This past week I talked with two founders. Both of them have wildly successful companies that are still growing. But they told me they’re reducing head count. For most companies, the customer landscape has changed—but for these companies, not so much. They’re still growing at a healthy clip (just not as fast as they were). Even so, I wasn’t surprised. Their need to get leaner is rooted in decisions made during a period of rapid expansion.

Both founders have hired aggressively over the last few years as they’ve grown rapidly. In that scenario, roles can be created without anyone knowing whether they’re needed. I’ve seen companies hire someone to do manual tasks that custom software could handle. The person responsible for the department doesn’t have time to delve into what each person is doing or how they’re doing it. They just know their team is maxed out because of the company’s growth, so they go to HR and ask to add more people. And even if they knew that software could help them, it probably wouldn’t get built. Engineering teams are focused on customer-facing work to increase revenue—new product features, bug-fixing, etc. They don’t have time to consider projects that would make internal teams’ lives easier.

Quality can slip, too. Instead of hiring an A player in a two-month recruiting process, you add a B player because you have just thirty days to fill the role. Over time, the quality of your team falls, which has all kinds of ramifications down the road.

One day you look up and see people who aren’t fully utilized . . . employees without a clearly defined role . . . team members who aren’t carrying their weight.

Both of these entrepreneurs see staff reductions as a way to address these issues. In my opinion, they’re able to consider layoffs because their focus has changed. They know it’s easier to keep a customer than find a new one (especially in this environment). They want to better serve their current customers in order to reduce churn. At this moment, efficiency, not growth, is the goal.

Business is cyclical, and I suspect that despite the pandemic, what’s happening with these companies is part of the normal business cycle.

Today I attended a webinar for early entrepreneurs about creating a minimum viable product (MVP). I know the presenter and wanted to support him. I also wanted to hear the latest and greatest on this concept. An MVP is a bare-bones version of a product. It’s designed to address your issues just enough to enable you to get feedback from customers. The feedback shapes what you build going forward.

Listening to the session today, a few things stood out. Speed was one. Getting something in the hands of customers quickly is key. Setting a launch deadline and meeting it, no matter what, is a great strategy—even if some features don’t make the cut. I can attest to that because I did the exact opposite at CCAW. Coming from corporate America, I was used to perfectly worded emails and lots of conversation before any action was taken. I kept working that way, wasting tons of time on things that didn’t matter at such an early stage. Perfection was the enemy of progress. It took me a while to learn that lesson, but I did. An email wasn’t perfect . . . oh well. We pushed the product out by the deadline but it was only 80% finished . . . no biggie. Progress was what mattered, and for that we needed feedback.

Another important thing the presenter said is how simple an MVP can be. It doesn’t have to be something that requires coding or other technical skills. You just need something that allows you to test and get feedback. The presenter once used spreadsheets (Google Sheets) as an MVP. Talk about simple and quick! He mentioned no code-platforms like Webflow as a possibility. His message: don’t overcomplicate it. You may end up scrapping it based on customer feedback anyway.

If you’re considering entrepreneurship, make sure you understand the MVP concept and how to apply it. Getting something in the hands of customers quickly can help you find a product–market fit much sooner—and succeed sooner. Wouldn’t that be great?

Today I was chatting with an entrepreneur whose company is in ecommerce; it sells other company’s brands to consumers. He does seven figures in revenue. He’s been affected—not too badly—by the pandemic. He’s concerned and trying to plan for different scenarios.

As I asked more questions about the business, I realized it’s a low-margin business that depends on volume. Product pricing is determined by the brand owner (i.e., it’s the MSRP or MAP), competitors offer the exact same products, there are low barriers to entry, discounting to maintain volume is common, and front-line workers are paid little.

For this kind of business, it’s grow or die. The customer wants to pay less (competitors offer the same product) while costs—shipping, wages, rent, etc.—creep up every year. So, of course, margin percentages gradually go down. Most entrepreneurs compensate by growing revenue.

Let’s look at an example.

• Year 1 – Margins are 10% and the company does $1M in revenue. That’s $100,000 in margin dollars.
• Year 2 – Margins decrease to 9.5% and the company does the same $1M in revenue. That’s only $95,000 in margin dollars.

