Launching and Iterating in Tiny Steps - Maintain

Company Of One: Why Staying Small Is the Next Big Thing for Business - Paul Jarvis 2019

Launching and Iterating in Tiny Steps
Maintain

I KNOW I HAVE TALKED ABOUT Ugmonk a couple of times earlier in the book, but it’s such a fascinating and inspirational story of how a company of one got started that I want to return to it one more time and provide some more detail on how it began. A month after Ugmonk founder and creator Jeff Sheldon graduated from college, in 2008, he married his high school sweetheart and moved to Burlington, Vermont, to start a full-time job at a design agency. He was enamored with minimal design and typography, but couldn’t find clothing that matched this aesthetic. He started with just one idea and four T-shirt designs.

But instead of planning a large clothing company, with factories, warehouses, and supply chains for large retailers, Jeff began with a $2,000 loan from his father and a plan to be profitable as quickly as possible—by outsourcing production to American T-shirt printers. (He carefully selects every manufacturing company he works with for both quality and alignment with his ethics.)

Because he started with just four designs and a tiny run of 200 shirts, after paying back the small loan, Jeff was able to be profitable almost instantly. Only when the first, then the second, then the third run of his T-shirts quickly sold out did he increase his costs by ordering more inventory. By working to become profitable as quickly as possible in tiny steps and not waiting for tremendous scale to happen, Jeff got a bonus: scale happened anyway. In short, his profits rose because the increased volume cut his costs. While growing this way wasn’t Jeff’s initial plan, it served him well by letting him figure out how to make money at a small scale first, then grow iteratively, based on customer demand.

For two years Jeff created clothing and routinely sold it out through Ugmonk and its website while still working in his full-time design job. He worked nights and weekends building Ugmonk, refining designs, organizing logistics, and packing orders. During those first two years he lived off his salary from the full-time job and invested all the profits from Ugmonk back into his company of one until there was enough momentum and scale to pay himself and the other people who worked with him. It wasn’t until his first tiny apartment became too crammed full of inventory that he moved to a larger warehouse and fulfillment center.

Although Ugmonk was profitable from the beginning, Jeff has been careful not to scale too quickly. He moves slowly, iterating in small steps, slowly increasing production, the number of products, and what the company takes on. Like Need/Want from Chapter 8, Ugmonk still sells directly to customers, as it requires less staff and resources. And because Ugmonk has always been focused on the quality of both its designs and its products, they routinely get free press from design publications and blogs.

MINIMUM VIABLE PROFIT

As a company of one, you need to reach profitability as quickly as possible. Since you’re not relying on massive influxes of cash from investors, every minute you spend getting set up and started is a minute when you aren’t making money. So getting your product or service released as soon as possible, even if it’s small, is both financially wise and educational, since a quick release can also serve as a perfect learning experience. The first version of a product doesn’t need to be huge—it simply needs to solve one problem well and leave your customers feeling better than before they purchased it.

In determining your minimum viable profit—the point at which your business is operating in the black (we’ll call it MVPr from here on in)—keep in mind that the lower the number, the quicker you can reach it. So it’s important to scale up your timelines and focus on core features only, reduce expenses and overhead, and ensure that your business model works at a small scale first.

The assumption at work here is that your MVPr—not the number of your customers, not your measured growth, not even your gross revenue—is the most important determinant of the sustainability of your company of one. If you make a profit right from the beginning, then you can figure out everything else. If your expenses are low, profit happens sooner. Decisions should be made with a focus on realized profit, not based on the expectation that profit may happen. This is such a key and main difference in how growth-focused businesses and companies of one operate. Even when a company of one needs to grow, that can happen only if metrics are based on actual profit, not on hopeful profit projections.

Your MVPr can be low in the beginning, as companies of one typically start with either just one person or a tiny team of two to three people with the abilities and skills to create what needs creating. These teams get larger only if more people are truly needed and if profits can support them. Profit happens when the business is making enough money to cover a salary for the owner(s); this is the “minimum” part of MVPr, as a company of one can be a full-time endeavor only when it’s making enough to support at least one person. Viability is when MVPr either continues to support that one person long-term or increases with time. The more viable your company becomes, the more your profits can truly grow. From there, you can choose to pay yourself more, to focus on scaling systems, to work less and keep paying yourself the same, to invest in the business further, or to grow based on the increased money coming in. In the end, the choice is yours.

