What it really means to be a successful entrepreneur
What does it take to become a successful entrepreneur today? Well, if you were to believe the “gurus” of Silicon Valley, it would mean pitching a great idea, securing lucrative venture capital, scaling your business as fast as possible, getting an outsized valuation, and cashing in on a huge payday (and perhaps a spot on a Forbes’ list). Pitch, fund, scale, sell. Rinse and repeat.
In the age of “Shark Tank,” where venture capitalists have become the new superstars (and superstars are becoming the new venture capitalists), we’ve seen the culture of entrepreneurship shifting from building sustainable, profitable companies over time to obsessing over funding rounds and “blitzscaling,” all in the service of creating massive paydays for investors and founders—even at the expense of profitability.
This view of entrepreneurship isn’t healthy for would-be business owners, nor is it healthy for society. As tech founder Tim O’Reilly recently argued, the current VC blitzscaling mentality, where only a select few companies hit the jackpot and the rest are left to fail, means that “businesses that would once have made meaningful contributions to our economy are not funded, or are starved of further investment.”
But now we’re seeing that the tide is changing. A recent New York Times article profiled a growing group of founders and business owners that are rejecting the current VC model and going about business in the “conventional method”—growing steadily, profitably, and most importantly, on their own terms.
At my company Creative Business, a business and financial advisory firm for creative entrepreneurs, we work with numerous business owners that face this issue. All companies must grow to succeed. The question of how you grow is the fundamental challenge. Although every company has its own unique path to growth and success, we’ve found that the most successful and sustainable companies share the same principles when it comes to business:
Growth is important, but not in the sacrifice of profitability.
The proliferation of high-profile unicorns that have dominated business headlines over the last decade have put too much emphasis on top-line revenue as a measure of success. Entrepreneurs have now been conditioned to project wildly optimistic “hockey stick” revenue curves, even through the truth is that a tiny percentage of businesses will achieve that kind of growth, and many of the ones that do must operate at huge losses to do so.
In the end, it’s all about the bottom line. Businesses need to be profitable to succeed in the long term. While early stage companies or companies in expansion mode may temporarily operate at a loss as they invest in infrastructure or marketing and sales, this must be carefully budgeted and articulated in the strategic plan. As a business owner, you and your investors will need to know the break-even point as well as projected profitability after that.
Businesses focused on profitability should aim for a 20% profit margin and positive cash flow in their strategic budgets. This helps you to build a buffer in your projections that allows you breathing room in case you miss your sales targets. As for healthy growth rates, it’s anything but a hockey stick. Even wildly successful companies, which may see 50-100% year-over-year revenue increases in their early years, will eventually level off. Our experience is that companies in expansion mode should aim for 25-30% yearly growth, while for mature companies, any double-digit growth is favorable.
You can be profitable and still be good to your employees, community and society.
Profitability does not have to come at the expense of lowering employee wages, cutting corners, or unethical practices. The long-held maxim that the sole responsibility of a business is to maximize shareholder profits is not only outdated, it’s detrimental to society. Even those in the top 1% have acknowledged the problems of shareholder capitalism, which has exacerbated economic, social and environmental issues around the world. Recently Larry Fink of investment firm BlackRock called on businesses to put purpose before profits, saying that “companies that fulfill their purpose and responsibilities to stakeholders reap rewards over the long-term.”
The research proves this true: companies that put employees first and prioritize stakeholders over shareholders perform better over time. The goal isn’t just maximizing short-term profits, but creating long-term value by investing in employees and the community.
As a prime example, Michael Lastoria, founder of fast-casual restaurant &pizza, shocked initial investors by promising to pay his workers at least $15 an hour, more than 50% higher than the minimum wage at that time, and by using good, fresh ingredients. The restaurant industry, known for its razor-thin margins, did not believe he could survive. Not only was he able to prove skeptics wrong, but he has since expanded to 33 locations and started a movement to increase the federal minimum wage to $15.
Could he make more money by lowering wages and buying cheaper ingredients? Sure, in the short term. But it’s precisely his commitment to fair wages and good food (not to mention innovative text- and phone-based ordering) that has cultivated a large and loyal following.
Your own success is not measured by your net worth, but by leading and living a meaningful life.
Although the exact number varies based on location and cost of living, studies around the world all say the same thing: more money makes you happy, but only up to a point. After that, life satisfaction doesn’t increase with income, and in some cases, it even decreases the more you make. In North America, this number sits at $105,000 USD.
Where does happiness and life satisfaction come from after that point? By living a meaningful or purposeful life. What “meaningful” means to you is highly personal, but psychologists have generalized a meaningful life as using "your highest strengths and talents to belong to and serve something you believe is larger than the self.”
We are incredibly lucky that our clientele are primarily creative entrepreneurs who are driven by a passion for their craft and desire to make an impact on the world with it. But you don’t have to be a “creative” entrepreneur to be a meaningful one—as a business owner, there’s always an impact to be made within an organization and outside of it.
For us, success as an entrepreneur is simple—make enough for yourself to be able to make a good living, save for the future, and invest; make enough to give your employees fair wages, benefits, and job security; and make enough to be able to give back to the community or make a positive impact on society. Everything else is just a number!