This week, I listened to an entrepreneur who’s building a software platform that helps online clothing sellers manage businesses that sell mostly through social media platforms, such as Instagram. The thing that caught my attention was that the company is focused on micro SMB sellers, who make up the majority of this fast-growing market. The company is performing well and has generated over $1 million in revenue.

I’ve shared my thoughts on the micro SMB market before (see here). I think it’s a great market that’s overlooked because people don’t know how to find and convert super-small business owners into customers. There’s no proven playbook. My interaction this week with this entrepreneur further increased my bullishness about this market.

Companies are being built right now to serve this market, and they’ll be massive companies in the next five years. By the time people realize the market opportunity, these companies will be so far ahead and so critical to how the micro SMBs operate that it will be extremely difficult to compete with them.

Yesterday, I shared why I love what Andrew Carnegie said about why you should put all your eggs in one basket, which is counter to how most people think. It’s simple, but it’s far from easy to execute. And even if you execute it well, success isn’t guaranteed.

Picking the right basket to put all your eggs in is the hardest part of execution. Whether you’re founding a start-up or making a concentrated investment, this choice is critical. And you must have conviction in your decision so you can weather the inevitable ups and downs. Therefore, you can’t haphazardly pick something based on a whim. You must do the work to deeply understand each of your options. Doing the work often leads to what others might consider an obsession, but it’s what uncovers the insight that others miss—the insight that reduces your risk, tilts the probabilities in your favor, and helps you build the conviction needed to go all in.

Andrew Carnegie’s method isn’t something that everyone is suited for. Making that kind of decision and sticking with it to the end requires mental grit and toughness. But for people with the right mind-set, when it’s done well, it can lead to outsize results.

A friend reminded me of some wisdom attributed to Andrew Carnegie that I’ve always loved because it’s counter to what most people believe leads to outsize success or investing returns:

The way to become rich is to put all your eggs in one basket and then watch that basket.

Mark Twain famously said something in the same vein after hearing about Carnegie's remark (source).

This quote resonates with me because it’s what every wealthy person I know personally did. In either company building or investing, concentration (i.e., extreme focus) on one thing is what led to outsize success. If you focus on one thing, you’re more likely to know everything about it and be able to assess it better than others. You’re likely to spot what others have missed, which reduces risk and tilts the probabilities of success in your favor. When everyone else thinks the chance of success is 10%, you realize it’s 60%.

What I’ve also seen is that after someone has achieved outsize success, they embrace diversification as a means of preservation and reducing downside risk.

Said differently, concentration is for building outsize wealth (or a business), and diversification is for preserving that wealth (or that business).

An entrepreneur friend sold his software company a few years back for over $100 million. We caught up this week, and he updated me on his new company. It’s a non-tech company selling a simple, physical, paper-based product that’s small, light, and easy to manufacture. He started the company about eight months ago and is seeing explosive growth.

The market for this product isn’t sexy, he said, but it’s surprisingly massive. I realized that he’d found a market that’s not attracting the smartest entrepreneurs because the opportunity isn’t sexy and doesn’t attract much attention or publicity. Because of many entrepreneurs’ lack of awareness of this market, they don’t understand the full extent of the market opportunity. The result is that my friend is competing against old-school entrepreneurs who’ve been in the industry for decades and haven’t innovated at all because they haven’t needed to. My friend is running circles around them—so much so that he thinks this old-school industry is going to make him more money than his software company did.

My takeaway is that markets matter a lot, but equally important is understanding the competition in a market. If you can find an overlooked market that’s large, ripe for innovation, and full of players who innovate slowly or not at all, there’s likely pent-up demand for innovation. If you innovate and execute well, the pent-up demand will be unleashed and may slingshot your company to success.

This week, I chatted with a CEO who has a software solution that’s been on the market for a few years. The product is both powerful and complex. It does a lot of things, which is both a gift and a curse. Earlier this year, he was struggling to get traction. This week, though, he shared that things are trending up rapidly; they’ve landed over 10 new customers, each paying roughly $25k a year.

So, what changed? Two things:

• The messaging changed from describing what the product does to describing the problems it solves.
• The company identified several problems that their core customers face and that their solution addresses. Instead of cramming them all on one site, they created a stand-alone site for each problem. Prospective customers with a particular problem can learn more about how this software solves that problem, and they can sign up and try it for free.

All this happened in a two- or three-month period. They didn’t build more stuff; they just focused on the customer’s problems and made it crystal clear, via better messaging, how they solve each of them. Perspective customers now have an oh, that’s for me moment when they visit the site and are converting to paying customers.

Having a great product that solves a problem is critical, but so is the messaging you use to tell the world about what you’ve built.

One of my favorite maxims is from the autobiography of John H. Johnson, founder of Johnson Publishing Company, which published JET and Ebony magazines. Early in Johnson’s career, he worked for Harry H. Pace, CEO of Supreme Liberty Life Insurance. John was upset that Pace had negotiated a settlement with a man who owed the company money and, when Pace tried to collect it from him, was disrespectful to him.