If the owner wants $100,000 in margin dollars in year 2, he needs to grow revenue 11% to $1.11M in year 2. In other words, he essentially needs to do 11% more work to make the same margin dollars. As the years pass, it begins to get really tough. If margins drop to, say, 5% (that’s an extreme drop), he must do $2M in revenue to make the same $100,000 in gross margin dollars. He’s forced to grow the business or die a slow death because he won’t have enough margin dollars to afford the things he needs to run the company. (Of course, the example is purposely simplistic to make a point. It doesn’t differentiate between gross margin and net margin and it features a massive 50% drop in gross margin percentage.)

This kind of business is in a tough spot when the economy shifts from growth to contraction. I pointed all these things out to this entrepreneur and he agreed. We discussed ways to transition his business to healthier margins (for instance, value-added services, his own branded products) and making the best of this difficult period by renegotiating some of his fixed costs.

Are you an entrepreneur just starting out? Are you building a low-margin business? If so, do you understand the long-term implications of that decision?

Not long ago, I had a conversation with an advisor. He has way more experience than I do in life and in business. He’s been extremely helpful, sharing his experiences to help me navigate deep waters. I’m very appreciative of his counsel. As we caught up, we discussed what we have planned for the future.

He was excited about the prospects of a new company he’s about to form. Sounds good, right? Sure—until you know that the market he’s going after doesn’t exist. No one knows anything about the space . . . and I do mean anything at all. I asked a few questions because I couldn’t get my head around what he was talking about. Then it dawned on me. On the basis of his experience and product knowledge, he’s predicting the future. He’s skating to where he thinks the puck is going to be.

Think back to 2007. Most of us didn’t imagine that social media, delivery apps, or many other things we use every day would be as dominant in 2020 as they are. What’s funny is that in hindsight, it seems obvious. As a society, we were increasingly becoming more digital, our networks were becoming more dispersed globally, and we were carrying mini computers in our pockets. Entrepreneurs who can recognize changes as they’re occurring, make gutsy predictions, and work to capitalize on the opportunities they envision are a rare breed.

I’m not sure what even the near future will look like, but I’m very confident that it will look different. New habits and routines are being established. Some norms (January’s!) will no longer be viable.

All this rapid change offers rare opportunities to people with vision and moxie. Skate to where you think the puck will be. You might be the only one out there for a while, but if you’re right you could score a life-changing goal.

Entrepreneurs are naturally optimistic. We see opportunity where others see obstacles. Our glass is half full. This attitude helps us rally a team, make the impossible possible, and turn opportunities into profits. There’s a downside, though: the sheer number of opportunities we see.

At CCAW, I saw a world full of opportunity and shared my enthusiasms with the team. One minute I was excited about a potential new vendor, the next, a new product category, and the next, onboarding everyone to a new piece of technology. My team was also optimistic, and we were bouncing from thing to thing like pinballs and accomplishing only a fraction of what we were capable of.

Finally, I decided to figure out why. I sat down with one of our team members and asked her opinion about why we weren’t making enough progress. The feedback was blunt. “Jermaine, you introduce too many new things too frequently. We can’t do everything at once and don’t know what the priority is.” When I heard that, I realized that I was the problem. I was stretching limited resources across an ever-changing list of ideas that popped into my head. I wasn’t focused, so the team wasn’t focused.

I changed how I operated, beginning to think more medium-term and long-term. Where do I want CCAW to be in a few years? What do I need to get done this year to hit my multiyear goal? I wrote down that single high-level objective. Then I prioritized quarterly initiatives for the team to focus on and made sure alignment with the annual objective was crystal clear. I documented it all on one page and presented it to the team. We discussed it and I made adjustments based on their feedback.

This change made all the difference. It focused everyone on the same things and made our weekly one-on-one and team meetings more productive (and shorter). Did we still drop balls? Absolutely. Were any of those balls mission critical? Nope. We had learned to focus our limited resources on the things that truly moved us forward. Now, to be clear, this was a top-down approach. It fit us because we were a small bootstrapping team. As teams become larger, working from the bottom up can be better.

My big takeaway from this experience was simple: focus. When we focused our energy on a singular objective, amazing things happened. When I speak with new entrepreneurs, they often seem excited about a million opportunities. I share my experience with them and implore them to figure out what’s most important to their business and then focus on that one thing. It’s a game changer!

How has focusing your efforts helped you excel?

Today I met with an entrepreneur who’s preparing to solicit investors. As we walked through his pitch deck, he detailed his advantages over competitors. One of them jumped out at me: lower price.

