Restrictive Financial Beliefs
I meet a lot of business owners who would like to improve their financial position, and often in a hurry.
This is usually framed as a technical problem
e.g. “Our business has the following restrictions, how do we make more money?”
If you look at it as a technical problem, then you look for solutions like “find a donor” or “sell more products”.
However, in the majority of cases it isn’t a technical problem, but rather a restrictive financial belief that is limiting the founder’s options.
These are ingrained, invisible, and very challenging to out-work.
What’s comparatively easier is to identify the damaging belief, and replace it with a more helpful one.
This sounds wishy-washy so here are a range of practical examples of what I see every week.
Some of them might feel uncomfortable, but hopefully this un-sticks some attitudes you’ve previously thought were mandatory.
Cash Cows Aren’t Possible
Some entrepreneurs don’t believe that they have the option of creating a Cash Cow in their business – either because they’re not aware of the concept, or because they think their industry doesn’t allow for them.
The truth is that every industry has their own Cash Cows, even if they’re not always obvious.
For example, some people will write a book that makes no real money, so that they can increase their speaking fees and consultancy day rates.
Other businesses make good margins on support services, extras and follow-up work.
Cash Cows often live near things that you do better than the competition, and areas where you can create value in a replicable way.
i.e. you can charge more than others and still be attractive, or you can create a product that can be consumed by thousands of customers at once.
These do not happen by accident, so you’re going to have to design them yourself.
Cash Cows Aren’t Ethical
Some entrepreneurs know that Cash Cows are possible, but reject the idea of them under the guise of “ethics”.
The reason why I don’t believe them is that Cash Cows will empower them to do more good than ever before – the extra margins you make on your Cash Cows can be funnelled towards your impact projects, and increases your buffers for rainy days.
Warren Buffett said “Price is what you pay, value is what you get”.
It is not unethical to use value based pricing with your customers, in the same way that it is not unethical for a café to charge me $4 for a coffee that cost them 70 cents to make.
My sense is that this disdain for Cash Cows doesn’t come from ethics, but rather the fear of being called out for charging high prices – a (winnable) battle that every entrepreneur has to face.
I Have To Pick One Price For Everyone
There is a belief that a business has to sell the same product to every market, and for the same price.
This leads to a tense compromise, trying to set prices so that it captures the top, middle and bottom ends of the market.
You end up with something that’s not quite remarkably cheap, but also doesn’t make the most of what the top of the market is willing to pay.
Another approach is the “Good, Better, Best” strategy; this is where you have three solutions for each type of customer problem
· A good quality option at an affordable price
· A better quality option at a higher price
· The best option at a premium price
This avoids the dreaded compromise and allows customers to self-select where they fit based on their budget.
Instead you can offer a genuinely affordable option to one part of the market and make the most of customers with deep pockets – all without guilt.
My Beneficiary Should Get Top Quality For Free
I like the sentiment behind this belief, but it often handcuffs the entrepreneur.
We want to honour the people and causes we serve, the question is about the “minimum effective dose”.
How much does a person need to get the desired outcome?
Do they need all the bells and whistles?
Not “are they worth the bells and whistles?”, but rather an 80/20 question of “can we deliver a cheaper-but-equally-effective solution to more people?”
If your solution is incredibly costly to implement, it will be hard to sell to customers, donors and investors in the future.
It won’t scale, and you risk it being an expensive solution to a simple problem.
The other challenge is that “free” is synonymous with “worthless”.
I know of aid organisations who tested this with their beneficiaries; free eyeglasses were mistreated, while $1 eyeglasses were treasured and lasted longer.
We Can’t Pay Our Staff Very Much
A great example of a belief disguised as a fact.
Would you pay a new salesperson 2x more than your current salesperson if they could deliver 5x the results?
Some staff roles have a natural growth effect on the business, and their roles pay their own way through increased revenue or increased cost efficiencies.
Are you actually unable to pay market rates, or do you not believe these top-tier people are ever able to work for your company?
Low salaries are a risk to the business – if good people leave, can you afford to recruit equivalent replacements?
I Have To Be Cheaper Than The Competition Because I Made This
Imposter syndrome seeps into your pricing strategy, and you tell yourself a story about other “real businesses” being allowed to charge more.
I call this a belief because the market doesn’t see you this way.
Customers want the best deal for themselves, irrespective of your history.
If you can offer a superior solution to their problems and your tests reveal that they’re willing and able to pay more, then you should adjust your prices.
You don’t need new equipment or a fancier office, you need to decide that you’re a real business with real value.
I Have To Be Cheaper Than The Competition Because I’m A Social Enterprise
I once heard a social entrepreneur say “when you let your values hang out, people expect underperformance” and it resonated as being true.
There’s a story we tell ourselves about social enterprises needing to be seen as affordable, but in my experience it doesn’t match reality.
Just because you drop your prices doesn’t mean customers drop their standards.
If you run a social enterprise cleaning company, and your cleaning staff do a sub-par job, then your discounted rate won’t stop your customers feeling resentful.
The way to create change (economically and psychologically) is through repeat customers.
You’re more likely to get repeat customers through making an attractive promise, then delivering on that promise.
This is easier to do by promising to be better than the competition, rather than by being cheaper than the competition.
As Benjamin Franklin said “The bitterness of poor quality remains long after the sweetness of low price is forgotten”.
We Have To Give Our Surplus Away Because We’re A Social Enterprise
I am constantly bemused by the “rules” of social enterprise that some people trumpet.
The only real “rule” is that you have to have a mission that’s genuinely important to you, which you then genuinely deliver on.
I can hate the cause but respect the execution, that’s fine.
I can love the cause but hate the execution, especially if you end up doing more harm than good.
How you achieve those results is up to you.
It can be through selling a beneficial product, using your payroll and raw materials to help a good cause, or by using your surplus and equity to empower others.
You do not have to drain all of your spare cash and donate it to somebody else.
If that’s important to you, by all means go ahead.
It is not an expectation or obligation.
The expectation is that you’re genuine about your mission – we won’t take a cigarette company too seriously if they claim to care about a health initiative.
The obligation is to be transparent and upright in your claims – that your money goes to the right people and that you aren’t acting fraudulently.
But if you decide that the best thing to do with your surplus is to re-invest it into growing your business (and therefore impact), go right ahead.
You shouldn’t be penalised for being a social enterprise.
Most of these damaging beliefs stem from fear – fear of ridicule, fear of failure, fear of falling short.
These are tough battles, but they’re all within your control.
They’re also made much easier by trusted advisors rather than by investors.
You might not need more money injected into your business, but rather a new mindset changes the way in which you make money each week.
By changing the story you tell yourself about money, you open up lots of new doors than will help you create more impact.
