You’re likely full of plans about the various initiatives you’d like to start in your business. They range from free, to cheap, to very expensive, but it usually seems like the ones that have the best chance of paying off are the expensive ones. It stands to reason— if there wasn’t a substantial barrier to entry, you’d probably already have done it.
There’s an art to staggering projects so that they pay for themselves. Sure, in a perfect world, you would have a nest egg saved up. But, failing that, let’s devise a way to make these improvements self-funding.
The Types of Improvements You Might Want To Fund
For our purposes here, there are only two types of improvements:
Revenue-generating improvements might take a substantial up-front investment, but they eventually produce income. An example here might be Facebook ads or building a slick shopping cart for your webstore.
Strictly speaking, overhead merely adds an expense to your bottom line. But although it doesn’t correlate directly with increased revenue, you wouldn’t do it if there wasn’t a good reason! Usually that reason is to free YOU up to do more revenue generating activities, or just to reduce your workload so you don’t burn out.
But, there might be other things like a website refresh or a professional design overhaul— things that make your business look a little more polished and professional, but might not have any effects beyond the subjective.
Why The Type of Improvement Matters
The reason for categorizing posts between overhead and revenue generating is because it makes a difference in how you pay for them.
Plans for improvements rarely happen in a vacuum. I know you have a whole list. I also know that that list exists as a part of a larger strategy within your business.
Let me give you an example:
A bonsai business owner we’ll call Jake had decided that he wanted to take a step back from his business in order to explore another entrepreneurial venture. Although his business had been supporting him handily for several years, if he wanted to step back, he would need someone else to handle the work. This meant that his business would need to support him and others as well.
When he looked at the main roles he needed to replace, it was these three:
- Content creation
- Marketing (esp Facebook)
- Customer service
It’s not like you can’t find people who have all those skills— but it’s easier to fulfill them each individually.
In order to pay him and three other people (albeit part-time), he would need to increase his revenues. We won’t get into the strategy for that, but it’s important to note that he isn’t just hiring people. He is also expanding the business at the same time.
Of the three roles Jake needed to fill, only marketing was directly revenue generating. The trouble is, you can’t just 2x your ad spend to 2x your revenue. But, if Jake had a specialist to handle that, he could hand over the heavy lifting of the ad-related strategizing, and direct his own efforts towards the content creation (which is the main value of the business.) This has the net effect of allowing for stronger content and stronger marketing. There are no guarantees, but it’s a good recipe for increased revenue.
Jake set aside a few thousand dollars from his savings in order to have a psychological “I can afford this” buffer from which to pay the new marketing guy. But he could have also paid him by stepping up his own marketing efforts a little. Most bonsai business owners dial back their marketing efforts as soon as they reach an income level they’re comfortable with, so there’s almost always income wiggle room if they need to amp things up for a short time.
When the revenue from the new marketing initiative reaches a pre-determined level, that money will be used to make the next hire— the customer service person. This will free Jake up further to spend time on his key differentiator— the content.
As the marketing budget gains steam, he will eventually use the next round of surplus revenue to hire a content creator, who will help build out content under his direction. He doesn’t want to hand over the reins completely, but this extracts the maximum amount of value for the time he wants to spend on this business, without the fear that a fully outsourced business would decline in quality and sour people on his brand.
Clear as mud? Here’s the break down:
- Scrape together initial funding for a revenue generating initiative
- Focus on making that initiative profitable
- As the profits come in, save up and eventually direct that money to a strategic overhead
- Reinvest the resources freed up from the last initiative
After 1 and 2, the specific order isn’t set in stone. I showed you the reasoning in this example, but you could just as easily have made the case that finding a content person was going to be a much more essential hire than customer service, and therefore should have been prioritized. It’s a judgment call.
Tips and Tricks of Funding Initiatives
The main trick is to start with a revenue-generating activity and use it to fund the next stage unless there’s a compelling reason why you shouldn’t. For instance, if you want to do a Facebook ad campaign but your website is legitimately terrible, you should prioritize finding a few hundred dollars to make it presentable. It doesn’t have to be world class, it just has to not turn people off. But, until it’s not turning people off, you’re just throwing money down a hole.
If you have enough revenue generating activities, you can stagger them 1:1 with overhead improvements. This is because it’s difficult for any given initiative to pay for more than its own freight and one or two other small projects.
Psychologically, it can be easier to ‘earmark’ certain income towards a given initiative. I have one source of income that is small and technically not worth my time. But it pays for a virtual assistant to format these blog posts for me, and that makes me feel better about the expense.
