This week, I committed to reading my highlights from David Allen’s Getting Things Done and Tiago Forte’s Building a Second Brain. It’s been a few months since I read them. Today, I read highlights from Getting Things Done. A few thoughts:

• This is a framework book (mostly). It teaches you a method you can use when executing your work to get more done with less stress.
• In school and at my first job, I was never taught how to work; I was just expected to get a lot of work done. Looking back, I was pretty inefficient, and I wish I’d known about this framework. I suspect most people are never taught how to work efficiently. They work hard but might not be efficient or strategic in their efforts.
• Context switching is a challenge for many. Often, the ramp-up period when starting a new task is a pain point. Some of this book’s methods can resolve this.
• Teaching this framework to employees at smaller companies could increase the velocity (which matters more than speed) of the company’s execution.
• A lot of entrepreneurs approach managing execution as a top-down activity. Some end up micromanaging because of this approach. This framework is more bottom-up—it empowers the employee and removes the need to micromanage.
• I like the idea of equipping employees with training on this framework, combined with a strong vision/mission and a goal-setting framework (such as OKRs or EOS), to create a company with high execution velocity.

I’m looking forward to fine-tuning how I execute the ideas in these books.

I was chatting this week with an entrepreneur who’s trying to figure out how to solve a problem outside his expertise. This founder is facing the starting-from-scratch dilemma. He’s trying to solve a problem and figure out what his next action should be, but it’s so far outside his domain he doesn’t even know where to start.

Experience gives you the best shot at resolving a problem or determining your next action. You can acquire experience by doing things yourself (and often failing) or by learning from what other people learned by doing things. When I’m starting from scratch, I like the second option.

I crystallize the problem I want to solve and write it down. Then I find material from people who’ve solved the problem and had outsize success. Books are my preference because they’re long form and more thought out. But if I’m trying to do something tactical or something that requires recent experience, I listen to podcasts where the person explains what they did (not someone else giving their opinion or interpretation). I want the wisdom straight from the horse’s mouth. If possible, I try to learn from the experiences of several people.

This usually solves the starting-from-scratch issue. It doesn’t magically give me a solution to my problem or tell me what action to take, but it often gets me 70% to 75% there.

I then try to figure out how to apply what I learned from others to my situation. Copying exactly what they did usually doesn’t work because their situation was different from mine. Once I figure this out, I’m close to 100%. I know where to start, and I have a good idea of how I want to solve the problem and what the next action to take is.

I still fail and learn more along the way, but the entire process is much faster because I’m not learning foundational lessons from the ground up. Instead, I’m taking what works and building on it.

The next time you need to solve a problem or figure out what action to take but don’t know where to start, consider getting clear on the problem you’re trying to solve (write it down) and finding books or other content from people who’ve solved that exact problem. Learn from their experiences and try to figure out how you can apply what they learned to your situation. It isn’t perfect, but it’s a lot quicker than the alternative.

A few weeks back, I visited a friend who’s a founder. Their business moved to a new location, and they asked me to check out the new space. I’ve known the founder for years and know what products the business offers, but I didn’t really understand how it offers them. So I decided to use my visit to learn “how the sausage is made.”

I toured the space and observed how the operation runs. It’s a well-oiled machine, but one thing caught my attention: one process seemed high priority but inefficient compared to everything else they did. I made inquiries and learned that the process is critical to generating revenue, which makes it a high priority, and it has to be done multiple times a week. This critical, inefficient process is the founder’s biggest annoyance and time suck.

After I left, I started making mental notes about new technologies I learn about that might automate parts of this process. I read about one promising new technology and shared it with the founder this weekend.

Two big takeaways from this experience:

• In Sam Zell’s autobiography, he said that visiting people in their environment is a great way to learn about them. Zell was right. Going to visit people and watching them do their normal work is the best way to understand their workflows and problems. It’s also the best way to deeply understand their pain points. Visiting this entrepreneur’s office helped me understand the severity of their pain. Video meetings and phone calls are good, but in-person visits are best.
• This founder has a never-ending to-do list. After I shared the new technology with them, they were excited about reducing the time and cost associated with this process. However, they’re not looking forward to learning how to use a new technology. In fact, they don’t really care about the technology or how it works. They want a solution to the problem. They want a service that takes care of everything from start to finish. The end result, including its quality, are all that matters.

