9 HUGE Lessons from 2019 and What they Mean for Your 2020
Episode 394: Show Notes
Can you believe it? The year 2019 is over and we’re starting 2020 in just a few hours! We’re talking about our New Year’s Eve plans and how Emylee is going to navigate a house full of party people – thanks to marrying a frat guy who has a million friends! But speaking about plans to enter the new year on a high note, today we share with you our biggest lessons from 2019 and how they should impact your (and our) strategies for 2020. Tricky situations are unavoidable, and we offer you some solid advice for mitigating their potentially negative effects.
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As business owners, we are required to keep learning and developing all the time – otherwise, we simply won’t be able to keep up and we’d never reach our full potential. There are logistics and technicalities you must deal with at some point, whether it’s your thing or not, because entrepreneurs and business owners need to fulfill a multitude of roles and responsibilities. We reckon you can give yourself a pat on the back for what you have achieved in your business this year. It’s not easy, and it takes a lot of grit. Join us for this last episode of 2019 to hear more about break-even points, short-term sacrifices, distractions, and a whole lot more!
P Is for Profit
In this industry, we often hear people talking about their results and top-line numbers, and while these things are great, you’re only really making money if you’re seeing a profit. If you are earning above your expenses and you yourself are able to make more money on a monthly basis, then you are making a profit. Those big numbers mean little when, at the end of each month, you have little to nothing to reinvest into the business. Just remember, as a business grows, there are more expenses and extra elements get introduced, and those can quickly burn through cash. So, we want to focus on the things that are going to keep the margin there and earn you more profit. It might be as simple as doing an audit and working through your profit and loss statements. Basically, it involves working out who you are paying and the systems you spend money on, and this will show you where you might cut expenses. And the sooner you do this, the sooner you can start saving money, and when you do this early on, you also get to sort our problems before you get knee-deep into problematic systems. It’s also important to first see what funnels work before investing too much in anything. Do your homework around profitability before buying new software or a subscription for example. Go ahead and use the free trial options, and see if you get any money coming in.
Know Your Break-Even Points
We didn’t always understand where our break-even points were. In any given month, you have set expenses and flexible expenses. What you need to know at all times is the point at which you break even so once you hit that mark during the month, you know that whatever comes in after is cash in the pocket. When you know where this point is, you can measure how you are doing throughout and realize when something is off. This is especially relevant for those who offer payment plans and memberships. When we talk about break-even point, we also mean that point where something you have invested in – whether a person, new software or marketing campaign – is beginning to make you money. So, you would have to sell X number of subscriptions, for example, to cover the cost you incurred to get that subscription service off the ground. You need to know where that mark is – that point where you are beginning to see a return on your investment. This is the only way to measure whether that avenue is making you any profit.
Making Short-Term Sacrifices for Long-Term Gains
Sometimes, too, you might need to overspend on something initially in order to see a return on your investment later on. You often see big companies burning cash like this – making short-term sacrifices for major long-term gains. They view these scenarios as investment opportunities. And for small businesses, there are also investment opportunities, but you need to know that it inevitably involves risk. It is, therefore, crucial to know, firstly, how much risk you are willing to take on, and secondly, how much cash you are willing to lose in the short-term to make this happen. For example, you might go two or three months of not making a cent out of a client because you have had certain costs to get them to the point of buying your subscription. You have had to market to them and have spent money on developing your content. But eventually, if all goes well, you will start making a clean profit off that client’s subscription payments, after your costs have been covered. They might, therefore, end up making you money for nine out of the twelve months in a year. But just a caveat: be careful of not over ‘stacking’ short-term expenses – you might run into a cash flow problem. Consider whether you have enough other channels of income before burning through all your cash in advance.
A Bigger Team Does Not Always Mean More Revenue
Hiring more team members does not automatically mean more profit. If the team members you have do not have some sort of measurable contribution to you making money, then it’s going to be expensive to run your business. With what we’re doing, it’s not always possible to determine exact figures of what kind of money a person is bringing you in, but we want you to think about other ways in which that person indirectly contributes to profit gains. Here’s a question for you: Is it more important for such a person to take something off your plate so you can focus on sales, or are you at the tipping point where you don’t have any more capacity and you need someone to come in to help you with growth? Most of the time, hiring for growth is more expensive because the people are more skilled. You can work on commission only, but that’s harder to find.
Employees Are Far More Expensive Than You Think
People always say this, but we didn’t understand the full weight of this truth until we were confronted with it. We thought offering a nice package and increasing a few benefits here and there would be nothing, and it wasn’t the biggest deal, but boy, did it impact our cashflow unexpectedly! We ended up having to pay people 20% more than we would have paid for a contract worker just because we had them as employees — and thus had the advantages of having someone on board full-time. The shock happened when we transitioned someone from a contract worker to an employee, and the impact on our immediate cash flow was brutal. You can’t pay an employee on credit like you can a contract worker; they get paid out of your cash. If you’re planning on bringing someone onto the team, make sure that you have a comfortable cash cushion to fall back on.