To be fair, there’s nothing wrong with providing a service or product that adds substantially more value than a competitor’s at a lower price. Companies that can do that are usually employing superior technology. But if your product or service is similar to your competitors’ and you’re differentiating yourself on price, you’re on a slippery slope.

Why? Customer loyalty. If the deciding factor for a customer is low cost, that probably won’t change. If a competitor undercuts your price, you will lose that customer. Bargain hunters don’t tend to be loyal to a brand. OK, you might ask, why not just find a new customer? Well, the number of customers is finite, so you want to keep the ones you have. Then there are customer acquisition costs. Marketing to snag a customer is expensive. The cost is justified when the customer will keep coming back over the long term (Amazon and Walmart are extreme examples) or when a one-time transaction has an extremely high profit margin. But when you spend a lot to acquire a customer who buys only once and your margins are low, you lost money on that relationship.

At CCAW, I learned early the importance of charging a fair price. We redid our pricing strategy in 2011. I was betting that consumers were moving away from a recession mindset and were open to paying full value. As predicted, we lost some customers. However, a foundation of healthier margins allowed us to bootstrap our growth from then on.

Venture capitalists can be reluctant to invest in a company where price is the competitive advantage. I encourage new entrepreneurs to be mindful of what kinds of customers are likely to be loyal.

What lessons have you learned about low prices?

While I was building CCAW, I always worried that rapid growth would cause us to drift away from the little things that made us successful and separated us from competitors. Ultimately, we built custom applications that facilitated consistent execution at scale using a PaaS provider (Salesforce Platform). This technology became our secret sauce. Without it, we would not have achieved eight-figure revenue (profitably) with happy customers and strong vendor relationships without raising capital from investors.

At a very high level, we identified manual processes that were critical to consistent execution and built them into our system, automating them as much as possible. We built dashboards that provided transparency and made key steps and metrics visible. We essentially built software that managed the various workflows of our very niche business.

As I’ve become more entrenched with SaaS companies, I’ve realized that very large SaaS companies were built around workflow management for specific use cases. SalesLoft for sales. ShipStation for shipping and order management. TSheets for time tracking. Gusto for payroll. JazzHR for recruiting. (I’m oversimplifying what these great companies do—they offer much more than I’ve given them credit for.)

When I speak with aspiring entrepreneurs, I share my realization. I remind them that they don’t have to create the next Facebook or Google. A great business idea could spring from observation (at home, at work, at school). Identify an area where workflow management technology could save time and money and make output more consistent and you may strike entrepreneurial gold.

In the current economic landscape, I think this perspective can give hope to people with dreams of becoming entrepreneurs. Sometimes all you need to do is notice a problem that’s right in front of you.

Do you know of a problem area that could benefit from custom workflow management technology?

Today I was reflecting on all my conversations with entrepreneurs over the last three weeks. What entrepreneurs are talking about has changed drastically. And this makes perfect sense given the pandemic. But beyond the obvious, I believe the change reflects a shift in entrepreneurs’ mindsets.

The economy has been mostly expanding for the last decade or so. Until March, there didn’t appear to be anything that would prevent 2020 from being another growth year. Most entrepreneurs were focused solely on growth. They planned to raise capital, hire people, and execute on growth-focused initiatives. The metrics they measured and discussed were usually growth-oriented.

The pandemic is a clear and present danger and has brought some businesses to a standstill. It’s now clear that 2020 will not be a year of growth for most, and for many it will be a year of deep contraction. Most entrepreneurs I’ve spoken with are trying to gauge how much business they’ll lose and figure out how to reduce the size of their team and their expenses while maintaining positive cash flow. The metrics that are now being measured and discussed focus on efficiency.

In my opinion, during economic expansions most entrepreneurs accept a certain level of inefficiency in the name of growth. They’re trying to move as much water as possible from point A to point B. They know water is slopping out of the buckets because they’re moving fast, but as long as more water is pouring into the tanks at point A, it doesn’t matter. But during economic contractions, the same entrepreneurs embrace efficiency. The water source dries up, so they put lids on the buckets and carry them slowly to make the most of the water they have.

Having experienced growth mode at CCAW, I recognize that it’s very difficult to get a team to focus on growth and efficiency simultaneously. When you’re growing, you live by the done-is-better-than-perfect mindset. There are more things to do than there are people to do them. Your people will become frustrated if they’re told, “Move fast! Get it done! Oh, and do everything perfectly. No waste or mistakes!”

