Good Enough For Growth Ep 227

In a candid discussion on business growth strategies, the host shares insights on the importance of accepting an "acceptable level of churn" and focusing on growth rather than perfection. Using examples from Shopify and Spotify, he emphasizes that even successful companies experience high churn rates. He advises service-based businesses, particularly those scaling from $3 million to $10 million, to prioritize growth over obsessing about churn, which can inhibit progress. The host outlines a practical approach using spreadsheets to project growth based on realistic data, stressing the significance of understanding the "basic math" behind revenue and profit. He also highlights the impact of marketing spend and the necessity of knowing when to "put some rocket fuel" on the business once certain metrics are satisfactory. The conversation concludes with an encouragement for entrepreneurs to review their business models and adjust their focus to achieve significant growth.

• Recognizing when to prioritize growth over perfection can be a bottleneck in business development.
• Accepting a certain level of churn (customer turnover) is necessary, especially in service-based businesses.
• Obsessing over churn can lead to missed opportunities for growth due to the law of diminishing returns.
• The concept of "good enough" applies to customer acquisition and retention balance.

"And what it was was understanding what is good enough."

This quote underscores the key lesson learned by Speaker A, which is recognizing when a certain standard is "good enough" to allow for business growth rather than being hindered by perfectionism.

• Churn is a natural part of service-based businesses and can vary depending on the business model and customer type.
• Even successful companies like Shopify and Spotify experience high churn rates but continue to grow and profit.
• It's important to understand and accept an "acceptable level of churn" and focus on growth strategies.

"If you're in a service based business and if you service it depends on your type of customer... there's going to be an acceptable level of churn, right?"

Speaker A provides insight into the inevitability of churn in service-based businesses and the importance of recognizing an acceptable churn rate as part of a growth strategy.

• Obsessing over churn can delay actions that drive growth, such as marketing and customer acquisition.
• There is a point where efforts to reduce churn yield diminishing returns and are less effective than efforts to increase growth.
• Businesses should identify when to shift focus from minimizing churn to maximizing growth.

"The bottleneck and the trap that I fell into was not pushing on the gas soon enough because I kept obsessing about churn numbers... there is a point where the returns are so de minimis, as in the diminishing returns, they continue to decrease in terms of the amount of effort that you put in, that it makes more sense allocating that same level of focus and attention to growth."

Speaker A reflects on their own experience of overemphasizing churn reduction, which led to a bottleneck in growth, highlighting the importance of knowing when to reallocate focus to growth initiatives.

• Spreadsheets are essential tools for making business projections and setting realistic goals.
• Projections help visualize the impact of various "knobs" or variables on business growth.
• Using projections can be eye-opening and can guide strategic decisions for business leaders.

"And so every big business that I have built has been built on an excel sheet, and I did it by moving the numbers into what I believed were acceptable numbers, right?"

Speaker A emphasizes the importance of using spreadsheets to build successful businesses by adjusting projections to reflect acceptable numbers, highlighting the practical use of data in strategic planning.

• Important metrics include initial cash acquisition and the price of ongoing services.
• Adjusting these "knobs" can significantly impact the growth trajectory of a business.
• Leaders should understand and manipulate these metrics to achieve growth goals.

"First is what am I charging up front? What is my cash up front in acquisition, right? What am I making the first 30 days? It's number one. Number two is what is my price for my ongoing service, all right?"

Speaker A lists critical metrics for growth, focusing on initial acquisition revenue and ongoing service pricing, indicating these are areas where adjustments can lead to significant growth.

• Understanding the conversion from front end to back end is crucial for business analysis.
• It is important to track the number of leads, how many get scheduled, show up, and ultimately close.
• Monitoring the cash up front from closed leads and their conversion to the back end is key.
• Knowing the price on the back end and the churn rate over time helps in forecasting business health.

"Third, what is my conversion from front end to back end?"

This quote emphasizes the importance of understanding how many customers transition from an initial interaction (front end) to a more committed or ongoing relationship (back end).

"Fourth, what is my churn on my back end? Service."

Churn rate is a critical metric that measures the rate at which customers stop using a service, which is vital for understanding customer retention on the back end.

• Use historical data over an extended period, like six months, for accurate projections.
• Avoid using exceptional short-term data for forecasting.
• Real data should be the baseline for creating projections and making decisions.

"And what I would encourage you to do is not make those projections on your current numbers."

This quote advises against using current or short-term data for making projections, which could lead to inaccurate forecasts.

"What I mean by that is don't look at your close rate last week. Look at your close rate over the last six months."

Using a longer timeframe for data, such as six months, provides a more reliable basis for projections and reduces the impact of outliers or short-term fluctuations.

