & Catster founder: [...]
Thanks for sharing this valuable advice. Much appreciated.
10/10
Fantastic post. Very well put. The only thing I would add is Get Your Trading Terms Right. I met a new business recently who are paying all their suppliers up front but giving 90 day terms to their customers. They are consequently running out of cash fast. Golden rule: keep creditors terms longer than debtor terms and your cash flow has a fighting chance. If not…
B-/C+
Missed entirely from this CFO-in-diapers list is the market. What do people need that you can efficiently provide?
10 Tips for Building a Profitable Business http://tinyurl.com/6mf2vv
[...] to survive through cutting costs and refocusing on profitability through a different approach. A list of tips has been put up by a dedicated team, that is seemingly sufficient to put a startup on the right [...]
I enjoyed this list. Thanks for the advice. The section on selling, as well as that on being frugal, was very very useful.
Thanks again!
Great post! This blog has some of the best business advice out of any I’ve seen. I think #6 is particularly important. Lots of web properties these days have goals like “get traffic” or “get users” but no clear path to revenue once they have that traffic or membership base.
[del.icio.us] 10 Tips for Building a Profitable Business » Dogster Inc. Company Blog: 利益の出せ.. http://tinyurl.com/6mf2vv
10 Tips for Building a Profitable Business http://tinyurl.com/6mf2vv
RT: @jstride 10 Tips for Building a Profitable Business http://tinyurl.com/6mf2vv – spot on!
RT @jstride: 10 Tips for Building a Profitable Business http://tinyurl.com/6mf2vv Excellent tips, thanks Jake!
[...] FAIL this is why you should get a guitar(PIC) Apologies for the eight-year service interruption 10 Tips for Building a Profitable Business » Dogster Inc. Company Blog Lessons learned from a failed poker software business Mirror mirror on the wall, Who’s the most [...]
[...] had been fundamentally unserious. But I was extremely impressed by a post on their blog “10 Tips for Building a Profitable Business.” Some key points: 1. If being a business person is not your goal find a business partner [...]
Retweeting @KISSmetrics: 10 Tips for Building a Profitable Business http://tinyurl.com/6mf2vv
10 Tips for Building a Profitable Business- http://tinyurl.com/6mf2vv
[...] Rheingold at Dogster has a great post up titled 10 Tips for Building a Profitable Business. My favorite is #4: Spend at least 50% of your time selling. Many technology companies assume if [...]
[...] 10 Tips for Building a Profitable Business: by Ted Rheingold [...]
Thanks so much for always being so generous with your advice. Not only do I read it, I can often be heard quoting what I’ve read here as I talk to other small business owners.
10 Tips for Building a Profitable Business…..http://tinyurl.com/6mf2vv
[...] learn more than you ever want to know about Vesta, Ben, and the late Nyx) makes a great point about hiring slow and firing fast [...]
10 tips toward profitability: http://tinyurl.com/6mf2vv
[...] business out of a seemingly impossible idea. That means Ted just gets it. Therefore, here are his 10 Tips for Building a PROFITABLE Business . All great [...]
I’ve run business since 1991 and while all of these are very good, 8,9,10 are the rules that keep you in business during hard times.
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@ethankurz First of two links about startups http://bit.ly/ii8u
good top 10 list of business rules from the dogs http://tinyurl.com/6mf2vv
#luv good top 10 list of business rules from the dogs http://tinyurl.com/6mf2vv
Like the post. This post has some of the best business advice out of any I’ve seen. Well done.