How Killing 90% Of My Startup, Earned 80% Higher Profits

Zero To €100k Revenue In 12 Months — Month 7

Goals - Gary Fox


Are you busy or are you productive?

To be a successful and more importantly, a profitable entrepreneur, you need to understand the difference between being busy and being productive.

When I started HostButlers, I was so happy that my phone was ringing that I took any job for almost any price.

By month 7, the business was gaining momentum. This month, I explore how I made a difficult decision to slash my product offering from 7 products to just 1 but saw profits rise almost 80% as a result.

What is your time worth?

When evaluating any opportunity, you must know exactly what an hour of your time is worth.

In my previous post, we discussed how much an entrepreneur can expect to earn in the first year of business.

When you start your business, it will be relatively low, and should steadily climb as your business grows. The key lesson here is to adjust your worth as the business grows to focus on the tasks that deliver the most profit or have the greatest impact. You should then hire people to support you with the day-to-day tasks and let you focus on higher value work.

By month 7, HostButlers was reaching a point where it was getting more and more difficult to handle the admin required while doing all the physical meeting of guests on my own.

It was at this point that I should have hired someone to help me part-time. This was possibly the biggest mistake that I made during my first 12 months. I was so fixed on keeping costs as low as possible and building a buffer level of cash reserves that I worked on my own for too long. I’ve a full post coming in a few weeks that will explore hiring and the team building process.

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Test, Trial, Evaluate, Test

The reality is, you don’t know, what you don’t know. Meaning, in the early days of your business you have no real idea of what products will be successful and what will keep you busy but make no real profit.

You get the classic FOMO, so you end up saying yes to every opportunity. Just in case thats the one that leads you on the road to billionaire status!

The dangerous trap to fall into, is to get so busy doing the same tasks, that you don’t take the time to evaluate if you are spending your time in the most productive and profitable way.

It sounds so incredibly simple to write, but I’ve known so many entrepreneurs that have gotten so caught up in the day-to-day grind of their business that they run out of money despite having huge cash flow coming through their business.

“Decision is the spark that ignites action. Until a decision is made, nothing happens…. Decision is the courageous facing of issues, knowing that if they are not faced, problems will remain forever unanswered.”

Wilfred A. Peterson

Momentum

We’ve all had this feeling, a day or week when everything just seems to click and go right. Work goes well, you are at the gym every morning at 6am, your diet is on track, and life is good. For me personally, this comes down to momentum and the benefits of small wins and entering a state of flow.

Being busy in the early days of my business ensured I was building momentum and didn’t have too much time on my hands to procrastinate and start to worry about every aspect of the business.

I was offering a wide range of services from single cleanings, single check-ins and also the full management option. I even had an option to buy a package of cleanings and check-ins together. At one point, I had 7 different product offerings. For a small one man business operation that was simply too much.

However, this stage was key as it allowed me to experiment and figure out where the profit margin hid within my business.

Momentum

80/20 Rule

I hesitated to even include this rule as it’s become a cliche for entrepreneurs to quote. The simple fact is that its true, at least in my case. I’ve broken out an example of a sample day in the life of my business back in 2016.

12pm — Check-in of guest. Go to a clients property in the city centre, check the cleaning has been conducted and make any last minute adjustments. This task was done by myself so the costs were low here. Meet the guest and tour the property with them. Answer any questions they had about the property or city and ensure they have everything required for a great Airbnb experience.

Fee charged = €30

2pm — Cleaning of 2-bed apartment. Schedule my cleaning contractors to clean and prepare a property. This meant checking the guests departure time, and create a task list for the cleaning team. Each landlord would have specific instructions for each property. This whole process was hugely time consuming.

Fee Charged = €30. I had to subcontract this task to cleaning contractor who took 70% of fee.

4pm — Check-in at a property under full management, which we charged 20% of the nightly rate. Guest paid €420 for the 3 nights.

Fee Charged = 20% of €420 = €84.

You can immediately see the vast difference in profit rates. They all took roughly around the same amount of time but I was earning 80–90% of all profits from the full management service.

It was time to get ruthless and take a decision to cut the majority of my business services and concentrate on a single core product.

Computer - Gary Fox

Pivoting

Despite the clear difference in margins, this was not an easy decision to make. My business was still less than 12 months old. Deciding to remove services that were responsible for 70% of all my daily enquiries was very risky. The following questions all ran through my head.

  1. What is there wasn’t enough properties who wanted full management?

  2. What if I continued all services and simply referred all cleaning business to a third party and took a percentage referral fee?

  3. My competitors are all offering these services, will I lose out?

In the end, I trusted my gut as I could see that was the only way to build a sustainable business. On my my competitors in Dublin subsequently went bankrupt trying to offer too many services and their costs escalated.

“Stay committed to your decisions, but stay flexible in your approach.”

Tony Robbins

Key Learning — Cash flow is NOT king

Cash flow does NOT equal profit. Having cash coming into your business is key but focusing on the cash flow and not the profitability levels is toxic.

You must know your per hour cost (if in service business) or your per unit sale cost (if in the product business).

Before you roll your eyes at the simplicity of this exercise, you must be totally aware of all the costs that go into making your business profitable.

This is a short list of some of the factors that can suddenly make what you assume iss a profitable product into something that bankrupts you. Wage costs, insurance, office rental, parking/taxi costs, motor running expenses, VAT, business tax, and marketing costs.

Your margins must be healthy enough to cover all the costs above and earn you a profit at the end of each week.

It’s simple, know your margins and double down on what works! Be ruthless and kill the rest. It’s distracting you from the real goal of building a sustainable, profitable business.

Month 7 To-Do List

Week 1 — Conduct a full margin analysis of every product/service your business offers. See where/what is making profit.

Week 2 — Get ruthless with your analysis. Cut or tweak any products/services that are not making profit.

Week 3 — Hire someone to help you part-time if you can afford it. It’ll make a massive impact on the business and your personal mental health.

Week 4 — Clarity is key. When you make the adjustments, update your website, social channels, to reflect the clear offering of your business.

Month 7 Not-To-Do List

Week 1 — Watch your task list getting longer and longer as you fail to prioritise key activities.

Week 2 — Procrastinate on the decision. If it’s not making you money now, waiting 3 months wont improve things, unless you can reduce costs.

Week 3 — Keep working 14 hour days. It leads to a nasty crash. You are becoming less effective and focused, the more you burn out.

Week 4 — Listen to traditional wisdom. Trust your gut and what you have learned in the previous 7 months. Business practices are changing everyday so adjust with them.

Gary FoxComment