Minimum viable profit (MVPr)
When you start a business, you need to reach profitability as quickly as possible. If you’re a company of one, you’re not relying on massive influxes of cash from investors, so every minute you spend getting set up and started is a minute when you aren’t making money. So getting your product or service released as soon as possible, even if it’s small, is both financially wise and educational, since a quick release can also serve as a perfect learning experience. The first version of a product doesn’t need to be huge—it simply needs to solve one problem well and leave your customers feeling better than before they purchased it.
In determining your minimum viable profit—the point at which your business is operating in the black (we’ll call it MVPr from here on in)—keep in mind that the lower the number, the quicker you can reach it. So it’s important to scale up your timelines and focus on core features only, reduce expenses and overhead, and ensure that your business model works at a small scale first.
The assumption at work here is that your MVPr—not the number of your customers, not your month-over-month growth, not even your gross revenue—is the most important determinant of the sustainability of your business. If you make a profit right from the beginning, then you can figure out everything else. If your expenses are low, profit happens sooner. Decisions should be made with a focus on realized profit, not based on the expectation that profit may happen. This is such a key and main difference in how growth-focused businesses and companies of one operate. Even when a company needs to grow, that can happen only if metrics are based on actual profit, not on hopeful profit projections.
Your MVPr can be low in the beginning, as companies of one typically start with either just one person or a tiny team of two to three people with the abilities and skills to create what needs creating. These teams get larger only if more people are truly needed and if profits can support them (remember companies of one aren’t against growth, they simply question it first).
Profit happens when the business is making enough money to cover a salary for the owner(s); this is the “minimum” part of MVPr, as a company of one can be a full-time endeavour only when it’s making enough to support at least one person. Viability is when MVPr either continues to support that one person long-term or increases with time. The more viable your company becomes, the more your profits can truly grow. From there, you can choose to pay yourself more, to focus on scaling systems, to work less and keep paying yourself the same, to invest in the business further, or to grow based on the increased money coming in. In the end, the choice is yours.
Becoming a business that earns revenues predictably and consistently is a milestone for a company of one. MVPr is achieved with the least investment and in the shortest amount of time possible.
Quickly becoming profitable is important to a company of one because focusing on growth and focusing on profit are nearly impossible to do at the same time. For big companies, traditional growth requires investing in the future, and that usually means spending money on a sales cycle with the bet that it will pay off at a higher rate… sometime in the future. A focus on growth may require spending money on sales staff, paid acquisitions, increased support teams, or even a larger technology infrastructure to handle the hoped-for growth. The assumption is that, eventually, more spending will generate more profit.
Focusing on profit down the road doesn’t always work for a company of one. A company of one begins quite small (one person, no office required) and spends only when profits allow it. Growth is much slower because it’s incremental from zero—a tiny amount of profit leads to a tiny amount of spending, which leads to slightly more profit and then slightly more spending, and so on. It’s a very gradual process.
With companies of one, exponential profit increases aren’t a core objective because just hitting profitability is usually enough. From there, you have the freedom of choice—to grow, to stay the same, to take more time off, to scale systems—as well as the space to make those choices because your goal isn’t to make exponential profit, but simply to bring in profits greater than your expenses and to support your life comfortably. This isn’t to say that once profit is reached you stop and stagnate—it just means that once you hit profitability, you don’t have to forsake everything else in your business (or your life) to grow larger and faster.
This is an excerpt from my latest book, Company of One.