June 4, 2018 Business Growth en_US Today, disruption is a popular term in entrepreneurship communities. While disruption may help business owners break into a market, and launch quickly, sustainability to essential to long term success. https://quickbooks.intuit.com/cas/dam/IMAGE/A9oRfDgqS/a9b1c36daabfd7aa190a512fa17bfddc.jpg https://quickbooks.intuit.com/r/business-growth/how-to-build-a-sustainable-business How to Build a Sustainable Business
Business Growth

How to Build a Sustainable Business

By Eric Carter June 4, 2018

More than ever, access to technology and resources gives new entrepreneurs to break into markets and scale to meet demand.

Unfortunately, without addressing sustainability, businesses across industries can go from overnight successes to failures fast.

Regardless of industry or size, a sustainability plan should address six elements:

  1. Business mission and purpose
  2. Customer retention and acquisition
  3. Building an enduring brand
  4. People and resources
  5. Business partnership ecosystem
  6. Flexibility and adaptation

1. Start With a Sustainable Mission Statement

When Facebook began, part of its mission statement became iconic among the tech community: “Move fast and break things.”

The statement was bold, disruptive, and likely wrong for most companies. However, to Facebook employees, the mission statement was a point of pride and a guiding light.

Facebook employees were dedicated to a rapid innovation cycle and felt comfortable experimenting with risky endeavors. This daring mission statement created a business force that has managed to continue seeing success through challenges many business will never dream of facing.

In Facebook’s early years this mission statement served them well and it contributed toward their immense growth. But in the long run, even Facebook realized this mentality was not a sustainable business practice.

The eventual outcome of this mission statement resulted in, for a period of time, a product that was bloated with unnecessary features, Farmville requests, and notifications that detracted from the core user experience.

On the other hand, consider Patagonia’s mission statement:

“Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”

Patagonia’s statement seemingly contradicts Facebook’s early mission. Yvon Chouinard, Patagonia’s founder, suggested that a growth at all cost environment nearly ruined Patagonia:

“[We] were so successful in the late ‘80s and stuff that we were growing too fast. We were growing 50 percent a year. And you can’t do that for very long before you run out of money, basically. On retained earnings you can’t do that. And so we were ramped up to grow 50 percent and we only grew 25 or something. Which doesn’t sound bad, but when you build all the inventory or that and you don’t make it, it’s pretty rough.”

To combat this unchecked growth, Chouinard and Patagonia reevaluated its mission, and changed course:

“Growth can creep up on you….That’s why the faster a business grows the faster it dies also. And so once we got out of this, we decided to put ourselves on a growth program so that we would be in business a hundred years from now. So all decisions from then on were made as if we’re going to be here a hundred years from now. And so it’s slowing down the growth, saying no to a lot of opportunities and just being more responsible.”

Where Facebook’s mission towards sustainability required rapid growth in the early stages, Patagonia’s required intentionally slow growth.

In defining your mission, identify your keys to sustainability and clearly state how the company will achieve its sustainable growth goals.

2. Plan For Customer Acquisition, Retention and Churn

Customers might be the most obvious element of sustainability. However, not all customers affect your business equally.

In their book, Leading on the Edge of Chaos, Emmet and Mark Murphy write that it costs companies five times more to acquire a new customer than to retain an existing one.

From a different perspective, the Murphys suggest that increasing customer retention by 2% has the same effect as decreasing company cost by 10%. As powerful as these numbers speak to sustainability, reports from the US Chamber of Commerce and US Small Business Administration indicate that the average business loses around 50% of its customer base every five years.

On a very basic level you need to ask yourself:

  • Are you acquiring new customers faster than you’re losing them?
  • Do you have a plan for retaining existing customers?
  • What are your cost per customer acquisition costs?
  • Where are your most effective customer acquisition channels?
  • Have you dedicated a percentage of your revenue to prepare for inevitable downturns?
  • Are you exploring new markets and opportunities to diversify your revenue streams?

On the surface, having a solid customer retention and acquisition strategy seems to be the key to sustainability, but it’s not the whole story.

Sustainability also includes everything from how you source materials and products, to how quickly you invest in growth and how you safeguard against disruption.

In other words, acquisition and retention are only reflected in your balance sheets.

3. Building an Enduring Brand

Moving beyond the balance sheet, the power of your brand is a critical element of sustainability.

Brand equity builds emotional connections with both existing and potential customers, assist in your retention efforts and helps you attract new customers.

Consider the iconic sound associated with Intel. As Tim Sanders explains in Love is the Killer App, most consumers had no idea what Intel made when they started hearing Intel’s trademark sound throughout the 1990s.

Over time however, consumers came to associate Intel’s sound with quality computers.

Consumers may not have known what Intel made, but they knew they wanted Intel products in their computers. Intel’s brand equity carried the company through major disruptions in technology, eras of corporate turmoil and earnings misses.

