A single-minded focus on revenue can blind you to how badly your business is really doing
By Serenity Gibbons
From the outside, a successful entrepreneur’s career is often made to look like lightning in a bottle. Hopeful leaders and young professionals with dreams of striking it rich on their own rake through articles and memoirs in the search of a hint of the secret and using it to boost their own dreams.
Yes, we acknowledge that they must be smart and confident enough to take risks, but it often seems like there’s an X factor that separates the successful ones from the pack.
We, being the public at large, want to believe in the narrative that plucks hopeful professionals from the masses and hands them an opportunity of a lifetime. An entrepreneur whose story is steeped in strict budgeting and long-term cost per acquisition planning does not come across as exciting as the guy who stumbled across a goldmine. Unfortunately, this narrative is pure fiction.
Yes, it’s true that most entrepreneurs and business owners do not achieve wild success, but it’s not because of some intangible, predetermined force. As it turns out, fate and luck have almost nothing to do with business prosperity. What really separates the success stories from the could-haves is grit, resilience and a steadfast adherence to basic business principles.
Blake B. Johnson, a Los Angeles based entrepreneur, knows entrepreneurs who aren’t willing to take the time to build strong teams and core business foundations on basic business principles are simply digging their own eventual graves. Johnson knows because he has experienced this first hand.
As a young finance professional, Johnson forged a reputation for himself as an employee largely uninterested in the perks and adulation that are typically bestowed upon successful financiers. His uncompromising and undistracted work ethic boosted him to the top-producing position with his company in less than two years, which in turn opened new windows of opportunity for Johnson to try the entrepreneurial lifestyle on for size.
In just 18 months Johnson grew his first company’s revenue stream from $5 million to $100 million. On paper, Johnson represented the fairytale business stories that grip so many young professionals. But Johnson also realized that anything can be deceiving on paper, including the health of a company. After all, revenue does not equate to a financially sound venture, because it can disappear in an instant — and for Johnson and his team, that’s exactly what happened.
The 2008 recession exposed weaknesses in the business operations that the impressive revenue stream had previously shielded. On the brink of bankruptcy, Johnson made the decision to rebuild from the ground up — only this time, he promised himself he would build a company grounded in three core business values he had previously underestimated.
Honing in on these principles not only paid off as a sound rebuilding strategy for Johnson’s first company, but they have since proved to be the most important facets of his successive ventures, including Currency Capital and Prime Marketing, a firm dedicated to helping consumers repair their credit after the recession.
These principles are not groundbreaking; in fact, they’re often covered in Business 101 classes. Anyone with any entrepreneurial background can incorporate these pillars into their companies.
1. Cash flow
Every business owner is intent on finding ways to make money as quickly as possible. However, often early cash flow estimate grossly underestimate how long it actually takes to build up a revenue stream.
As you are planning a financial roadmap for your business, Johnson advises doubling your cash flow timeline; if you think it will take 6 months to ramp up, in actuality it will most likely take a year. Taking a reasonable timeline into consideration will help you allocate your capital and resources efficiently as you launch your business.
No one enjoys logging expenses. However, taking a stringent approach to strategic budgeting recording every penny spent may spell the difference between success and failure for your company. It’s easy to tell yourself that a $10 cab ride does not matter in the grand scheme of your business expenses.
But $10 cab rides quickly pile up. If these seemingly minimal expenses are not accounted for, you may find yourself wondering why you can no longer afford your office rent. You may not want to be known as a penny pincher, but in Johnson’s experience, the most successful leaders practice frugality at every turn.
3. Cost per acquisition metrics.
Most first-time entrepreneurs obsess over revenue calculations but often overlook how much it actually costs to turn a profit in the first place. As Johnson rebuilt his venture, he shifted his priorities and fixated on how much it would actually cost his company to gain a new customer. Paying close and constant attention to individual CPA metrics allowed him to make stronger financial choices up front that set his company up for long-term success.
Most entrepreneurs are blinded by flashy metrics like revenue stream, but revenue stream cannot hold up a business in the long run. While no entrepreneurs wants to see his company nearly disintegrate, the collapse clarified the importance of paying attention to business basics, which has been the Johnson’s success ever since.