There’s an opportunity to provide services that solve painful problems in specific small business niches. If new technologies such as AI are used to do most of the work, the services potentially can be high margin and scale nicely to seven or even eight figures in revenue with a small team. To understand what problems niche small businesses need solutions to, visit their operations. Look for points of frustration and inefficiencies that impact revenue generation. Then find technologies that solve the problem. Create a service offering that handles solving the problem from A to Z. Seems like a decent playbook for building a scalable services business in a niche.

This week, I talked with a friend who’s considering selling his company to a private equity (PE) firm. He’s been reinvesting profits back into growth initiatives for years, but in the future, rapid growth is less likely. He’s spent years building a business that’s his biggest asset, and now he’s looking for it to generate a return. The business is past the high-growth stage, so it has to shift from optimizing for revenue growth to increase its valuation to optimizing for free cash flow. Whether under his or a PE firm’s ownership, that’s the business’s next chapter.

Private businesses are assets, and entrepreneurs should seek a return on them. For some businesses, that means sacrificing profit to grow revenue rapidly with the goal of increasing the enterprise’s value (i.e., valuation). For others, it means increasing the distributable cash the business generates. Identifying the best way to generate the highest return is the entrepreneur’s job. Entrepreneurs should seek to avoid ending up with an asset that doesn’t generate a return. Companies with no or minimal growth and no or minimal free cash flow typically fall into this bucket.

Researching apps to help a friend solve a problem with their business, I came across two popular apps and decided to research their founders. I learned some interesting things. Each app does over $100k in monthly revenue, with 80% or higher net profit margins. I know this because both founders talk openly about revenue figures in interviews, and one even shares the revenue figures in his social media bio.

Both founders built their apps and maintain them without the help of a team. And neither is interested in scaling their company. They’re happy to grow revenue but uninterested in recruiting or managing a team. They’re hackers who want to quickly build products others find useful and will pay for. With this philosophy, they’re not focused on B2B customers; they’ve created apps that are B2C oriented. The apps are self-service with low price points ($40). Often, people will pay for one-time usage, so they’re less focused on recurring revenue. I’m assuming this works because their apps appeal to a large global market and they acquire many new customers via word of mouth, which keeps customer acquisition costs low.  

I’m intrigued by both of these indie hacker founders. I want to learn more about their approach to quickly building and launching one-person companies that generate over $1 million in annual revenue.

I met with an entrepreneur who’s had early success in a highly competitive industry. The products his company sells are readily available from competitors, so there isn’t much differentiation. His company’s current strategy is to provide products for a low price. Its prices aren’t the absolute lowest, but they’re on the lower end of the spectrum.

As a founder, I operated in a market where price-taking was the strategy. The automotive parts we sold were readily available from multiple retailers, so there was no product differentiation. This led to lots of competition. Since we all sold the same parts, each competitor tried to take the lowest possible margin that allowed it to make a small profit. With small profit margins, the focus was on volume. A little bit of profit per order and a ton of orders can add up to a decent total profit.

This strategy can work, but it often requires scale. Companies like Walmart have proved it’s possible. Winners in this type of market are often hyper-focused on efficiency. The company that can operate with the leanest and most efficient cost structure can afford to sell for less than competitors. Lower prices attract more customers. More customers mean more volume, and more volume makes it possible to negotiate with suppliers for lower costs. If executed well, this strategy can create a flywheel that grows the company.

The entrepreneur I met with doesn’t want to be in a price-taker business forever. The lack of customer loyalty and inability to control margins concern him. He wants to move from being a price taker to being a price maker. And he wants to set prices based on the value created for customers. He’s exploring creating proprietary products and services focused on niche customer problems to accomplish this.

You can build a successful company being either a price taker or price maker. Having built a company that was the former, I want my next company to be the latter.

After writing about the Newhouse family’s estate tax strategy and taxes being a successful entrepreneur’s biggest expense, I wanted to share what I’ve learned about qualified small business stock (QSBS) and the tax strategy around it.

To be clear, I’m not a fan of avoiding taxes or tax scams. You can go to jail for stuff like that, and it’s never worth it. But the tax code is complicated. Many aspects of it are designed to encourage entrepreneurship, but people aren’t aware of them. I know about QSBS only because I have a few friends who sold companies and benefited from it, minimizing their taxes.

Why is QSBS a big deal?

Eligible shareholders of qualified small businesses can get up to a 100% exclusion from capital gains taxes when they sell their company. Translation: you can pay zero taxes on the gains, up to certain level, when you sell your company.

What are the criteria for a business to qualify for the QSBS tax exclusion?