• Adjusting different business variables, such as churn rate, price, and front end volume, can show potential impacts on projections.
• Assess which variables have the most significant impact and which can be changed with the highest degree of certainty.

"Let's see what happens if we take our turn and we cut it in half."

By experimenting with changes to the churn rate, businesses can explore the potential effects on their projections.

"Let's see if we get our price and we bump it by 10%."

Adjusting pricing is another variable that can significantly affect business outcomes and should be considered in projections.

• The untapped potential in marketing was identified as a key area for growth.
• Previously successful marketing strategies and budgets were analyzed.
• A decision was made to focus on increasing marketing efforts to reach growth targets.

"But the one that seemed to be the most untapped was, believe it or not, our marketing."

This quote highlights the realization that marketing had the most room for improvement and could drive significant growth.

"That alone was going to get us to our goal."

By focusing on enhancing marketing efforts, the business anticipates reaching its growth objectives.

• The podcast does not run ads or sell products.
• The host asks for support in spreading the word to help more entrepreneurs.

"So the single thing that I ask you to do is you can just leave a"

This quote is a call to action for listeners to support the podcast, although it is incomplete and cuts off before the speaker finishes the sentence. The intended action is likely to leave a review or share the podcast.

• Speaker A discusses the concept of an acceptable level of quality or success—what they term "good enough"—and the importance of knowing when to tolerate certain imperfections in a business model.
• The idea revolves around assessing the business model and ensuring it is sustainable and profitable before scaling up.
• Speaker A emphasizes the necessity of tweaking and refining the business model over time, particularly in the context of their performance division, which has been under development for about four and a half months.

"And so right now, if you do not have this, right, and this is why I'm calling this acceptable level of good enough, what will you tolerate?"

The quote highlights the importance of setting standards for what is considered sufficiently good in a business context and understanding personal thresholds for tolerance.

• Speaker A talks about the critical analysis of a business model, identifying and fixing issues such as profit margins and operational inefficiencies.
• They describe the process of building not just a product but the entire model around the product, which is essential for supporting the business.
• Speaker A shares their experience with their online fitness business and the separate business built around it, indicating that they operate two distinct but related business models.

"If the model doesn't make sense and there's too big of a hole in the bucket or there's not enough margin, then you have to fix the model."

The quote emphasizes the need to ensure the business model is logical and financially sustainable, with adequate margins to support growth.

• Speaker A outlines the indicators that signify a business is ready for growth, including lifetime values and cash values per customer.
• They discuss the importance of the profit made on a customer relative to the costs of acquisition and the necessity of a significant gap between these figures.
• Speaker A shares a benchmark for service-based businesses, suggesting a four to one or five to one return in the first 30 days as a sign of readiness for scaling.

"Now, given these numbers, given these lifetime values, given these 30 day cash values per customer, it is ready for growth."

This quote indicates that the business has reached a point where the financial metrics suggest it is prepared to scale up.

• Speaker A speaks about the decision-making process involved in scaling a business, including when to invest more heavily in marketing and sales efforts.
• They mention the concept of "putting gas on" the business by increasing spend and observing what aspects of the business may break under increased pressure.
• Speaker A implies that entrepreneurs often focus too much on minor improvements and need to recognize when it's time to scale.

"But at some point you have to say, this is good enough, let's put some gas on this thing and let's double our spend. Let's quadruple our spend and then see what breaks."

The quote suggests that after a certain point of refinement, the focus should shift from perfection to growth and testing the business's limits through increased investment.

• Speaker A advises on a method of financial forecasting that involves projecting numbers over a six-month period to adapt quickly to changes.
• They stress the importance of understanding the basic math behind revenue and profit in order to make informed decisions and set realistic goals.
• Speaker A encourages the use of a vertical sheet to track financial metrics and adjust projections as current data changes.

"And what you can do is just add a column before that, which is current volume, because otherwise if you look 24 months out, it's useless."

This quote highlights the recommendation to include current business volume in financial projections to maintain relevance and accuracy over a shorter, more manageable timeframe.

• Speaker A underlines the significance of possessing the skill to create and understand financial models for one's business.
• They point out that without a grasp of the numbers driving revenue and profit, business owners are essentially operating without direction or clear strategy.
• Speaker A suggests that understanding the financial aspects allows for better control over the factors that significantly impact the business.

"Because if you don't even understand the basic math behind what drives the revenue and profit in your business, then you're flying blind."

The quote stresses the critical nature of financial literacy for business owners to avoid making decisions without a solid understanding of their business's financial health.

