“Follow your passion” may be great advice for artists or lovers but it’s horrible advice for entrepreneurs. Sure passion can help you get through the emotional downs and inevitable setbacks of building a company. But it can also delude you about what’s really going on and blind you to what you should be learning from the market. The problem is “follow your passion” is an easy thing to write about. They don’t write many articles about people who went bust following their passion long after it was obvious to everyone around them that it was a stupid thing to do.
If passion shouldn’t drive you, what should? Two things.
Your customer’s passion.
Remember, the purpose of a business is to create a customer. And who is a customer? NOT a user. A customer is someone who pays you. (As has been said about Facebook, “If you’re not paying for the product, you ARE the product.”) Why does a customer pay you? For something they want more than their money. Find out what people want and fulfill the desires of people who care enough to pay for it.
All profitable companies do this – or they would not be in business. But the really successful ones do it in a way that doesn’t just encourage a commercial transaction but actually ignites their customer’s passion. That’s why brands like Apple, Harley Davidson and Comic-Con have such cult-like followers.
The second thing that should drive you is improving your skills.
Get really good at something. For our purposes, that something needs to be relevant to business (more on that in a moment). But first I want to comment on the phrase “really good.” When it comes to business, you don’t get to define what “good” is. Your customers do. But they don’t define it by what they say, rather by how they spend money.
Consider Dollar Tree and WalMart. Most would agree that the quality sold at Dollar Tree is not as “good” as what WalMart sells. Yet so many people spend money at Dollar Tree that the company is worth 11 Billion dollars. You could do worse with your company and still have lots to write home about.
Here’s another example: Craig’s List. Its design is not very good according to the most basic graphic design principles and conventional wisdom. It’s flat out ugly. But it works for the people who matter: customers. Revenue in 2013 was $166 Million with profits of 80%. Again, you could do worse.
So what is the “something” you should get good at?
There are only three things a company needs to do to succeed:
- Make something that people want to buy
- Find those people and sell to them
- Build an organization that does the first two things over and over again – at a profit
Let’s consider each of those in order.
#1 Make something people want to buy.
Don’t just focus on the first two words of that sentence. That’s where many startups screw up. They make something cool or wonderful but not something people care enough to pay for. Whether you’re a startup or an established company launching a new product, you don’t want to build it unless people will buy it. To avoid this problem apply the principles of Lean Startup and Customer Development. And by the way, when I say make something I’m not just talking about physical products. I really mean providing value for customers – whether that’s in the form of a tangible product, a service, intellectual property or any other configuration.
#2 Find those people and sell to them.
In many industries, sales people are the most highly paid of all. That’s because this step is harder than most people realize. That’s also why many products and services cost as much as they do. Not because they are expensive to make, but because they are expensive to market and sell. Another plug for the Customer Development process. If you do it properly, in order, all the way to the end, you’ll learn not only who your customers are and what features they’re willing to pay for; but you’ll also learn how to sell to them.
The Business Model
These two steps comprise the bulk of the business model formula. We can’t get into a full-blown discussion of the business model here, but the basic formula is this:
LTV – CA x N = $
What that means is that the Life Time Value of a customer MINUS the Cost of Acquisition of that customer TIMES the right Number of customers results in a profitable business. The costs associated with making things for customers to buy become part of the LTV. The costs associated with marketing and sales become part of the cost of acquisition. And the costs associated with N are the costs of increasing capacity to serve more customers or acquire more of them.
#3 Build an organization.
This is what scale-up companies do. Startups should not scale until they’ve gotten good at the first two “somethings.” In fact, a major cause of startup failure is premature scaling. When Startup Genome studied 3,200 startups they concluded that 70% of the failures failed for this reason. This is also a skill that’s harder than it looks. I work with companies all the time that have tremendous unmet customer demand for the value they provide. But what keeps them small (or worse, leads to failure) is not having the ability to build a robust organization. It’s a different skill-set from making value or selling.
So to summarize . . . rather than following your passion in business, work on your ability to make, sell and build, within in the context of igniting your customer’s passion (or at least fulfilling their desire).