• The business must be incorporated as a C corporation in the United States (LLCs and S corps don’t qualify).
• Company gross assets must be $50 million or less before and at the time the stock was issued.
• Eighty percent of the company’s assets must be used for qualified trade. Businesses such as real estate and farming are excluded.
• Stock must be purchased directly from or issued directly by the company. Secondary purchases and stock transferred from other shareholders don’t qualify.
• Stock must be held for at least five years to get the maximum benefit from QSBS tax exemption.

If a company qualifies for QSBS, how does the tax exemption work?

If the criteria are met, each shareholder is excluded from paying taxes on gains of up to $10 million or ten times their basis. The simplest example is that if you launch a company, meet the QSBS criteria, and sell it, your gains on that sale, up to $10 million, are tax free. Gains above $10 million are taxed at capital gains rates.

More complicated scenarios can result in the exclusion amount being significantly more than $10 million. In this example, the founders converted a company to a C corporation years after launching, when company assets were $40 million. This meant their stock basis was $40 million and they got an exclusion of ten times that cost basis—that is, up to a $400 million exclusion. The entire $400 million isn’t excluded, which the article covers, along with other details, but you get the idea. It can get even more complicated with stacking and other factors.

QSBS is part of the tax law and something all founders should be aware of. If your goal is to build a company and exit after more than five years, QSBS is something to consider in your tax strategy.

This isn’t tax advice, and everyone should do their own research to figure out whether QSBS applies to their situation. I just wanted to make more people aware of the exemption.

I recently met an entrepreneur who started his business earlier this year. It’s gone from zero to over $5 million in monthly revenue in just nine months. By the end of 2024, he’ll likely be doing $9 to $10 million in monthly revenue, well over a $100-million-annual-revenue run rate. That’s insane growth in one year.

I was super curious about his journey. During our chat, I learned he has no background in the industry and didn’t know it existed 18 months ago. I was curious how he learned about the problem. It turned out he’d encountered it personally and searched for a solution. He hit a brick wall. Every local company he called couldn’t solve the problem for six months or more. After his searches, he was bombarded with online ads. It was an abnormally high number of online retargeting ads, which caught his attention. Still needing a solution, he tried one of the online companies. It delivered and solved his problem, but the experience was awful.

As a customer, he zeroed in on two things. First, given the number of retargeting ads he was seeing from various companies, there must be an enormous business opportunity. Second, customer demand was so high that people happily put up with terrible customer experiences offered by low-quality companies. He concluded that massive demand and low customer expectations likely meant this market was exploding—ideal for a start-up. Clearly, he was right.

I had lunch with an entrepreneur friend. We talked about what his next company will look like. He isn’t sure what the company will do or the space it will be in, but he’s crystal clear on the kind of people he wants to work with: people he calls “grinders.” They work hard, create no drama, and win. Their goal isn’t to be praised regardless of the quality of their work; it’s to do great work and win by making customers happy.

I thought about this more later in the day and texted him some thoughts about also wanting people who are learners. His replies went deeper than I was thinking. He wants people who have a “diverse track record of success” that “shows they can figure things out.” And then he made a sports analogy that I love. Alluding to a successful recruiting strategy that college football coach Urban Meyer used to win three national championships at two schools, he said he wants to work with multisport athletes.

“Diverse track record of success” stuck with me. To have one, a person has to do several things. First, put in the work to learn new things: learn the rules of a new game, learn new skills required to compete, etc. Second, figure out how to apply what they’ve learned. Learning is nice but not valuable if you can’t apply it. Last, compete at a high level. To my friend’s point, anyone who demonstrates this is someone I want to work with.

I was thinking about yesterday’s post and the Newhouse family’s strategy for reducing their estate tax liability. The fact that they had a tax strategy, and the results, stuck with me and reminded me of a tax conversation I had.

A successful entrepreneur once pointed out that taxes are a successful entrepreneur’s biggest expense, yet most spend less than 1% of their time thinking about them. They don’t have a strategy or defined actions around taxes. Most entrepreneurs spend time scrutinizing and optimizing their biggest business expenses on their profit-and-loss statement but don’t do the same with taxes. He believes this is a big mistake and that founders should spend some percentage of their time, say 5%, on their tax strategy every year. Doing so can have a material impact on business finances and the ability to reinvest in growth opportunities.

Regardless of how you feel about Newhouse's estate tax strategy, the result highlights that an effective tax strategy can indeed have a material impact on a business. To be clear, I don’t believe in tax dodging or doing shady things to avoid paying taxes. That’s just silly and can land you in jail. But I think there’s something to be said about having more of the capital your company generated available to reinvest in growth.