I’m now approaching my 8th year of running businesses. It’s been a wild ride, and the pace of learning has been fast.
To date, my various businesses (one selling information products, one selling seminars, and one selling advertising) have generated over $150 million in sales.
At times, it feels like I’ve probably made the same dollar amount of mistakes along the way.
When first starting out as a 21 year old, my big advantage was naivety and raw optimism.
I felt I could do almost anything in business, so I launched head first into the deep end, without the restraint that comes with life experience.
If I had to distill my success down to one secret, I’d say it was my willingness to make a lot more mistakes than most others, and learn from them.
It doesn’t matter how intelligent you are; if you’re not willing to take real action and make big, costly mistakes, you’re not going to build a successful business.
Here are some of my biggest lessons I’ve picked up over these last 8 years, which may help you:
1) Business Is All About Margins: Both Protecting And Maximizing Them.
First of all, the gross is often far more impressive than the net.
I and other marketers in the ‘financial freedom training’ use the big numbers in our marketing because they get your attention—like the $150 million in this title.
But if you saw how little of the gross most get to keep (including me), it would not sound anywhere near as impressive.
As a general rule of thumb, when you hear big numbers thrown around in our industry, take those numbers and multiply them by 0.1 to get a more accurate number of what they are making. That’s right—10%.
And in many cases, that’s being really generous.
First off you’ve got the cost of fulfillment. Depending what industry you’re in, this can be all over the place. In my industry (the seminar business), it’s easily 30%.
Take another 5% minimum for merchant fees. Even up to 8% if you’re in a higher risk category.
Then another 10% in refunds / chargebacks.
Then either affiliate commissions (20 — 50%) depending on how generous you want to be—OR, the cost of your own advertising (easily 30% if you know what you’re doing).
Then add another 20% minimum for mistakes. You can call this one an ‘ignorance tax’ you must pay, when building a business the first time around.
Add all that up, and how much have you got left?
Not much at all.
The point I’m making is that business is all about margins.
You must constantly be focused on protecting and optimizing them.
In periods of rapid growth it’s really easy to start to lose % points on those margins, and to also not notice.
The cash is coming in so fast, and if a big part of your expenses are delayed till after the sale, it can seem like you’re making money hand over fist.
The inflowing cash of today can cover up tomorrow’s losses if you’re not careful—so be watching your numbers closely.
Regarding the ignorance tax—don’t underestimate it either.
For the first $100 million in gross sales my company’s made, I can confidently say I paid at least $15 million in ignorance tax just out of sheer stupidity / inexperience.
The ignorance tax you pay can be on hiring mistakes, finance mistakes, spending money on advertising that is clearly not working… to just flat-out overpaying on things because you don’t know what fair market rates are.
Here’s an example of this tax:
A couple years back I decided it was time to upgrade our CRM to help get us to the next level.
So I hired an ‘expert’ in this area at $100,000 a year. He spent close to 4 months looking for a solution.
After he found one, I ended up paying $120,000 for it over the course of 1 year.
This was for the ‘migration’ from our existing CRM to the new one. At the time, we had over 100 staff, and were doing in the mid 8 figures in annual revenue, so this was not a small job.
For a long time I continued to accept the “this is a big job, it’s going to take many months of planning and strategizing, but it will all be worth it in the end” line.
But the planning dragged on, and on, and on.
Finally I had to admit to myself that the project was going nowhere, and that the people in charge of the migration were not the right people for the job.
With the added cost of all the wasted time, this was easily a half a million dollars mistake.
I wish I could tell you this was my biggest mistake over the years—but I’ve made far bigger ones.
So I say it to you again and again; business is all about protecting and optimizing your margins.
Keep every % point you can of your incoming revenue.
And when it comes to cutting expenses, this is not something you wake up one day and decide to do.
It needs to be a way of life.
You’re always in expense-cutting mode.
If you don’t operate like this, you’ll end up running a very inefficient operation that bleeds cash.
You won’t build up your cash reserves, and when those inevitable catastrophes come along, they can put you out of business.
2) It’s All About Getting The Right People On Your Team (And Avoiding The Wrong Ones)
You can’t build a big company on your own. At some point in order to scale, you’re going to need to hire other people.
Who you hire will have a bigger impact on your success than anything else.
Get the right people on board, and everything will fall in to place. Seemingly impossible challenges will be solvable.
Get the wrong people on board (even just one or two of them), and they can bring your whole operation crashing down.
The very best advice I can give you for avoiding the wrong people, is don’t hire them in the first place.
Sounds obvious I know, but I’m being serious.
Have an over-the-top hiring process in place that thoroughly filters out the wrong people.
Always have multiple people on your team (who’s judgment you trust) interview that new candidate.
Give people trial projects first, before you hire them full time.
If you don’t feel 100% on hiring someone, then you probably should just keep looking.
Trust your gut; just about every single time I’ve hired the wrong person; I had a feeling in the job interview that there may be a problem.
It could have been something they said or the way they acted—but every time I ignored that feeling, I later ended up deeply regretting it.
Finally, never rush the hiring process; if you need to fill a role urgently, it can be very tempting to hire that candidate who you ‘think will probably be the right person for the job,’ just to get it done.
I’ll almost guarantee you that the few extra weeks you save looking for someone you’re 100% on, will turn into many extra months of wasted time when you have to remove the wrong person and begin the search process all over again.
Trust me, the extra time and money you spend getting the right person on board will always pay for itself.
Be patient with the hiring process and you’ll build the right team much faster.
When you do hire this person, watch them very closely in those first few weeks.
If you discover you made a mistake (which still happens with some of the people you were 100% on), then tear that band aid off fast and let them go.