In that moment, Pace told Johnson something he’d never forget:

If you want to succeed in business, young man, you’ve got to learn how to work with people that you don’t like. And you’ve got to learn how to compromise. After you compromise, you have to forget the past and go on to the future. For in business, you have no permanent enemies or permanent friends—only permanent interests.

This quote is powerful. It stuck with me. I took a screenshot of it, and I look at it periodically to remind me to stay focused on my interests and to work with people and compromise to work towards them—even people who aren’t my favorites. I’ve also shared that screenshot with friends when they’re working with people they don’t care for.

To get anything material accomplished in business, you can’t do it all yourself. You must work with people. Some of them you won’t like. But you must figure out how to work with them anyway, compromise, and keep progressing toward what matters to you.

A friend is starting a new company. He’s got a great vision and a great idea, but it’s been hard to get funding. He didn’t let that stop him, though. He got creative and found ways to get the computers and other things he needed.

He didn’t have any money, but he had hustle. He found a surplus organization that has stockpiles of computers and other technology assets. He worked with the staff to figure out what he needed to do for his new company to qualify to receive surplus assets. And they eventually approved him to get computers, monitors, and other expensive assets. Now, with zero dollars raised, he has the resources he needs to get his company off the ground.

My friend’s journey highlighted to me the difference between resources and resourcefulness:

• Resources – a stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organization to function effectively
• Resourcefulness – the ability to find quick and clever ways to overcome difficulties

Many early-stage founders focus on getting money so they can buy the resources they need to get their company off the ground. But in reality, what they need is a resourceful mindset. Entrepreneurs who are resourceful find clever ways to get the resources they need to get their company off the ground, even when they don’t have any money. They don’t take no for an answer. They think outside the box. Entrepreneurs who believe they must have money to buy the resources they need are much less likely to have outsize success or overcome the inevitable cash crunch that all entrepreneurs face at some point.

My big takeaway is that lack of money makes things harder, but it shouldn’t stop you if you’re resourceful.

Following up on yesterday’s post (see here) about the back office and recordkeeping. Another huge benefit of having good records is that it means your financial reports are accurate. If your financial reports are accurate, you make better decisions because you understand the current state of your business. Which means you can plan better for the future.

Surprisingly, many entrepreneurs don’t know the true financial health of their business. They don’t have good financial reports, or they don’t know how to read them. They make decisions based on bank balances (see here), but bank balances don’t account for unpaid liabilities.

Having accurate financial reports that provide a full picture of the business’s health is critical for entrepreneurs. And financial reports are only as good as the data and the processes that create that data. Recordkeeping and the back office are boring and seem like a cost center. But it all starts there. If you make them a priority, the trickle-down effect is a clear picture of the business’s health through accurate financials, which empowers you to understand the current state of your business and make better decisions about the future.

Recently, I had a conversation with an entrepreneur whose business is going through an audit by a government agency. He mentioned that a few years ago, he decided to pay a premium to upgrade his back office administration. That decision seemed expensive at the time, and he was reluctant to do it because of the added expense. But looking back, it’s clear that it saved him a tremendous amount of time and money in this audit, and he now realizes it was money well spent. His clean documentation has been a lifesaver in helping him smoothly navigate the audit. Because he has clean files and documents, he’s been able to quickly answer the auditors’ questions and provide supporting documentation.

To entrepreneurs who’ve found product–market fit and are growing their company, a solid back office to keep paperwork organized and create clean accounting records is important, but its value isn’t understood. As a business scales, an entrepreneur can’t be involved in everything. They transition to running the business using data and numbers generated by the business. If the numbers and data they’re fed aren’t quality, their decisions won’t be quality and the business will suffer.

In the case of this entrepreneur, having clean records is helping him run his business more efficiently with a close eye on profitability and navigate what could otherwise be a painful and costly audit.

This week I had a conversation with an early-stage founder who’s building software for micro SMBs. After being at it for several years, he’s finally hit product–market fit. He’s doing over $1m in annual recurring revenue, is cash-flow break even, and wants to raise from VC firms to accelerate growth.

As we chatted, he told me that he’s made it to several final meetings with VC firms where he presents to the entire partnership. They love the product, but they don’t understand how the go-to-market will work for micro SMBs or how big the market opportunity is. So, they pass.

This conversation reminded me of a post I wrote a few months ago (see here). There’s no tried-and-true playbook for selling to micro SMBs like there is for enterprise SaaS, so lots of people avoid it. They don’t understand how big the market is or how to find potential customers.

To me, it’s an obvious white space that people—even some VC firms—are overlooking. And to this founder, the opportunity is crystal clear. He’s dumbfounded that forward-thinking investors don’t get it.

Micro SMBs is an overlooked and great market to go after. The entrepreneurs who get it now will end up building massive businesses with diversified and loyal customer bases. By the time others realize how big this opportunity is, these early entrepreneurs will have a first-mover advantage that will be hard to compete with.

I’m rooting for this founder. He finally found one firm whose people get it. They’ve agreed to be the lead and write a large check in his fundraising round. He’s on his way!