• Speaker A discusses evaluating the potential impact of changes within the business and the likelihood of achieving the desired outcomes.
• They question the feasibility of certain goals, such as doubling sales figures, and stress the importance of setting reasonable expectations based on the business's current capabilities.
• Speaker A reflects on the improvements in their sales team's performance over time, suggesting that what may have been unrealistic at the start could be achievable now.

"The question is, how big of an impact does it have? And then how likely is it that I can actually achieve this delta?"

This quote prompts business owners to consider the effectiveness of changes they plan to implement and to assess the realistic chances of achieving the improvements they aim for.

• Discusses the importance of having working capital and preparedness for partnerships.
• Emphasizes the significance of analyzing exit interviews and data from former clients to improve business retention.
• Stresses the need to address major issues in customer retention to achieve an acceptable level of churn.
• Highlights the potential of doubling ad spend as a more achievable goal than doubling close rates or show rates.
• Points out the impracticality of expecting show rates to exceed 100%.
• Suggests that increasing lead volume can be more effective than improving conversion rates for business growth.
• Advises that businesses should recognize when metrics are "good enough" and focus on scaling up.

on the phone and they're prepared and they have the working capital to do this, they're probably going to work with us.

This quote underscores the importance of businesses being prepared and financially capable when seeking partnerships or collaborations.

Do I feel like it's reasonable given us looking at all the exit interviews and the data that we have from people who choose not to stay with us, which obviously it's part of business. It happens.

This quote highlights the use of exit interviews and data analysis as tools for understanding why customers leave and for making informed decisions to reduce churn.

And then once these pieces are there, do I think that I believe that we could double our spend? Yeah, I think I can double my spend.

This quote reflects the speaker's confidence in the ability to increase advertising spend as a strategic move for business expansion.

If you're at 70% show of appointments, you're not going to get to 140%.

This quote illustrates the logical impossibility of exceeding a 100% show rate for appointments, emphasizing the need for realistic goal-setting.

And so at some point, you just have to make the call and say, this is good enough. These metrics work. We just have to do more.

This quote suggests that businesses should recognize when their performance metrics are satisfactory and should then focus on scaling operations.

But doing this exercise, extrapolating out off of your current real numbers and looking at each of the percentages and the variables and saying, if I increase this, how much of an effect will it have?

This quote advises businesses to conduct a thorough analysis of their current metrics and project the impact of potential increases, aiding in strategic decision-making.

And at the very least, have clarity into what the bottleneck of your business is.

This quote emphasizes the value of identifying and understanding the primary constraints that are limiting business growth.

• Discusses the balance between striving for perfection and accepting good performance.
• Suggests that excessive tweaking of conversion rates may not be as effective as increasing ad spend.
• Encourages focusing on strategies with the highest likelihood of meeting business goals.
• Advises acceptance of current levels of churn, close rate, and show rate when they are at an acceptable level.
• Recommends focusing on increasing customer volume once other business aspects are optimized.

Some people love tweaking with stuff all the time. At a certain point, if our funnel is converting at 35%, I'm like, okay, I'm good with that.

This quote implies that there is a point where further optimization may yield diminishing returns and that it's important to recognize when a conversion rate is satisfactory.

But do I think that it's much easier for me to increase my ad spend by 25% to just increase that volume? Probably.

This quote suggests that increasing ad spend to boost customer volume may be a more straightforward and effective strategy than attempting to perfect conversion rates.

And so which of these doors is the surest path or the highest likelihood path of me hitting your goal and just doing it?

This quote encourages the selection of the most promising strategy to achieve business goals, rather than getting caught up in less impactful details.

• Discusses the importance of identifying and addressing business bottlenecks.
• Encourages the use of real numbers and projections to gain clarity on business growth limits.
• Shares personal experience of realizing the need to increase ad spend to meet growth goals.
• Suggests that doubling customer intake is sometimes the simplest way to grow a business.
• Advises on the importance of having a good profit margin and cash flow before scaling up.

Sometimes the easiest thing to double the business is just double the amount of customers that are coming in the door.

This quote encapsulates the idea that increasing the customer base can be the most straightforward method for business growth.

Once you have the other pieces dialed in and you have profit margins and your 30 day cash is good, so you don't have cash flow issues and you're at acceptable levels, close rate, show rate, churn, et cetera.

This quote emphasizes the necessity of having solid financial foundations and acceptable performance metrics before attempting to scale the business.

Let's put some rocket fuel on this.

This metaphor suggests aggressively pursuing growth once the business is stable and key metrics are satisfactory.

And maybe you take the extra 10 minutes and do that exercise, because I guarantee you that you will make more money by doing that.

This quote encourages taking the time to analyze business metrics and bottlenecks, assuring that it will lead to increased profitability and clearer business insights.