Don’t view firing someone as being necessarily a cruel thing either.
Sometimes the kindest thing you can do is fire someone.
I’ll tell you why; if that person is wrong for you’re the role and your company, they’re not going to be valued. They’re not going to be able to achieve their full potential in their career.
And over time, you and others will likely build up resentment for them over their inability to perform. That’s not a good environment for them to be in. Much more importantly to you, it’s not a good situation for your business.
It’s better you don’t let that person waste months (or years) of their life in the wrong place.
Set them free, and help them move on and work for a company that’s a better fit for them.
Now I’ll admit, this is much easier to write about than to do.
Personally, I hate firing people.
I don’t like the confrontation, and it can feel cruel.
During a 2-year period during our early initial growth, I never fired anyone.
In fact, we grew to have over 200 staff. We became extremely bloated, and our whole operation was inefficient.
For the amount of revenue we were doing, we just didn’t need that many people.
Nor could we afford that many people.
So finally some tough decisions had to be made on who would stay, and who would go.
One of our larger divisions had a $45,000 monthly overhead in costs under one particular manager who’d been with us for a long time.
They’d also hired a lot of people over those years and run their division very inefficiently.
Two months after a new manager took over their role (someone who had direct experience running divisions that large in other company’s), the monthly overhead was closer to $20,000.
$25,000 was now being saved a month, and that works out to be $300,000 per year.
That’s a lot of money.
Which brings me to my next point:
3) Document Everything
One of the highest value activities you can engage in while scaling your company is creating the ‘instruction manual’ for how your whole company is meant to optimally run.
This included everything;
- Peoples roles and responsibilities.
- An organization chart, showing what each person does, and who reports to who.
- Standard Operating Procedures (SOP’s), which show step-by-step how your key processes get done.
You cannot be too detailed when putting all this together.
Every successful company has some form of all the above.
A big part of the reason McDonalds grew to having 35,000+ outlets around the world, was because they had an extremely thorough operations manual that came with each McDonalds business (along with a training program at ‘Hamburger University’ to teach franchisees how to implement their way of doing things).
From how they store the potatoes to be used to make the fries, to what soap they use to clean the bathroom floors—every little detail is documented.
One of the main reasons small businesses don’t become large businesses, is because the founder and early employees keep much of the knowledge on how the business operates in their heads.
As more people are bought on, the number of communication paths between everyone becomes exponentially more complex.
You end up with disorganized chaos; things might work with 10 staff, but as you grow to 50+ staff, things soon start to fall apart.
This hoarding of knowledge is not intentional of course. It’s just that everyone is so busy caught up in the operations, that doing high-level tasks like documenting procedures and roles gets pushed down the priority list.
Until the founder makes it a priority to start documenting procedures and roles, their company will not be able to scale beyond a certain revenue level.
This happened to me in 2013. MOBE was doing really well, but I’d noticed our monthly revenue was not increasing from month-to-month at the same rate as it had in the early stages.
Out of frustration, I decided to take someone’s advice and fly to Sydney for a 3-day training workshop, which was all about bringing organization struggling businesses like mine, so they could scale.
I almost did not go once I heard what the seminar was about. In my mind I was an entrepreneur; I didn’t need to hear academics and theorists who’d never run real business’s like mine tell me about ‘organization charts’ and ‘standard operating procedures.’
Those were the kind of ideas I’d read in the boring business textbooks in college.
But I decided to try what they taught and see if it worked.
It did. After implementing what they said, we were able to continue scaling.
So my advice to you is to document everything.
Also, when you hire someone for a new role, record the training you give them.
If you’re showing them how to do something online, then use a program like Camtasia to capture it all.
Then have someone take that video training and turn it into a concise written procedure.
Now if that new person doesn’t work out, or, you need to hire more people to be in that role, you don’t need to spend so much of your time training them.
The step-by-step procedure will do 90% of the training.
As you begin to hire managers, have them do the same.
The best managers don’t need to be told to do this though; they already think in these terms and understand how important it is.
As far as everyone’s documented roles go they need to be updated whenever someone takes on new responsibilities.
Even if you have less than 10 staff, you need to put together a company organization chart.
Everyone has a place on it, and everyone can see from it who’s responsible for what.
At a certain point, if you have a lot of people on board and no documented roles and procedures, you’ll end up with messy, disorganized chaos.
Your entire operation will be inefficient, and this is where that ignorance tax starts to get really expensive.
When it comes to creating your organization chart for the future (ie. “who are you going to need on board to get to the next level?”), plan around job functions.
And even with your existing team, you should take a look at who you have and what they’re doing, and start thinking in terms of which job functions are really need.
Always build your business around functions, and not people.
Don’t think along the lines of, “I need more people like Mary and Bob.”
Think in terms of, “I need a sales professional who will sells X, Y, and Z, with this particular sales method. And I need a finance manager who will manage accounts payable, accounts receivable, and merchant accounts.”
You should never ever be dependent on any one person, no matter how talented they are.
If your business is dependent on certain people, then you’re setting yourself up to have a very bad day at some point.
That key person might leave.
They might get hit by a bus.
You might have to fire them.
There’s a lot of things that can happen (and they’ll often happen at the worst possible time).
So to avoid being held hostage to any one person, document everyone’s role along with all your core processes.
People come and go, but documented roles and processes are forever.
I’ll sound cold for saying this, but you need to build a business where anyone and everyone is replaceable. Of course you’d never want to intentionally make people feel replaceable.
But this is business, and at the end of the day your business is just as replaceable to all your customers. The moment you stop being competitive in the ways they care about, you’re gone.
Stay tuned for Parts 2 & 3 – they’ll be added to this blog soon.