Martin here. Welcome to another edition of Founders’ Hustle!
I write bitesize newsletters containing actionable insights, insider knowledge, motivational talk, and wellbeing tips… all packaged into a digestible format to help you win as a founder.
In today’s newsletter I’m sharing five critical business lessons from making my first $1 million.
With anything like this, context matters. So, I’m going to start off with my personal real life experience of how that situation unfolded, before diving in.
My first full-time job was a steady and comfortable position within the investment division of a tier one global bank, HSBC.
After just one year of employment I got an itch to found my own business. Not a side hustle, but a venture that I could work on full-time.
The trigger for the sudden new direction came in September 2008, when the global financial crisis started to hit hard.
One lunchtime I found myself strolling passed the Lehman Brothers building.
At the same time, tech was booming and I just knew I had to get involved somehow. I felt excited by all of the innovations taking place (cool things like the iPhone had just launched).
I had no product idea or business thesis at that point. Just bundles of inspiration and a vague dream.
Despite the absence of anything remotely resembling a plan, I felt confident I’d figure it out if I applied myself — even though I had never started a business before in my life. Well, unless you count a non-profit school newspaper.
In case you’re wondering I also didn’t have an MBA, a business degree, or even any degree related to business like marketing, finance, or design. “Just” a history degree.
The point is, I was completely naive at that moment in time. But, I acknowledged it. So, the first thing I did was a ton of reading across many aspects of company building — finance, marketing, product, design, etc.
Once I built up a reasonable knowledge base I started to experiment with product ideas, and, amazingly, the second one really took off.
I launched it on the side with friends whilst working for the bank. Three months after going live, which was two years after the Lehman Brothers collapse, I handed in my resignation so I could pursue my business venture full-time.
Once I quit my job and pursued my business with full energy it grew fast. Not before long, it generated $1,000,000 in profit.
But, despite all of the reading I did, and, continued to do, there were some valuable lessons I learned early on, first-hand, that have stuck with me ever since. They were not lessons of failure, but lessons of success.
Here they are.
1. Success can lead to bad decision making.
This may sound counter-intuitive, but, being successful can cause bad decision making. This is both at a group and an individual level.
Particularly when you’ve built something from scratch. Doing that builds incredible confidence — overconfidence, even — which is a weakness that can go unchallenged.
That’s because there’s an imperfect belief in society which suggests success breeds success. Whilst there is a correlation, in that success increases the chances of later success, it’s not an absolute rule. Successful people make mistakes all of the time.
Overconfidence increases the frequency and magnitude of those mistakes because society doesn’t scrutinize successful people to the same degree it scrutinizes others.
This belief system can permeate internally within a successful company amongst the leaders. It can generate a culture where there is less consideration over actions taken because your team feels like everything they touch “turns to gold”.
How could anything go wrong when you got it so right before? In many ways.
Overconfidence leads to a weakening of decision-making methodology that differs from what made your earlier success possible. This can lead to expensive mistakes, because:
You feel like you can accomplish projects and initiatives that you haven't prepared for appropriately, or, are just far out of reach.
Less scrutiny is applied when the above is suggested, so it’s more likely to occur.
On an individual level this is analogous to the Dunning-Kruger Effect, “a cognitive bias in which people wrongly overestimate their knowledge or ability in a specific area.”
From my experience, overconfidence increases proportionally with the Dunning Kruger Effect. The more overconfident you are, the more you will overestimate your knowledge and ability in a specific area.
So, to avoid becoming overconfident its key to acknowledge your capabilities, limitations, and conduct retrospectives on what ingredients made you successful so far.
My company was guilty of this whilst we were making our first $1,000,000.
We decided to invest some of the profits and set up another business “on the side”. It was in a completely different market and there was minimal overlap in the skill competencies needed to make it work.
That’s fine if you have time available to invest and make it work, but we didn’t. In reality, it was a full-time undertaking for any company to pursue, but our overconfidence led us to set it up and run it whilst building our main business full-time.
Consequently, we shut our side business down within two years after progressing nowhere meaningful. Considerable costs were incurred — both tangible and intangible.
Direct costs were incurred from setting it up in the first place, including purchasing an expensive domain, while indirect costs were related to being distracted from our core, profitable, business. By not giving it our 100% attention it suffered.
2. Success can lead to missed opportunities with your core product.
It’s common that when people fail at building a business or product, that failure leads to a fairly intensive retrospective and a realization of why it failed.
No one wants to repeat a failure, it’s too painful, so it’s natural to investigate what went wrong intensively in an attempt to avoid repeating the same mistake again.
This knowledge-base is carried forward and applied to future initiatives. It’s a learning process so one can try a different approach and do better next time — iteratively making adjustments to figure out what works.
But, the same intensity of investigation doesn’t always occur when you have success. The common thinking is “things are going well, so why question it?”, a kind of “if it isn’t broke don’t fix it” mentality.