Becoming a business that earns revenues predictably and consistently is a milestone for a company of one. MVPr is achieved with the least investment and in the shortest amount of time possible.

Quickly becoming profitable is important to a company of one because focusing on growth and focusing on profit are nearly impossible to do at the same time. For big companies, traditional growth requires investing in the future, and that usually means spending money on a sales cycle with the bet that it will pay off at a higher rate . . . sometime in the future. A focus on growth may require spending money on sales staff, paid acquisitions, increased support teams, or even a larger technology infrastructure to handle the hoped-for growth. The assumption is that, eventually, more spending will generate more profit.

Focusing on profit down the road doesn’t work for a company of one. A company of one begins quite small (one person, no office required) and spends only when profits allow it. Growth is much slower because it’s incremental from zero—a tiny amount of profit leads to a tiny amount of spending, which leads to slightly more profit and then slightly more spending, and so on. It’s a very gradual process.

With companies of one, exponential profit increases aren’t a core objective because just hitting profitability is usually enough. From there, you have choices—to grow, to stay the same, to take more time off, to scale systems—as well as the space to make those choices because your goal isn’t to make exponential profit, but simply to bring in profits greater than your expenses.

SIMPLICITY SELLS (QUICKLY)

According to entrepreneur and author Dan Norris, you don’t learn anything until you launch.

It might sound obvious, but a product is built to solve a specific problem. But as Dan points out, you won’t know how well your product solves that problem until people are actually paying for it and using it. Whether you’re selling cars, accounting software, or falafels from a falafel stand, these products exist to fix or address an existing and pressing problem. You can travel great distances quickly having a vehicle that goes much faster than walking. Keeping track of expenses and sales is important to every business—doing it with automated software beats using scrap paper. And falafels? They solve hunger (or guilty pleasure cravings).

Every minute you spend as a company of one in the ongoing development of a new product is a minute you aren’t seeing how well it solves a problem, and even worse, you aren’t making money from it or building toward your MVPr. That’s why getting a working version of your product released as quickly as possible is important: your company needs to start generating cash flow and obtaining customer feedback. Andrew Mason founded Groupon as a basic website where he manually typed in deals and created PDFs to email to subscribers from Apple Mail. Pebble, a smartwatch, started with just a single explainer video and a Kickstarter campaign (no actual product, even) that raised more than $20 million to fund its development; Pebble was eventually sold to FitBit. Virgin started as a single Boeing 747 flying between Gatwick, England, and Newark, New Jersey.

Once these startups were up and running, they were able to build from customer feedback and make positive changes.

In much the same way, companies of one need to continually iterate on their products to keep them useful, fresh, and relevant to the market they serve. So, launch your company quickly, but then immediately start to refine your product and make it better. When you launch a first version of a product, you’re guessing at a lot of things—how it’s positioned in its market, how easy or difficult it will be to reach your target audience and get its attention, and how willing people will be to buy it and at what price. But the good news is that once you launch the first version, data immediately starts to pour in. How are sales going? How are the reviews? How is customer retention? Are they so excited about your product that they are telling others? You can and must use this data to further refine your product to be an even better and more useful solution to the problem you set out to solve.

I can’t emphasize this point enough: finding a simple solution to a big or complicated problem is your strongest asset as a company of one. Your unique ingenuity can’t be outsourced to artificial intelligence or to a massive team. Your ability to problem-solve with simplicity will keep you and your skills relevant in any market. The benefit of starting small is that you can start with only a few customers using your product and you can speak to them directly—for feedback, suggestions, and improvements.

For a company of one to launch a new product, the process has to be simple. (If you recall from Chapter 1, this is a defining trait of companies of one.) Your launch should be simple in choice, simple in messaging, and simple in hypertargeting only one audience.