Why Reading Traction Is A Must
We talked about this in 2018, but it’s still just as relevant for 2020. Regardless of how big or small your business is, reading Traction is a must! This book taught us a lot about the structure for who we wanted on our team, how we wanted to run meetings and hold people accountable outside of the two of us. We did super well the first quarter and then hit a road bump in the second quarter, having a hard time knowing how to adjust what we needed to in our business. Hence, we failed to make those necessary adjustments and therefore had many things unanswered for a long time. We feel now, in retrospect, we have a firmer grip on what needs to happen. Two years ago it was really difficult for us to plan a year in advance so we broke the year up into quarters. We did well during the first one but then reverted to making a different decision every day from there on, which is very unhealthy. We’ve decided a happy medium is to plan quarter one and then to plan quarter two only halfway through quarter one. That way we remain more flexible. Knowing beforehand what you want to prioritize in the coming year keeps you focused. We’ve developed a star system that helps us to know which activities should get the most attention. Three stars mean a daily check-in is needed, while one star might mean that a monthly check-in will suffice.
Getting Unattached to Results
While most of us would say we’re not attached to results, this is mostly not how it ends up playing out. When things don’t go as planned, you suddenly find yourself taking a lot of ownership and responsibility for things not working out – when in fact you literally have no control over it. It’s important to be aware of this thought process and this slipping into taking results too personally. We’ve had to learn results are not tied to our self-worth. When you begin asking whether you are not showing up the way you should be and get too introspective and doubtful about it all, it’s easy to lose perspective and blame yourself. We all need to separate our business performance from our sense of worth as individuals. This is especially challenging for Enneagram Type 3s who want to be seen as competitive, competent people who accomplish amazing things. When you manage to separate results from who you are as a person, you end up performing better because there’s not the constant pressure to perform.
Learn to Navigate (And Accept) Priorities and Distractions
For the first part of 2019, Emylee had a real crisis with her childcare situation, and it continued for the larger portion of the year. This put a lot of stress on her. She was left with no childcare at the last minute and felt overwhelmed with what she needed to do at work while also needing to now stay home to look after Penny until she found new childcare. Balancing work and mom life is, as you all know, a challenge – and of course, kids can’t look after themselves so we are responsible first and foremost for them. This means when things like this happen, you can’t show up in the same way in your business. You will be distracted and comprise your productivity, but at the end of the day, it’s about taking care of top priorities first. This, unfortunately, means your business may suffer for it. In a regular nine to five, you can still get away with mentally checking out, but you can’t do that when you are a business owner.
Keep Your Business Going When Life Happens
Abagail has dreamed of having her husband home permanently for a long time. She would joke that she wanted to retire him because it would mean they were making enough so he could just be a house daddy and take care of their future kids. And now that he’s done it and is doing what he loves from home, it’s still stressful in that it constitutes a huge change. Suddenly Abagail’s routines had to be re-shifted and having someone around all the time was an adjustment. But these distractions are part of life and it’s going to happen at some point. The big thing here is how you react in these situations. Do you have systems in place so your business can keep churning even if you aren’t paying your full attention? Do you have the ability to turn certain tasks over to someone else when your plate is too full? Make sure that your business is set up in such a way that it does not fall apart when life happens.
Quote This
We’ve had to learn that our business results are not tied to our self-worth.
Highlights
P Is for Profit. [0:05:51.1]
Know Your Break-Even Points. [0:10:46.1]
Making Short-Term Sacrifices for Long-Term Gains. [0:15:18.1]
A Bigger Team Does Not Always Mean More Revenue. [0:22:15.1]
Employees Are Far More Expensive Than You Think. [0:26:55.1]
Why Reading Traction Is A Must! [0:29:45.1]
Getting Unattached to Results. [0:36:45.1]
Learn to Navigate (And Accept) Priorities and Distractions. [0:43:30.1]
Keep Your Business Going When Life Happens. [0:48:38.1]
ON TODAY’S SHOW
Abagail & Emylee
The Strategy Hour Podcast
We help overwhelmed and creative entrepreneurs break down their Oprah-sized dreams to create a functioning command center to tame the chaos of their business. Basically, we think you’re totally bomb diggity, we’re about to uplevel the shiz out of your business.
KEY TOPICS
Profit, Break-even points, Hiring, Short-term sacrifices, Cashflow, Employees, Traction, Results, Self-worth, Distractions, Priorities, Structures
