Hi.

I'm a consultant and advisor  for social enterprises - using business to change the world.

You can sign up for my newsletter, or contact me via isaac@isaacjeffries.com

Break the habit of breaking even

Many of the social entrepreneurs I work with are artists. Maybe not the “paintbrush and easel” artist, rather these are creative, inspired people who want to change the way their audience thinks. Maybe it’s through storytelling, or curating retail spaces, or designing products, or reimagining service delivery.

 

Artists don’t want to follow convention.

It’s not about making money.

They don’t want to do mundane work, it’s about exploring new frontiers.

As Steve Jobs would have said, they want to make a dent in the universe.

 

And so they should.

 

This post isn’t going to try and convince you that you should ever stop creating art, in whatever medium you work with. On the contrary, I want you to create more art, and with less stress and worry than when you first started.

The problem I encounter most is the false perception that thinking about money kills creativity and drains you of your passion.

I see how this can happen. You want to spend your time creating, and going through accounts and bank statements is a chore, a depressing one at that.

Sometimes, when cash is running low, the artist has to suddenly drop what they’re doing, make sacrifices, and frantically stop the enterprise from going under. Maybe they stay up all night submitting grant applications, or don’t pay themselves that month. Maybe they call their customers and try and entice some quick sales. Once they hit breakeven, the panic subsides and we go back to life as usual, and the cycle repeats.

 

The problem is, we romanticize this stage. We say “That’s just startup life” and shrug it of.

This is insanity.

 

Money is a friend to artists. It gives you freedom, time, and breathing space. Think back to Dave Chappelle’s quote, “Money is the fuel of choices”.

Another way I heard it described was “Money is frozen energy”.

Breaking even isn’t enough. It puts too much pressure on you as a social entrepreneur, your team, the business, and ultimately, it risks damaging your social mission.

Creating a surplus/profit means you have a stockpile of that “frozen energy” for when things change. Change doesn’t have to be bad either, it can allow you to say yes to a great opportunity.

 

So now the task is; how to we ensure we have a surplus?

Start by re-categorizing your work into three buckets.

 

1.     Cash Cows

2.     Small Margin

3.     Loss Leaders

 

Cash Cows are the sales that make a decent margin. Customers see great value in what you do, and are happy to pay a good price. Great!

Small Margin sales are the ones that aren’t making a lot, but help you reach economies of scale (the bigger you get, the less it costs to make each product). Maybe the expected market price or cost of production is about the same as what a customer is willing to pay. Note, these are still making a margin, even if it’s not a large one.

Loss Leaders are when a single product/interaction doesn’t make money, but it sets you up for a future sale. Think of Gillette selling razor handles, knowing that the customer will buy packet after packet of blades. Similarly, Microsoft sold the Xbox at a loss, knowing that game sales bring in substantial margins.

Note, these only get to be called Loss Leaders if they actually lead to something. If not, it’s just a loss.

Artists need to be honest with themselves, and divide their work between these three buckets.

In my experience, this means plenty of Small Margin work, and a few Loss Leaders, but these only lead to more Small Margin sales.

Very few artists proactively create Cash Cows.

 

This is a huge opportunity.

 

Cash Cows aren’t sinful or unethical. They also may not feel satisfying, like it’s not the real art you want to create.

Having Cash Cows gives you the freedom to take on more risks, more work that may or may not make money. It gives you confidence, and allows you to focus on what’s really important, rather than losing sleep over next week’s payroll.

Try it for yourself, put your work into the three buckets and see what stands out.

Once you have a balance that creates a surplus, you get to have a fun debate.

You get to choose between upgrading your equipment, expanding your premises, hiring more staff, paying staff proper rates, retaining earnings, or saying yes to passion projects that don’t make money.

 

It’s a great incentive to design those cash cows, because for social enterprises there’s no shortage of good things to be done.

Creative Revenue Streams

Creative Revenue Streams

Profit vs Profiteering