There are three elements to the psychology of simple, according to Harvard professor George Whitesides: predictability, accessibility, and serving as a building block. Being predictable means that simple products are easy to instantly understand. A product that solves a single problem, like a Casper mattress helping you get a good night’s sleep, is simple. Casper doesn’t make 108 styles of mattresses, they make three. Being accessible means being honest: Casper makes no over-the-top claims, but backs its product with solid research and overwhelmingly positive reviews from over 400,000 customers.

Finally, to serve as a building block is to build on an existing and understood concept. Casper didn’t invent a soft and rectangular piece of foam to sleep on and call it a mattress. They simply built off an existing industry, an existing product, and made it better. Everyone knows what a mattress is, so Casper doesn’t have to explain that; they just have to explain why their mattress is better. In effect, Casper doesn’t market mattresses but rather better sleep, with their mattresses being a means to that end. They’re consistent in this message across all media (social media, their blog, and any other advertising). The hyperfocused target market for a Casper mattress is younger people who are ready to upgrade their lumpy mattress but hate going to stores and talking to salespeople. These are the customers who’d rather buy online, with a guarantee that if they don’t like the product, they can return it (after 100 nights’ sleep).

Keeping your launch simple lets you avoid roadblocks in getting your product to market and then sharing it with the market. If it’s not simple, you’ll have to spend too much time first creating your product, and then explaining what it is and what it does. Simple lets you hit MVPr sooner and really start learning how your product is faring in the market.

FUNDING YOUR OWN PRODUCTS, VCS NOT REQUIRED

Let’s return to Ugmonk’s Jeff Sheldon, who wanted to create and sell a desk organizer called Gather. Selling physical products can be tough, as they involve a great deal of prior planning and then manufacturing agreements that can involve minimum orders and therefore large investments of upfront cash. This is why many product companies go after funding or bank loans or require a massive amount of capital to begin.

Not so with Gather, however: Jeff decided to test his idea for his new product by creating a crowdfunding campaign for it. This approach, he felt, would see how much his audience wanted Gather; if they did, they would raise the capital he needed to build it without the need to give up control to investors. And because he’d already spent a decade building an audience that was ravenous for his Ugmonk brand, Jeff’s Kickstarter campaign was able to generate over $430,000 (surpassing his original funding goal by 2,394 percent), garnering him more than enough to cover all the costs required to put Gather into production.

Jeff was now able to ramp up production to an existing audience for this product, and he got funding directly from that audience instead of from outside investors who might not have completely shared his vision. As mentioned earlier, the Pebble watch, one of the first smartwatches created, would not have even gotten off the ground if it hadn’t been for their crowdfunding efforts—which quickly became the most-funded Kickstarter project ever. (Even raising over $20 million from 78,471 backers, however, didn’t ensure Pebble’s long-term success.)

Not surprisingly, crowdfunding, as an alternative to raising capital from investors, is a growing trend in new businesses. It’s far easier to access than VC money, and it puts your idea directly into the hands of potential customers—if they agree with your idea, they’ll pledge money as a preorder. If they don’t, you’ll only have wasted time developing the crowdfunding campaign (the marketing and possibly prototypes), not months or years in product development.

It’s not as cut and dry, though, as “VC = bad, crowdfunding = good.” VC money can sometimes come with much-needed mentorship and even the required connections on which to build business relationships. Capital can also come with the business experience needed not only to create a product but also to run a company. It’s just often very tricky to find investors. As any entrepreneur will tell you, people who have money and who share your vision and are eager to invest in your idea are often hard to find.

While VCs are interested in their own profits and partial ownership of their investments, crowdfunding seems more aligned with companies of one—if the product idea solves a problem for an audience, that audience will become customers. Profit will be generated quickly and at the outset, allowing you to make choices about your business and how it will proceed based entirely on the money it’s making. If your crowdfunding is done right, it can be extremely beneficial, but bear in mind that crowdfunding isn’t always a surefire way to raise money: typically, only 35 percent of Kickstarter campaigns are successfully funded. Nevertheless, though crowdfunding is still a niche, it was responsible for about $6 billion in money raised in 2016. Olav Sorenson, professor of management at Yale University, believes that crowdfunding is best suited for consumer-facing products, and not as likely to succeed for business-focused products.

