- Hi there. I'm Dan Martell,
serial entrepreneur, investor,
and creator of SaaS Academy.
Today, I'm gonna teach you how to think about your business
at a high level so that you can build something incredible,
and be sure to stay 'til the end.
Where I'm gonna share you two other video resources
to help you go even deeper.
(upbeat music)
So maybe you're new to business,
or you feel like an impostor in your own company,
or you can't figure out how to grow the business.
In today's video, I'm gonna walk you through exactly
the key areas of your business,
how to invest in them properly to get them to grow.
These are the five steps
that you're gonna need to understand
to get clarity in your company.
Step one, marketing.
What does it take to generate a lead for your business?
Now I know my first company, MaritimeVacation.ca.
Yes, it was a .ca. I'm Canadian.
I thought I'm just gonna build this site
for other vacation rental owners to add their listing.
This is '97, and I built it.
I actually convinced my dad to pay me a bit of money
to cover the server cost,
and actually coded the thing up, and launched it.
And nobody came running.
There wasn't like 50 people that said,
"Oh my God, finally,
"a way to publish our listing on a website."
At the end of the day, just 'cause you built something
doesn't mean anybody is gonna show up,
so what marketing is, is the mechanism, the process,
understanding what it takes to actually generate a lead
in your business. That's not a customer.
That's just awareness.
So what I did is I decided to figure out where do people,
like my dad, that's the key is,
once you have a target customer
'cause I think of marketing
as putting a message in a market.
You need to figure out what that message is
and who that market is.
Once I figured out who that was,
people that own cottages or bed and breakfasts.
Then I had to ask myself,
where do those people list themselves,
where can I get a directory or a full listing
of all those kind of people,
and I found it in the tourism guide for my province.
So what I did is I created a mail merge.
Yes, this is back in the day
before these companies were even on email.
And I sent a blast out in the mail, physical mail,
direct mail as it's known, and asked them
if they wanted to be on the internet
to just fill out a form,
and get people to send checks in the mail
or money in the mail. I couldn't believe the fact
that people actually did this,
but that was the first exposure I had,
being somebody that had built stuff before
but never really understood the marketing side,
the first time I had people show me
that if I presented a solution to a pain
that was painful enough for them
that they wanted to be part of that.
They were willing to throw money in an envelope
to a stranger to have their listing created.
I remember the day my dad came home
with a handful of envelopes saying, "What did you do?"
Because he couldn't believe like there is all these messages
to me, and he opened 'em up,
and also there's cash in those envelopes,
and that, to me, was the first time
I ever made a dollar in the internet.
So if you have ever launched anything on the internet,
made your first dollar, and it wasn't from your cousin,
your uncle, your best friend, then you've gone pro,
and that is the first step
is understanding how do you generate leads,
what does it take to generate leads for your business.
Step number two, sales.
What does it take to turn those leads into customers?
What does it take to actually generate a sale?
And it's more than just having somebody
come to your website and sign up for something,
or come to your e-commerce site and buy something,
or walk in your story and
purchase whatever is on the shelf.
There is a process to selling.
There is a process to merchandising,
a process to presenting the information,
the right way to present it,
and actually bring the customer
through a journey to the point
where they're gonna buy from you.
For me, it was really about,
when I built my company, NB Host.
It was a hosting company but I had to go get customers,
and one of the sales processes that we need to figure out
was how do we do in-person meetings
with small business owners
that had websites they're already paying to be hosted,
and get them to decide
to move from their current hosting to with us.
So it's not even just about understanding
the marketing message
and what makes you different and unique and competitive,
but it's also the buying process of a potential prospect,
and what are the things that they need to hear
for you to build trust, credibility,
proof that you can deliver, maybe it's reference accounts.
There is a bunch of different things
that a potential buyer is gonna need to see, hear, and feel
for them to feel comfortable
moving forward with your company.
The second thing is really figuring out what is the process
to convert a lead into a customer,
and that's the sales step.
Step three is product.
What does it take to turn a customer, a new customer
into, my favorite word, a freaking, raving fan?
Somebody that is so excited to work with you
that they can't help but tell everybody they know,
maybe even grabbing them by the arm,
and walking them into your business.
This actually happened to me yesterday
when I was talking to a potential customer,
then I said, "How did you know?
"I'm just curious. What did you hear about me,
"or things that you saw online," et cetera,
and he mentioned, "I was talking to Mark.
"I know he's working with you,
"and he said some really incredible things,
"and I figured I might as well follow up
"and see if you can serve me as well."
There is nothing better in the world of sales and marketing
than getting a warm referral lead,
however, that is not a repeatable, scalable process.
So what you want to do in the product side
is figure out what can I do to deliver value to my customer.
They eventually invest in your product, your solution,
and they want the value,
but the key to turning somebody
that's just signed up or become a customer into a raving fan
is actually very detailed, and ideally, systematic process.
In the software world, we call that customer success,
but it's the idea of saying, "Okay, over the next 90 days,
"what are the activities that we could monitor,
"ensure customers our receive value on
"that we could follow up,
"and ensure that we engage our customer,
"and, at the right moment,
"actually ask them for a referral,
"and make that seeded at the beginning in a process
"that's very deliberate, systematized, and expected."