Brand equity doesn’t just apply to large corporations. How does the local main street barber shop or bakery stay in business for 40, 50, or 60 years?

In many cases their brand – and mission statement – might be tied to timeless family values, a deep sense of community, unmatched quality, or being known as comfortable space to spend quality time with friends and family.

4. Build a Stable Infrastructure

Stable infrastructure is critical to everyone from small business startups to global enterprises.

Consider the early days of FUBU. Daymond John, took a sales and marketing gamble by attending a major industry event in Las Vegas as FUBU began getting some traction.

On paper, the event was a huge success. John left the event with $300,000 in orders. Unfortunately, without banking or back office infrastructure in place, FUBU struggled to fulfill those orders and nearly bankrupted the company.

As important as sales are to a company of all sizes, having the resources to support sales of any number must be in place or sustainability is not possible.

4. Develop Partnerships to Foster Growth & Insulate Against Hard Times.

Daymond John landed $300,000 in early orders through hustle and sweat equity.

But hustle is not a path to sustainability. Not only did FUBU lack the financial means to meet the $300,000 in orders, they also lacked the manufacturing capacity to fulfill the orders.

In a recent interview, John described FUBU’s early supply chain as “Airbnb meets a factory.”

John spent every dime FUBU had to bring a seamstresses into his house using sewing machines he had financed. Unfortunately, that model fell short of fulfilling the $300,000 in orders, and led to missed house payments and near collapse of a company that had no trouble creating demand.

It wasn’t until John found a partnership with Samsung, an established company with established supply chains, that FUBU was able to sustain the demand the business had generated.

Throughout FUBU’s history, the company has sustained its business beyond it’s supply chain by adjusting its retail strategy.

Based on brand perception, customer demand, and distribution, FUBU has taken dramatically different approaches to retail in the name of sustainability:

  • 1980s: partner with specialty retail shops only
  • 1992: expand retail as much as possible, including big box stores
  • Late 1990s: restrict retailers to protect brand image
  • 2003: semi-retire FUBU to let the brand “cool”

There is no one recipe for establishing and managing your ecosystem of partners. However, any third party business or person that affects your sustainability must be monitored as you grow.

6. Set Expectations on Living Brand Values for Your Employees

The Netflix Culture Deck has become a living legend among human resource professionals.

Within this presentation, Netflix clearly displays its brand values, what it looks for in candidates, what it expects from employees, and how Netflix employees contribute to the company’s success or failure.
The company continues to update these values to better reflect the its culture and expectations as it grows. Netflix does this because it wants to avoid any surprises for candidates and employees.

Take the time to read through the Netflix’s Culture Deck. You might be surprised at the level of detail dedicated to identifying the people who make up the company

Once you have identified your company’s culture needs, find candidates that fit this profile and set up an environment that rewards and promotes those that make your ideal culture a reality.

Your long term sustainability depends on your hiring, firing and promoting practices.

6. Invent to Reinvent

Remember Facebook’s catchy mission statement: “Move fast and break things”?

As critical as that statement was to Facebook’s early growth, the company’s longer term sustainability demanded a change. Facebook eventually altered the statement to “Move fast with stable infrastructure.”

Rapid innovation and experimentation remain key to Facebook’s mission. However, unlike the early days of growth at all costs, the company now supports an entire ecosystem of consumers and businesses that rely on Facebook for their own missions.

Accordingly, where Facebook could risk downtime and bugs in its early days, its business sustainability requires it remain constantly available for its current and growing customer base.

Sustainability requires companies to be flexible, and constantly reinvent themselves to adapt to growth and market changes. While Facebook adapted its mission statement, you may have to reinvent your entire business model for the sake of sustainability.

Remember Blockbuster?

At its peak, nearly 10,000 Blockbuster stores around the globe defined what it meant to rent movies and games.

However, shortly into the 21st century, Netflix proved that renting movies on the internet and receiving them through the mail a few days later was more convenient than driving to a store to rent and return movies, rendering Blockbuster’s business model obsolete.

By the time Blockbuster adapted to the new business norm, it was too late, and Blockbuster filed for bankruptcy in 2010.

As disruptive as Netflix became they were also forced to adapt to consumer demand as internet bandwidth improved and demand for streaming content soared.

Unlike Blockbuster, Netflix adapted, and led the way in content streaming and eventually original programming.

Netflix, once known purely as a market disruptor, can now be viewed as a company who is willing to reinvent itself multiple times for the sake of sustainability.

The Sustainability Cycle

At a basic level business sustainability is really just a cycle consisting of three main steps:

  1. Monitor your numbers
  2. Reevaluate your market
  3. Adapt when necessary

Consumers change. Competitors change. The market changes.

The question is, will you?

Eric Carter

Eric is the founder of Dartsand and Corporate Counsel for a global technology solutions provider. He is a frequent contributor to technology media outlets and also serves as primary legal counsel for multiple startups in the Real Estate Development, Virtual Assistant and Mobile App industries. Read more