Crowdfunding is also a little more meritocratic than traditional ways of raising capital. Research from Harvard Business School shows that investors—who are predominantly white males—prefer ventures pitched and run by people like themselves, i.e., other white men. By contrast, women excel with crowdfunding, according to research from PwC and the Crowdfunding Center: they are actually 32 percent more successful at hitting their fundraising goals than men.

Consider the case of Katherine Krug, the CEO of a company called BetterBack, which has raised more than $3 million in crowdfunding for its devices that help anyone with lower-back issues from sitting at a desk. With no outside investments influencing her, she’s able to completely control the direction of her company. Katherine, who famously turned down a Shark Tank deal, believes that crowdfunding is an ideal platform for female entrepreneurs to secure the capital needed to develop new products. She’s also found that crowdfunding is more liberating for companies of one, as too many VCs tend to consider $500,000 or even $1 million companies just too small to invest in. BetterBack operates without an office and with a small team spread around the globe. Katherine herself works from various parts of the world, spending each quarter in a different country. Her business, and how she leads her employees, are more focused on personal growth than on exponential profit increases.

CAPITAL ISN’T ALWAYS REQUIRED

Sometimes, if your idea for a business or product requires a substantial influx of funds to start, it could be that your idea is too large or too complex. And sometimes you should start a business only when people are asking you for something and are willing to give you money for it.

Derek Sivers began CDBaby—which sold for $22 million in 2008, while it was doing approximately $250,000 a month in net profit—by accident when he began selling his own band’s CDs on the internet. Friends asked if he could sell their albums for them as well, and as more people asked, a revenue model began to form and Derek’s CDBaby business was born. But in the beginning, it required no capital to start—just an idea and the time it took to execute it well.

CDBaby never took on investors, even though there were weekly offers from outsiders who wanted to invest. Derek didn’t need CDBaby to expand quickly because it was profitable from the start and it focused on serving its audience, not expanding its own profit margins. He didn’t have to please anyone but his customers and himself. Every decision, he feels, whether it’s to raise money, to expand a business, or to run promotions, should be done according to what’s best for your customers. Derek spent $500 to start CDBaby, made $300 in his first month and $700 in the second, and was profitable from that point on.

Customers typically don’t ask a business to grow or expand. If growth isn’t what’s best for them, maybe it should be reconsidered. Because when you do focus primarily on your customers and their satisfaction, as we saw in Chapter 7, they’ll tell everyone about you.

Crew, back in Chapter 3, started with a one-page website and a form to collect information in order to manually match freelancers to businesses. When the demand became too large to handle manually, they invested in building custom software. When they launched another product, Unsplash (royalty-free stock photographs), they did so in a similar manner: they bought a $19 Tumblr theme and uploaded ten high-resolution images taken by a local photographer. Within three hours, the first low-fi version was launched. They did the work manually until a scalable system was absolutely required, then invested in it with their profits. Now, a few years later, more than 1 billion photos are viewed per month through Unsplash (and it’s now a profitable business, although it is VC-backed at this point).

This may sound obvious, but businesses need to solve problems for their customers. Whether it’s selling a mattress that helps customers get a better night’s sleep or stock photographs, a business succeeds only when it’s viewed by your audience as useful. So your first goal, as a company of one just starting out, is to figure out the best way to solve a specific audience’s problems, and then get to work at doing it quickly and cost-effectively.

By starting out small, a company of one can put all of its energy into solving problems for real people rather than into growing large enough to maybe solve problems for people one day. This approach also gives your relationship with customers a strong foundation: by eliminating bureaucracy and the friction of large infrastructures, you can interact with, listen to, and empathize with your customers directly.

For example, if you’d like to sell an online course that teaches people how to run an online business, then it’s faster to offer that advice as a one-on-one consulting service first. That way you don’t need to wait to turn a profit until you’ve filmed all the videos, developed or set up an online course platform, and built the audience required to make money from online courses. Profit can happen as soon as you get your first customer paying you for individual instruction.