Recognize that this is a process with stages. Jake has to hire a marketing guy, but he can’t move on to the next stage (ie, the next hire) until the marketing initiative has had enough success to fund it. This seems slow on the surface, but it actually helps you— it gives you a singular goal to focus on in the short term. Until you’re making $X extra, you can’t hire, so don’t even worry about that for now.
Have a threshold in mind. For Jake, we guesstimated that he would need to increase his revenues by 50% in order to pay for the freedom to step back. It’s not that the number is true or right, but it gives you a ballpark to aim for. If you thought you needed to TRIPLE your revenues, you’d probably develop a different strategy than if you only needed to increase by half.
How To Estimate Non-Monetary ROI
There’s a kind of a joke/cliche about young, stupid startup founders who get funding and then proceed to pour money into the sexiest office they can find, often with numerous expensive renovations.
Because they feel like it makes them look successful. And looking successful might attract talent or more funding.
The trouble is, there are a lot of broke startups that look successful.
A monetary ROI (return on investment) is a concrete thing. You might be wrong about the ROI, but you’re typically correct that there is an ROI there to be had.
With non-monetary ROI, it’s trickier. It’s inherently subjective, and subjectivity allows greater opportunity for you to lie to yourself. For instance, is that website and brand refresh you want to pour $15k into basically the equivalent of renting a fancy office?
Maybe. If your business is the equivalent of a start-up, and not an established brand.
That’s the problem with bonsai business owners. We’ve often been bootstrapping for so long that we don’t realize that actually, it might be time to invest in something with a nebulous ROI.
One classic example of this is attending conferences. Nobody goes to conferences with the assumption that they will land their next big client. But, for certain people and certain types of businesses, going to conferences somehow manages to fill their client pipeline.
But if you were really broke, spending $1500 to schlep to Portland to hobnob with peers who seemed so much more successful than you might not just be a risk you could take, psychologically or monetarily. So, you put it on the shelf and you don’t even think about attending conferences.
Until one day, you realize that you could have afforded that Portland trip with barely a pinch to your budget, and you don’t know why it hadn’t crossed your mind before.
The same with the virtual assistant. The same with the ad campaign. The same with the new computer and the monitor arm and the ergo keyboard. The same with the co-working subscription, the same with the house cleaning service.
There are three things you want to consider carefully when it comes to non-monetary ROI:
- Decision fatigue
- Opportunity cost
With decision fatigue, your ability to think creatively and perform effectively declines throughout the day. You know this. You’ve seen it. So why would waste that ability on things that are of relatively little value to the business?
The larger version of decision fatigue is opportunity cost. This is where you aren’t open to opportunities (or creative insight) because you’re working at full capacity with no relief valve.
Finally, you want to consider the role of confidence when it comes to building your business. Our morale and effectiveness tends to rely heavily on our sense of self-assurance. Some improvements exist just to make us feel a bit better about ourselves, a bit more professional, or just make us feel like Someone To Take Seriously— a boost we can all use from time to time.
A Final Gift
If there’s one rule of thumb about hard-to-measure ROI improvements I can give you, it’s this:
If the cost of the improvement is a sum of money you feel you can afford to “lose,” make it a gift to yourself. By that I mean, pay for the expense out of your personal money, not out of the business.
If it works, and you feel it was worth all that money and more, you can pay yourself back. If it wasn’t, then it was a gift you gave yourself, like a spa date.
What I see happen so often is that we want to maximize the ROI, and we can’t do that without a concrete impact. So even though we’re convinced that a certain improvement would be “nice,” — enjoyable, useful, a good opportunity— we hem and haw over whether it would be the best investment, an inherently unknowable thing. So, if the investment is small, I encourage you to make a gift of it to yourself.
Finding The Money For The Things You Want To Do Is A Challenge
It’s hard to make improvements, and the cost is only a part of that. But in my experience, it’s actually easier, because when you’re doing the budgeting, figuring out how to step up your income to cover it, etc, it forces you to be clear on whether something is a worthwhile use of your time— That’s not what happens when you try a new productivity system or a new way of eating!
When you budget, you’re doing to feel broke— that’s the weight of the constraining lack of capital. But again, it’s a good thing. Because you can’t just throw money at the situation, it actually offers you the ability to focus, to only do one thing at a time. Having to wait until the money becomes available helps you practice patience.
When you make your plan, and set up your stages, you’ll have a sense of purpose and confidence that comes from knowing exactly which dominoes need to fall in which order.