So every time, and this is great about products
that have a freemium and a viral coefficient,
they grow virally, or if you have a tool
that's on an app store, and you want to get reviews
written about it, or if you have an e-commerce company,
same thing, you want reviews.
There is a way for you to ask successful customers,
customers that you've really focused on,
gotten results for creating raving fans
to amplify their excitement and energy within your business.
And that is such an important step
in really understanding how to think about your business,
the product side, what do you do, how do you do it,
how do you ensure that every new customer you get
gets the value that you promised,
and then convert that into excitement in the market place
that that drives more customers for your business.
Number four, overhead.
What does it take to run the business?
I think entrepreneurs, when they first start off,
they start making sales.
They make like $100.
They might make $1,000.
They might make $10,000.
The way they think about it
because if you've come from an employee background
or a traditional job, you've always just made money,
and it was yours to keep.
What happens when you have a business
is you start to have things like expenses and cost of goods,
and really, these are the overhead areas of your business,
things like finance, operations,
accounting, investing in things
that actually don't deliver value to the customers,
don't directly have to be associated to a sale,
so that's the cost of sale, or improving the product,
but it's just part of running the business,
the management cost or the overhead.
It's rent, it's death by SaaS.
I don't know if you have any subscription tools,
and you've got like 100 of them,
and every month, you write these little checks,
or they hit your credit card for all these different tools.
But at the end of the day, understanding what it costs you
to run the business, that area will help you think
more about what's left over after the fact.
So as a great entrepreneur,
you want to understand the overhead of your business,
and that's really the fourth step
because you might do the other things right,
get leads, convert them into sales,
and really make sure you create a raving fan
through your product,
but if you don't understand the cost structure
of delivering that value,
you can actually grow yourself out of business.
It sounds crazy, but it happens
because if your cost to deliver the value fully loaded
is more than the revenue and the profits that you make,
then you're upside down in your business.
So that's the fourth area you really need to understand
to grow an incredible company.
The fifth step is profit.
Profit is what's left over
after you get money from your customer,
and you deliver the value, and cover all your overhead,
whatever is left over,
and ideally, what you pay yourself a salary.
I think one of the biggest challenges
entrepreneurs need to think about,
and I made this mistake for a long time
is I didn't pay myself a market salary,
and I think people almost take it as a badge of honor.
I was meeting with a founder the other day,
he ran a business, a half million in revenue,
and I was looking at the economics and the overhead,
and they were somewhat profitable,
around 15% net operating income,
and one thing told me that he wasn't,
because I could just figure out in my head
all the math and the cost and the overhead and the sales
that they weren't paying themselves,
and it turned out they're paying themselves
28,000 a year.
They were two co-founders.
On a half million in revenue,
you should be paying yourself at least 60,
and if you can't do that,
then you really have to investigate the economics
and the operating model of the business.
So to me, the fifth step is really understanding the profit,
what's left over after,
what should it be for your industry.
There is a thing called baselining
where you actually can get research
on different categories of businesses,
figure out which one you fit into,
and get the blended averages, the low, medium, and high.
What's that average for your type of business?
Is it 15%?
Is it 30%?
Some businesses, the average, like software,
can be as high as 40 and 50%
if they're not investing heavily in acquiring new customers.
They're high gross margin businesses,
which means that if you can operate them efficiently,
they leave a lot of profit left over.
The way I think about any business,
if you're struggling, if you're frustrated,
if you feel like you can't really grow,
you got to go back to profit
because at the end of the day, profit solves all problems,
so it's what's left over at the end of the business.
I shared that with this entrepreneur.
They had to figure out how he can get himself to be paid
at least 60,000 a year, and what's awesome
is that he automatically went to the products
that we could sell, direct to customer
at a higher margin and a higher volume
that would hit the bottom line of profit,
which means they could take that in the overhead
from their salary position, and get themselves there,
so it's almost like by understanding your numbers
relative to the industry,
it forces you to get to a place
where you start making decisions to drive towards that
versus just thinking that's the norm,
and that's what I'm supposed to do,
and I'm just starting off.
But when a company has been in business for five years,
and you're paying yourself 28,000 a year,
there's something fundamentally wrong about the business.
So those are the five key areas of the business.
Marketing, what does it take to generate a lead.
Sales, what does it take to convert that lead
into a customer.
Product, how do I take a customer
and turn them into a raving fan.
Four, overhead, what does it cost me
to run this business.
And then finally, five is profit,
what's left over to allow me to actually prove
that I've created an economic engine.
As I mentioned at the beginning,
I want to share two other video resources
to help you go even deeper.
The first one is a video I did on CrossFit for business.
If you don't know this about me,
I definitely like to CrossFit.
I'm one of those guys that can't shut up about it.
I just love it.
And I decided one day to reverse engineer
the training methodology and how CrossFit works,
things like compete every day, and skills and drills,
and say what would the equivalent be for business.
So I have a video on that linked below
that you can check out.
And the second thing is, if you want to nerd out
a bit more on the financial models,
we talked about it lightly,
I actually have a training that I did
at my Idea to Exit live event
called The Five Financial Models.
It's a private video shared exclusively for you,
so click below. Check that out.
If you liked this video,
be sure to click the like button below,
share with your friends, and be sure to subscribe.
As per usual, I challenge you to live a bigger life
and a bigger business.
Thanks for watching, and I'll see you in the next video.
(mimics drums)
(laughs)