Halley Gray, founder of Evolve + Succeed, has found that most people who start a new business by themselves make the mistake of believing the products should always come first. Instead of developing a product, which can take a lot of time (and sometimes cash) to develop, new founders can start almost immediately by offering their product idea as a service first. This is what Danielle LaPorte did with her “Fire Starter Sessions” after she was fired from the company she founded and then went out on her own. By offering services first, she was able to generate income almost immediately, as well as prove that there was a market for her products when her one-on-one service-based work took off. By doing this, she learned a great deal about her audience and determined what they wanted from her, so when her products were launched, they sold very well and her million-dollar-plus business was born.

LAUNCH QUICKLY—AND LAUNCH OFTEN

Too often we believe that we get only one chance to launch a product or a business, that the first splash is all that matters. If it doesn’t become massively profitable right away, we think, then it’s doomed. We somehow feel that there’s magic in the first time we open our (sometimes digital) doors to the public.

The problem with this thinking is that most launches aren’t massive successes. Yes, they can be slightly profitable (if everything goes right), but often things don’t pay off as quickly as we hoped, because we’re still mostly guessing in the beginning. We guess at the intended audience, the positioning of the product, and the value that audience will assign to what we’re selling. WD-40, the well-known everyday lubricant, is literally named after its thirty-nine failures and one success. Originally it was created for the aerospace industry, but it became so popular with employees using it for other tasks that it was brought to retail, where it thrived. GM launched an electric car (the EV-1) in 1996, but found it was too “niche” and scrapped the program; twenty years later, in 2017, their Chevrolet Bolt (also an electric car) was the Motor Trends Car of the Year. Only after you’ve first launched can you then start to measure data and collect key insights: what worked, what did not, how was it received, and how could it be positioned differently?

Launching isn’t a onetime, singular event, but a continual process of launch, measure, adjust, repeat. The cofounder of LinkedIn, Reid Hoffman, has said that if you aren’t embarrassed by the first version of your product, you’ve launched too late. It’s ridiculous to believe that every company grows out of a founder’s fully formed and unchanging idea, especially since most wildly successful companies achieved their place only by course-correcting, changing entirely, or iterating their way to greatness.

Jim Collins, best-selling author of Good to Great, studied 1,435 companies over a forty-year span. He found that every great company that’s very profitable and successful started out as simply good enough to launch. These companies focused on one thing and let go of the rest. He likens it to foxes and hedgehogs. Foxes are very smart and wily and have many tricks for catching prey. In contrast, a hedgehog has only a single trick—curling up into a spike-laden ball. Regardless of how many tricks a fox deploys to catch a hedgehog, the hedgehog’s singular trick beats all of them, because a fox can’t eat a hedgehog. Many companies try to be foxes, doing everything for everyone or launching products full of bells and whistles, but successful companies that thrive over the long term work at a single task and master it. You still need a varied skill set to build a company of one, but your focus on serving customers needs to be singular.

This singular focus is made far easier with today’s technology. “Every company now is a technology company,” says Anil Dash. In the past it made sense to separate out tech companies from all others, but now every company, even a company of one, relies heavily on technology. From their use of email to ecommerce software to automation in manufacturing, every company is now a tech company, with technology at its disposal, not just to create the scalable systems we spoke about in Chapter 8, but to enable further focus. For example, a company doesn’t need to put its efforts into developing a new online payment system; it can use Stripe, Square, or PayPal instead. A company doesn’t need to invest time and resources in building a content management system for its website; it can use WordPress. Streaming video required? Just use YouTube. Looking for supply chain management? There are now hundreds of software solutions. By using existing technology to run as much of a business as possible, you can better focus on your core idea—the core solution—and find your core niche.

Because the first launch generally doesn’t yield amazing results, companies of one should try to get it out of the way as soon as they have something to launch. Then the focus can turn to making the product better, based on what was learned. By iterating and relaunching, greater results can be achieved. Companies of one need to continually iterate on their products to keep them useful and relevant to the market they’re intended to serve. So launch quickly, but immediately start to refine and improve your product.