Without a doubt, there will be pain in the short term for many entrepreneurs. However, I strongly believe that the lessons we learn during this period will help our companies endure.

Today I had separate conversations with two friends who are entrepreneurs. The Paycheck Protection Program (PPP) came up both times. The program was just announced, so many things still haven’t been sorted out. We agreed, though, about the importance of understanding your runway so you can plan how to navigate the PPP process and communicate effectively with your team, your bank, and other important stakeholders.

At CCAW, I always knew the length of our runway. This equation gave it to me:

• net cash / average monthly fixed expenses = runway (in months)

Here are some inputs we can use for an example:

• cash bank balance: $200,000
• accounts payable (how much you owe others): $50,000
• monthly payroll: $50,000
• monthly rent: $5,000
• other monthly fixed expenses: $7,000

Here’s the calculation:

• Net cash: $200,000 (bank balance) – $50,000 (accounts payable) = $150,000
• Fixed monthly expenses: $50,000 (payroll) + $5,000 (rent) + $7,000 (other fixed expenses) = $62,000
• Runway: $150,000 (net cash) / $62,000 (fixed monthly expenses) = 2.4

This business has 2.4 months of runway left if things get really bad. Of course, this is a worst-case scenario. It assumes the business won’t collect any cash (accounts receivable aren’t included). And it assumes that fixed expenses won’t be reduced. It isn’t meant to be a perfect calculation. It’s just a snapshot to help inform decision-making.

This calculation was revealing to me, especially during difficult times. Every day, I knew how much time I had to right the ship before drastic measures would be required.

I encourage entrepreneurs to regularly calculate their runway and communicate it to key people, internally and externally. This simple metric is super-powerful. It can rally and focus people rapidly, which is critical during difficult times.

Today I participated in a conversation among successful entrepreneurs in a variety of industries about COVID-19’s impact on businesses. COVID-19 is bringing crisis to most companies.

As we talked, I reflected on a perfect storm in my past. Macro political changes were negatively affecting my business, a member of my immediate family had an unexpected life-threatening medical situation, and I was facing personal headwinds with the potential to upend my private life. It was not a fun time. The stakes were incredibly high across the board. One bad decision and life could spiral out of control quickly. I was stressed, to say the least.

I learned things then that I shared today:

• 80-year-old’s lens – Fifty years from now, when I’m in a rocking chair telling my story, what will matter most? Relationships, not accolades or wealth. I needed to align my current actions with this future perspective.
• Priorities – I’m only human. My time and energy are limited, and I can’t be effective in every domain at once. Viewing things through the lens of my elderly self, I prioritized the headwinds pushing at me and put family first. I got comfortable with the idea that other balls would drop and things would get ugly before they would get better.
• Communication – I couldn’t immediately focus on lower-priority headwinds, and there were people I cared about who would be affected by that. I clearly explained my thoughts to them. Some agreed with my priorities and appreciated my honesty. Others were extremely upset. I made sure they all knew what my top priority was, how I would be allocating my energy, and how I came to that decision.
• Focus on the light – I focused on the light at the end of the tunnel, not the darkness of the tunnel I was in. I figured that once I was out of the tunnel, I’d have plenty of time to reflect on why I’d been in it.
• Experienced advisors – I pulled together an informal group of people I respected who had experience in areas in which I was inexperienced (I even sought out and paid one person). I asked them to share their experiences with me and incorporated them into my decision making.
• Emotional control – Emotionally, I was riding a rollercoaster. But I was purposeful and made sure my emotions didn’t dictate my decision-making, my actions, or my words. I took time to talk through my decisions with people I trusted and asked them about my blind spots before I took action.

Did everything turn out perfect? No. Was the process painful? Yup. Could I have done some things better? Absolutely.

In the end, it all worked out. It took a while, but looking back, I’m happy I addressed each headwind separately. The passage of time with no action on some of these problems made them worse in the short-term. But what I would have gained from trying to solve them all simultaneously would have been outweighed by the toll it would have taken on me and the people around me. I don’t think this approach would work for everyone or every situation, but it worked for me in that perfect storm.

If you find yourself buffeted by a perfect storm (and you will if you’re an entrepreneur long enough), take time to think. Navigate it your way—not someone else’s way—consistently with your ethics and morals.