I’ll tell you why. Success is relative. What you’re doing could be even better — 2x, 5x, 10x.
If you have quick and early success, it’s likely you’ve just scratched the surface of what is possible. After all, what are the chances that an early iteration of your product or service is the most lucrative version of what it could possibly be?
You should investigate why what you’re doing is successful. Not features or fluff, but the core offering.
Dissect your approach, how customers use your product, and your market positioning on an incredibly nuanced level.
There are usually phenomenal insights to be gained from drilling down into your data or talking meaningfully with customers.
My company was guilty of not doing this whilst we were making our first $1,000,000. We became a market leader quickly. Our product was working just fine, so we didn’t drill-down on core user behavior as much as we should have. Instead, we spent time on ancillary features.
In hindsight, there were some significant improvements we could have experimented with and made to our core user offering. I know this because a competitor who launched after we did took this approach, reaped the rewards, and outgrew us.
3. Success can inhibit innovation
It’s widely known that big companies struggle to innovate. What’s little discussed is that it can also affect small, young, businesses too.
The effect which causes this a kind of inertia of success. As a successful business model develops a company becomes more likely to be set on that pathway and stick with it.
In other words, the possible paths a company takes decrease proportionally as its customers and revenue increase.
Pre-success, business owner psychologically is pretty much the most open-minded it will ever be. If something isn’t working out, it’s common for pre-product-market fit businesses to abandon a product and pivot into a completely new different market. For example, consider how Slack started out building a game. Nothing is off the table.
This is not so much the case once a young company gains customer traction with a product, no matter how early. That revenue is now paying bills and salaries. There’s financial risk and something material to lose. Customers build up familiarity and expect your product to work a certain way. There’s technical debt.
Consequently, the business owner’s appetite to pivot can reduce to zero. And, experimenting with drastic changes to the existing product or taking risks with other innovative products in the same market starts to look unappealing.
Whilst it’s probably a good idea not to pivot into a completely new market if you’ve started to see early traction for your product or service, disproportionally compromising your innovative culture at such an early stage of your business can be dangerous.
My company was guilty of this whilst we were making our first $1,000,000.
We were incredibly open-minded at the beginning — testing and experimenting with many ideas largely free of cognitive bias because we were naive. But, once we had customers and revenue, our pathway began to narrow.
Slowly at first, but, over time, we found ourselves in a position where we didn’t experiment and take meaningful risks with our core market or product anymore.
We stopped fundamentally innovating and instead incrementally optimized what we already had. That meant we never really saw breakout growth from our core product ever again.
4. Success can make you vulnerable
When you’re successful, you become vulnerable in a whole manner of ways. Some people may either may take issue with what you’re doing or want a slice of the action in some way.
Your reputation is at risk. Your time is at risk. Your capital is at risk. Your market position is at risk, etc. It’s critical to protect all of it.
Time can be a particularly hard risk to manage. With success comes avenues of possibilities and endless proposals by others. It’s super important to filter down to what is only absolutely necessary and core to your growth. Mostly, it’s all just noise.
The same can be said for capital. More capital means more possibilities. You come into contact with a lot of people that will have a service to offer who can supposedly help you grow or develop your business. They definitely exist, but, for the most part, many are not critical at any given stage of my business’s lifecycle. My capital is better applied elsewhere.
My company was also exposed to a number of nefarious acts whilst we were making our first $1,000,000.
The day I left my banking job to pursue my new business venture full-time something terrible happened. I had just said goodbye to my colleagues, walked out through the lobby into the street, and then I got a call from my business partner to let me know our website was down — the same website I had pinned my future on. It was under a DDoS attack, so in addition to dealing with that issue technically we also had a reputation to uphold with customers who could no longer access our website.
A few weeks after our highly successful launch we were also victim to trademark hijacking. A competitor spuriously made an application to the U.S. Patent and Trademark Office for the brand name we used. This meant we spent the next 1.5 years fighting for it through non-inexpensive attorneys.
5. Success is an opportunity cost
This is a tough one. You’ve launched a business recently. It’s making good money. You are paying yourself a salary. It’s what most people would consider successful in life. Ditching it and doing something else is risky.
But, is this the most productive way you could be spending your time? Could you be building a better business? Could you solve a bigger problem and make even more money?
These are the questions and exact same situation I found myself in when we were making our first $1,000,000. Building my first business broadened my horizons and made all sorts of possibilities visible and approachable.
I realized that whilst what I was doing was worthwhile, I was capable of more. I could use what I’ve learned to build an even better business.
So, after some deliberation, which was admittedly short in length, I decided (with my co-founders) to sell the business and start another one, for all intents and purposes, from scratch.
This could have gone horribly wrong, but it didn’t. My assumption was correct. I built a business with them that solved a bigger issue and was far more lucrative. I will dive more into how I did that in subsequent newsletters!
Until next time,
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