Iterating is an ongoing process, by the way, and should never stop as long as you’re receiving feedback and data from the market, from other businesses in your niche, and even from within your organization (such as requests from the support person or team). Your strategy, then, shouldn’t be rigid and set in stone, but capable of being changed each time new information is collected. In this way, your strategy will never fall out of sync with the customers and market you’re serving.

Blockbuster failed to iterate to the changing market and Netflix slaughtered its profits. To quote Blockbuster’s CEO in an interview with Motley Fool: “Neither RedBox nor Netflix are even on the radar screen in terms of competition,” he said. Blockbuster ended up with hopelessly outdated retail stores, which led to huge overhead and debt and then bankruptcy. When Sears failed to change its practice of putting catalogs in every home, it lost out to Walmart and Amazon. In 2006, Ed Zander, CEO of Motorola, said this about the Apple iPod Nano: “Screw the Nano. What the hell does the Nano do? Who listens to 1,000 songs?” In 1946, Darryl Zanuck, the cofounder of 20th Century Fox, said, “Television won’t be able to hold onto any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.” Without iteration and adjustment based on new data and insights, a company will stagnate and die.

But if you’ve launched, once or several times, and it hasn’t resulted in enough profit to sustain even a single person’s cost of living, how do you know when to stay resilient and push on—and how do you know when to pack it in and quit (that is, when to move on to a brand-new idea or business)?

That was the question that best-selling author Tim Ferriss, on his podcast, asked Scott Belsky, the cofounder of Behance, an online portfolio platform for creatives. Scott feels that whether we find that line between stubbornly proceeding when we shouldn’t and resiliently persevering when we should has to do with the truth of our initial assumption. In other words, if you’re at a place where you aren’t sure what to do because things haven’t worked out, do you still think that your initial assumption was correct? And in knowing all you know at this point, would you pursue the project all over again?

If the answer is yes, if you still think your original idea was valid, can be profitable in some way, and is worth pursuing, you should carry on. If not, if you’re continuing only because you’ve put so much of your time and energy and heart into the project, then it’s not logical to keep at it. If you’re overvaluing your plan because it’s your plan (known as the “endowment effect”), then you should probably quit.

The idea that winners never quit is both overly simplistic and completely false. Most successful founders of companies have quit several times. In fact, it’s their quitting that led them to the success they found after they failed. In his 1937 book Think and Grow Rich, Napoleon Hill said, “A quitter never wins and a winner never quits,” but that just doesn’t hold true. Sony’s founder, Akio Morita, first invented a rice cooker that burned rice (a fairly good reason to quit). Ev Williams founded, then quit, a podcasting platform named Odeo (which Apple made obsolete when it launched its own podcasting platform soon after). Williams then moved on to found Twitter and Medium.

So if you have refused to change anything because of your misaligned ownership of an idea and because of all that you’ve invested (time, money, resources), then yes, you may be continuing for the wrong reasons. But if your initial vision still seems objectively valid and progress and profit are just coming along slower than you’d like, by all means continue.

In the early days of Behance, Scott Belsky and his small team were just a few months away from completely running out of money. Understandably, they felt demotivated quite often, but their vision of organizing the creative world’s work never got less interesting or less valuable to their customers. So while they tired sometimes of soldiering on without enjoying massive success, they didn’t lose their original conviction. When things got really tough, they became even more resilient—they found ways to create scalable systems and repurposed work instead of spending money on new hires. They reduced costs to a minimum so they could achieve profit faster. Even today, when Behance is popular (more than 60 million views of projects per month) and owned by Adobe, the design team responsible for all of Behance’s visual creations and its publication 99U (print, digital, and a series of conferences) is a staggeringly tiny staff of just three people.

So, by working toward MVPr as quickly as possible with a simple solution and then iterating upon it after it’s launched, your company of one can build a resilient business that may change over time in its products or features, but still serves and is totally valuable to its customers.

BEGIN TO THINK ABOUT:

· A new business or product you could start right now by executing the smallest version of your idea

· How to determine your MVPr, the steps that could be taken to achieve it as quickly as possible, and what could be scaled back to reach it faster

· A product or service that would be the simplest solution to a problem your customers are having

· Whether you could start your company of one without capital and what that would look like