The New Breed of Entrepreneur Isn't So New
The past decade or so has popularized the “grow at all costs” model of business, with innovative tech companies leading the way. Staying in the red for years on end has become trendy, with Jeff Bezos himself insisting that long-term investment in future growth is more important than quarterly earning targets. But for every Amazon success story, there are hundreds, if not thousands, of failed attempts to replicate the same model. These SoftBank companies (as they have come to be known regardless of whether or not the notorious conglomerate is actually invested) seem to fail far more often than they succeed.
Softbank founder and CEO Masayoshi Son recently called his investment in WeWork “foolish.” By now we all know story of WeWork’s downfall. The popular co-working company’s evaluation dropped from $47 billion to just $2.9 billion in one year.
But savvy business leaders don’t stop there … they look for the reason behind the plummet. In the case of WeWork, it was a failure to focus on earning fundamentals. WeWork has actually said as much, with former CEO Adam Neumann once claiming that energy and spirituality were better measures of success than revenue and losses.
So with a few spectacular company failures behind us (in addition to WeWork, OneWeb, Wag, and dozens of other once-prominent companies are struggling if they are not dead in the water already), a new breed of entrepreneur is emerging.
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The thing is, this so-called “new” breed isn’t so new.
The things that successful entrepreneurs are focus on today are actually incredibly old -chool. Customer experience, customer service and profitability have been the main tenants of business ever since the industrial revolution. Softbank companies have turned their back on fundamentals and have failed as a result. So when entrepreneurs everywhere refocus on revenue, metrics and building a strong foundation, they wind up sounding fresh and innovative. The saying goes that those who don’t study history are doomed to repeat it. These “new” entrepreneurs have studied the history of successful business practice, and are repeating it to spectacular results.
So what are these refurbished business philosophies?
Strong unit economics is the key to a strong business. Period. If it costs more to acquire and service a customer than the customer is going to spend with your company, then your business simply is not going to make it. The math never lies. Los Angeles entrepreneur Blake Johnson has actually been consistently and loudly preaching this for years. Johnson’s companies range from small-business finance (Currency Capital) to consumer orthodontics (Byte). Self-described as “obsessed with business models and corresponding metrics,” Johnson believes that all profitable companies have 95% the same DNA. He mandates businesses must have a few core elements in order to successfully cross the magic threshold to profitability and based on his track history, one might want to pay attention.
In an article from 2017, he encouraged entrepreneurs to keep it simple and focus on three key things: cash flow, expenses and cost per acquisition metrics (CPA). “The ultimate measure of a business is whether or not it provides a product that people will buy at a large enough scale to make it profitable. You can spend months or even years building your foundation and setting yourself up for success, but if you can’t bring in customers and enough revenue to exceed your total expenses, you have got to change that plan. Stubbornness will never serve you well.”
A business that lives in the red for years on end is walking a tightrope. Businesses that fail to adapt to market need are heading straight for failure. Entrepreneurs who enjoy continued success understand that revenue and metrics are the most important aspect of a business, and focus the majority of their attention on profitability.
2. Customer experience
If your business doesn’t provide positive customer experience, then customers will go elsewhere. In this way, customer experience is a precursor to profitability. Keep in mind that customer experience is not synonymous with customer service. Customer experience refers to how easy it is to buy your product or engage with your company. Everything that is required of your customer should be seen as a barrier to entry, and smart business owners anticipate losing prospects at each stage. Therefore, it is advantageous to create a buyer's journey that is simple, smooth and positive.
Marketing leader Jes Kirkwood summed it up nicely when she said, “Customer experience is one of the two core pillars of customer retention; the thing is, you can’t grow if your customers don’t stick around.”
3. Customer service
It always costs more to convert a new customer than it costs to maintain an existing customer, and for this reason, customer service is incredibly important. A strong focus on customer service can build loyalty, and get one person increasing their individual spend with your brand. By extracting more value from existing customers, unit economics swing heavily in your favor. Once you recoup your customer acquisition costs for one loyal customer, everything else they spend is profit.
Taylor Chastain from USB Memory Direct has said, “Every department in our company implements customer service in some way, regardless of whether they speak directly to the customer or not. For example, if something goes wrong with a customer’s order, our customer service team goes directly to the processing department to correct the issue as quickly as possible in order to keep the customer satisfied. If the processing department isn’t motivated to keep our customers as happy as our customer service team is, it would take much longer to correct any issues. This would cause our customers to become frustrated and unhappy, which is bad for the entire company — not just our customer service department.”
In order for a business to truly thrive, the customers should be an absolutely priority.
Modern entrepreneurs understand these key principles and are building their businesses accordingly. Much like Rockefeller, who once said that the only thing that gives him pleasure is to see his dividends coming in, the renewed obsession with business fundamentals will doubtlessly lead to some fantastic successes. So pay attention to entrepreneurs who understand this and have understood it for years. They are successful business owners of the very near future.