How to Profit Early in Business

One of the saddest things I see in business is when owners believe they can’t be profitable in the early years. Obviously, the statistic is that 50% of businesses fail within the first 3-5 years, and I think knowing that figure is one of the things that leads to 50% of businesses failing. Owners get caught in this trap of thinking they can’t be profitable, so they don’t set up the systems to be profitable. Instead, they try to grow as fast as possible and put off trying to create profit.

I’ve worked with many businesses, and I’m going to share the traps I see that prevent owners from being profitable in the early years. When you hear these three traps, you’re gonna understand why businesses are failing. 

Three “Grow Fast, Profit Later” Traps

Pricing Too Low

The first way business owners get stuck in the “grow fast, profit later” mindset is by thinking you have to be priced extremely low in your market in order to get a client base. So you’re essentially foregoing your profits. You're getting just enough to service your clients and cover your tiny operating expenses—barely staying afloat. The problem here is that you don’t have any money to keep yourself going as the owner or to pay taxes, so when that tax bill comes, you’re going to have to get into your personal money for that. 

And there’s always going to be someone cheaper entering the market, so your bargain-seeking clients are not actually loyal clients. They’re there because you’re providing the cheapest service. You're going to potentially lose those clients instantaneously. And then if you go to raise prices, you will potentially lose them again. The idea that you can “grow fast, profit later” by coming in cheaper in the market is not a great way to do business in the early years. 

Not Paying Yourself

Another way you can have that mentality of “grow fast, profit later” is by not taking home a paycheck, potentially for months or years. Instead, you opt willingly to keep it in the business. This is a huge mindset trap because, if you're doing this on a consistent basis, you will have a very hard time ever taking a paycheck. It won’t be consistent, and you’re going to take it when there is “profit there,” which is not a very good habit.

It might feel good to use your paycheck for growth, like you’re using the money productively, but you will eventually grow resentful (and if you’re a family person, your family may be resentful that your lost time and mental energy aren’t earning any returns). If you ever do have to pull money out of your business, your business is likely not going to stay afloat because there isn’t enough money to do so. 

And as business owners, we need to be paying ourselves. 

Hiring Too Soon

I also see owners falling into the trap of “grow fast, profit later” by hiring way too soon and not for the right roles. This is across the board in all industries. You want to alleviate your overwhelm by giving your tasks to somebody, and you think hiring team will help you grow. Most of the time, though, you’re not ready to give these tasks to somebody. You may not have calculated capacity correctly, prepared the systems needed to support a team, or budgeted for their paycheck. You feel obligated to keep them on, whether or not they actually benefit your business. Then you're like, “Why isn’t this working? How am I going to stay in business?” 

I’ve worked with businesses that are startups (in the first three years of operating) and then I’ve worked with businesses that are well within years seven, fifteen, twenty-two, and I’ve seen that the “grow fast, profit later” mindset can stay with you for many, many years. 

So what can you do instead? How can you break out of this mindset and become profitable in your early years? Profitable businesses have these three things in common.

What Profitable Businesses Do Instead

They Start Super Lean

I don’t think you have to be lean forever. There are many, many ways you can incorporate all the things you want in your business. And starting a lean business doesn’t have to look like a complete bootstrapped affair, but we need to remember that some of the largest companies in the world started in garages and basements with really old computers. We have to believe that this model of starting lean really does work. And it needs to stay in effect until you have a minimum of 3–5 clients and are able to pay yourself.

I might get some kickback from people who say they need loans or startup funds. If you're a service-based business, I don’t think there’s a reason whatsoever you would need any investment money. If you’re a SAAS company, construction company, landscaping company or a product-based business, you may need some startup capital, and you need a plan to pay that back. But an online-based business or even an in-person service-based business could very well start with no debt and be a very lean startup. 

They Pay Themselves

For businesses that are profitable—paying yourself is non-negotiable. That means that if you have one client, you might only be paying yourself $30–50 every time they pay you. It’s not a lot, but it creates a habit.

That’s my story. I knew that I needed to pay myself when I started this business, so from the very first client that paid me, I took home something. I’ve been in business for over three years, so for 36 months, I’ve given myself something. 

Building this habit and making it a non-negotiable pretty much means that you’re going to be a profitable business. (The caveat is that if you’re paying yourself, but then taking out debt, you’re probably not profitable.)

They Invest Carefully

Profitable business owners don’t get starry-eyed with all the software, courses, conferences, coaches and extras. These expenses hook owners who aren’t confident enough to operate without a coach, without a training course, without fancy software, or without attending every conference where they might capture leads. 

Again, go back to number one. You start out lean and that means, if you have the idea, you’re going to make it work. You’ll get by without these extra expenses until you have the money to actually invest in them from profit or count them as an expense. You’re not going to forsake your paycheck to cover the costs. 

So my challenge to you is—really reflect on your habits as a business owner and identify whether you’re a “grow fast, profit later” person or whether you’re setting yourself up to be profitable. And then reach out and let me know, which are you? And what’s the first step you can take to become more profitable? I’d love to help you shift gears.