So when you’re growing a business, the number of zeroes changes, but the anxiety and the feeling never does.
This topic came about because I was talking to a friend about going through business growth; she’d started offering classes around art and the hand-made products she sells, and she’d started to get spooked by the number of classes she was booking. To the point where she was going to negotiate with a key supplier about potentially getting a cheaper rate for room hire because she was scared of the final bill that was coming through every week.
So the conversation started out with, “Oh if it was just one class a week it’d be ok.”, for the cost of the room hire. But for some reason, for the cost of room hire for more than one class a week, she wasn’t prepared to offer the class for that level of profit.
And so I asked her, “If it’s ok for one, why is it not ok for more than one? You’re running that class and prepared to incur that cost for one class, but not for multiple. Is the class designed to be a loss leader - are you, on purpose, making no margin or potentially even paying to be able to offer that class knowing that that experience or marketing that particular class offering is going to bring you closer to your ideal customer?”.
...the concept of the more you buy the cheaper you get it, but in service-based businesses, typically that doesn’t translate.
And she was a little confused by that. So talking through it, why she would be ok to pay $35 an hour for the room, but 5x that was too scary and she wanted to negotiate a better rate. I understand the concept of the more you buy the cheaper you get it, but in service-based businesses, typically that doesn’t translate. That’s how you set yourself up for failure. The more you work, the cheaper the client gets it, ergo the more work they give you, which ends with your workload being unsustainable and you’ll hit a price point where you can’t even outsource the work for yourself.
Trades experience this when they don’t adequately price loyalty. Or they get stuck in not being able to find or provide value for their clients in ways other than productivity, or money per hour. So in this conversation, I heard more from my friend about what she was experiencing and in the end she was self-challenged and confronted by the numbers that were coming through her business each week and the liability risk she was taking on by incurring those costs to deliver those classes.
So we had a conversation around what growth looks like and certainty as you grow, and the fact that certainty in those numbers never gets any easier, only that your thresholds for risk taking move. And sometimes those thresholds increase - you’re prepared to take more risk the more that your business grows. Typically where you see positive experiences with that ratio is when risk has a definite reward pay off. When you’re verging into new ground and you’re offering a new product or service, unless you do the groundwork really well and you research and you have a sales and marketing strategy in place, that can feel like extremely risky growth, probably out of proportion to the $150 a week that we’re talking about.
The solution was to deal directly with the person getting the pricing, what I call the person in power of the lever. So the person with power in this situation, my friend saw as being the person who’s service she was buying to be able to deliver her service. Whereas when I asked a bit more about the relationship, it turns out this person is actually delivering a lot more value than just a room for hire. She has an active audience or target market that serves my friend’s strategy or business offering. She actively markets and promotes my friend’s classes and workshops because that in turn serves her audience. And, was a general promoter and supporter of my friend’s new venture, to the point where she would allow her to keep her resources on site so that my friend would be saved from the inconvenience of having to move them in and out of the space multiple times a week.
The numbers at any stage, going from $1 to $10, from $10 to $100 and beyond, it’s still going to have the same feeling and anxiety attached to the risk taking.
So there’s a lot of opportunity cost there that wasn't factored into this equation of “can I get the room hire cheaper per hour”. So I think the thing to take from this scenario is as you grow a business, being aware that your decision making will be framed by what state of mind you’re in. The numbers at any stage, going from $1 to $10, from $10 to $100 and beyond, it’s still going to have the same feeling and anxiety attached to the risk taking. The numbers themselves become irrelevant, in fact there's an argument there to say that going from a million dollars revenue to a hundred thousand dollars in revenue would be equally as anxiety provoking, even if it was done intentionally to descale a business. Keeping that in mind as you navigate growth and challenge assumptions around risk can keep your true goals in the forefront.
