A few weeks ago I had the opportunity to consult for some folks who were in the process of ramping up a business they had recently started.
The business is in the real estate domain. It won’t be a huge, but I’m guessing it has the potential to net $250K – $750K a year when it reaches maturity in the next 4-5 years or so. For these particular entrepreneurs it would be a nice lifestyle business. Once built, the business could easily be run remotely, which would allow them to travel freely for as long as they like.
After a few months of experimenting, they found that in order to close a sale, they needed to:
- Scrape data from a county website
- Use the output from (1) to drill down into some local business sites within the county and get more data
- Take the output from (2) and a few other online apps to produce some nicely qualified leads
Then they hit those leads with direct mail. Potential customers respond and the follow up usually yields excellent conversion rates.
After talking with them for a few minutes over some cold beers on a breezy, sun-soaked beach in Cozumel, Mexico, I realized they were right on the cusp of making their first big mistake. They had already become fixated on building a database and a CRM system to track lead responses. It was going to take a considerable amount of time both to build and manage the system, which for now was going to be handling a very small number of leads.
I thumbed beads of condensation off the label of my beer and looked at them across the table. “If you could wave a magic wand,” I asked, “and have one part of your process handled by a team of genies, which part would that be?”
They paused for a moment. “The research,” they answered.
In other words, the entire lead generation process. They knew that the most painful and costly part of their whole system was scraping and searching for leads, but they had somehow reached the conclusion that the thing they needed to invest their time in RIGHT NOW was automating the part of their business that tracks the responses to the trickle of leads coming in.
Laying Waste to Waste
In my experience the number one killer of startups is waste. With limited resources and a fast-shrinking runway, the last thing you should be doing is spending money on something that doesn’t bring in revenue.
How can you avoid waste? First, you should address the most costly part of your systems as soon as possible. As in, stop what you’re doing and do it right now. Take a very close look at all of them. The systems that are slowing you down the most should be fixed first.
Second, fixes should be as cheap as possible until you fully – and I mean fully – understand those processes. We’re talking Scrooge-level cheap. Upgrade your systems with chewing gum and Popsicle sticks if necessary, and don’t spend a dime more than you have to.
Check Out: Some Numbers from 14 Months on the Road
For example, if you’re just getting your arms around one of your sales funnels, you should not spend any more than pennies on a third party solution to handle it. Upgrade it as inexpensively as possible so that it works better than it did, leave it, and reevaluate your systems again.
The Cheap and Dirty Plan
The main impediment to growth in this startup was scaling up lead generation. Their research was generating ~25 leads/week with manual labor, which was bringing in a few thousand dollars a month in revenues. If the owners could scale up to 100, 1,000, or 10,000 leads a week then things would suddenly become, as Colonel Klink was fond of saying, “veeerrrry interesting.”
My suggestion to these entrepreneurs was to take the most labor-intensive part of their research process – mining the county website, the business websites, or the “other” websites – and post a project on Upwork or Freelancer to see how much it would cost to produce lead-generating data at a particular point in their mining process.
If the cost was cheap enough then they could give it a spin to see whether the dollars spent actually increased the output of their mining process.
If they were able to cheaply increase the number of leads they could shovel into their pipeline, then they could perform the same outsourcing experiment with another part of the pipeline. Then another. And another. Until they had scaled up to 100, 1,000, or 10,000 leads per week.
Naturally, other systems within the company would fall over under the weight of the newly increased volume. The entrepreneurs would then have to upgrade those systems, spending the minimum necessary just to get them to function at the new level.
Eventually they would understand their business better than Johnny Cash understands The Man, and then they might be comfortable investing in more robust solutions for their systems: an in-house data engineer, an effective CRM solution, or a relational database.
Remember, the goal isn’t to build a business. The goal is to build a profitable business. And you can only do that if you focus as many available resources as possible on producing a profit.
Keep your solutions cheap and dirty, experiment frequently, and continue learning.