Five keys to a 6-figure lifestyle business
In her book, The Million Dollar One-Person Business, author Elaine Pofeldt describes the characteristics common to ultra-lean businesses that generate in excess of a million dollars gross revenue per year. A combination of research and case studies, the book highlights not only the mechanics of how these entrepreneurs scale their businesses, but also looks at the mindset that drives entrepreneurs to reach these income levels. (I found the book both insightful and inspirational - highly recommended.)
Elaine shows that generating in excess of a million dollars in revenue is certainly possible - in 2015 there were 35,000 "non-employer" businesses that generated between $1 million and $2.5 million and a further 250,000 that generated between $500,000 and $1 million. Another 600,000 generated between $250,000 and $500,000.
But what if you're just starting out - how do you get to a 6-figure business as a solopreneur or small business without sacrificing the things that really matter to you?
Common traits of successful lifestyle businesses
The idea of a "lifestyle" business is very enticing. Living life on your terms, free to make your own decisions, working when and where you want to, free of office politics, in charge of your own destiny - all of these are possible with a "lifestyle" business.
But while it is certainly possible, it is definitely not easy. In that respect, a lifestyle business is just like any other business - not easy, and not for everyone.
Over the last two years I have worked with 60+ businesses ranging from startups to hyper-growth, 8-figure businesses. Many of these were what I would classify as a "lifestyle" business - a business where the owner's lifestyle plays a key role in determining just how fast and big they want to grow.
In working with these businesses - and my own experiences in startups, turnarounds and small businesses over the last 18 years - I've identified five common traits that successful lifestyle businesses share. These traits are not necessarily unique to lifestyle businesses; but they are necessary to give you a decent chance of success.
Here they are.
Lifestyle businesses are, almost without exception, small businesses. They often have only one employee - the owner - and scale by using a team of independent service providers.
As a (very) small business, you can't compete with the big players in any field. So you have to play in niche markets. Here's an example:
There are thousands of web developers out there. Just try to Google "web developer" - I found 766 million results. But Google "web developer for dentists" and you've narrowed it down to 23 million - still a large number but only 3% of the original number. Narrow that down even further to "web developers for dentists in Calgary" (my home town) and we're down to 899,000 - or less than one tenth of one percent of the original search results.
You get the point. Specialisation allows you to create your own niche where you are the expert and the bigger players do not necessarily want to play. But specialisation has a number of other advantages:
- When you specialise, it becomes really easy to identify your target market. In the web developer example above, the generic web developer could work with anyone - and "anyone" is notoriously difficult to find. But the web developer for dentists - especially in Calgary - has a ready-made marketing list from the local health organisations.
- It's really easy for your clients to find you. When a dental practice feels the need for a new website, guess what they're going to be looking for?
- It's a lot easier to become an expert. The smaller your niche, the easier it is to become an expert in that niche. And standing out as "the expert" makes you the go-to person for that particular niche.
But specialisation does not come as easy as you may think. The biggest barrier I've seen to specialisation is that entrepreneurs are afraid of losing clients when they "niche down". But without exception, every entrepreneur that I've worked with that do specialise has more business faster than they ever had before. It's a mind game that I've seen pay off time and time again.
2. Leading with outcomes
Dentists don't need websites just for the heck of it. They need websites to give patients information, build credibility and advertise their services - in short, they need websites to bring in more patients.
If you're out there as a web developer - even a web developer for dentists - you're not solving a problem. You're a technician who can do amazing stuff with technology.
But the dentist - your target market - doesn't need a technician. They need more patients. Getting more patients is the "business outcome" for which their website is just one part of the solution (they may also need things like marketing, a social media presence, and so on).
Which is more valuable to the dentist - having a website or getting more leads?
All of the successful small businesses I've worked with sell outcomes, not professional services. They generate more leads for their clients, or cut 10% off their supply chain costs, or increase profitability by 5% or get their marketing and sales teams to play nice together. In some form or fashion, their professional services help their clients solve a problem or achieve an outcome. Rather than selling consulting services, these businesses sell solutions to problems, also known as outcomes.
Business-savvy entrepreneurs know this and build successful businesses based on their unique ability to solve a problem. But there's another upside - price anchoring.
When you're selling your services by the hour, it won't be long before you're priced out of the market. But when you're selling a solution to a problem, you can anchor your price against the business value of the outcome.
The web developer selling a new website to a dentist has a tough time justifying his or her hourly rate. And they get penalised for being good at their craft - being able to deliver a whizz-bang website in half the time a less experienced developer can. But the business-savvy web developer can pitch the value of his or her services along these lines:
You've told me that the average lifetime value of a dental patient is $20,000. I'm confident that a new website together with a social media presence and quarterly campaigns can bring in at least 50 additional new patients per year, or an average of $1 million of lifetime value per year, every year.
The numbers above are fictitious, but the principle should be clear: by making it clear to the dentist what the value of the new website could be, the business-savvy developer will find it a lot easier to justify their price because it is now "anchored" against the business value.
3. Productised services
One of the most expensive things you can do in a professional services business is writing proposals. Proposals are usually free, take up a lot of your time and is effectively "work at risk" - you have no idea whether you're going to get the work or not. Even worse, your proposal usually includes details of how you're going to deliver the outcome your client is looking for - a topic which they, at best, don't understand well at all.
Enter productised services.
Productised services are services that are packaged, priced and sold just like products. They have a fixed scope, cost, duration and outcome - and the details of how you're going to do your work are not relevant. What is relevant is the outcome your client is looking for. For example:
- Our Dental Lead Generator package will deliver a new website optimised for search engines that we guarantee will generate at least 30 additional new dental patients per year with a lifetime value of $600,000 per year. The cost is $20,000.
- Our Plus package includes the Lead Generator package and adds two social media profiles with daily posts. We guarantee that this combination will generate at least 50 additional new patients per year with a lifetime value of $1,000,000 - every year. The cost is $30,000 plus a monthly fee of $1,500 starting in month 4 after the new website is live.
Again, the numbers and services are fictitious but you get the drift - the entrepreneur is not only offering a choice between two packages - he/she is also anchoring the price of the package against the business value to the dentist.
Contrast that with trying to sell 400 hours of development time at an hourly rate…
And oh yes - that proposal? That's presented as a product as well - a Roadmap the client can use whether they decide to do business with you, someone else or even DIY their project. The Roadmap is valuable too - and it replaces the free proposal.
4. Marketing and sales
One of the things professionals are almost universally not good at is marketing and sales.
Unless you've had the benefit of marketing and/or sales training, you're probably not good at either marketing or sales. When it comes to delivering their services, almost everyone rates themselves as "expert" - after all, this is what they were trained to do. But marketing and sales remains not just an area they're not familiar with - most professionals are really afraid of selling.
The "bad" news is that you have to get at least decent at both marketing and sales. Every business thrives or dies based on how good they are at marketing and sales - irrespective of whether you're building a lifestyle business or an empire.
The good news is that - just like any other skill - marketing and sales are skills that can be learnt.
You don't have to be the greatest marketer in the world to build awareness that you exist and you can solve a problem for someone. At its heart there are only two kinds of marketing; the first is brand awareness marketing - making the world aware you exist and you can solve a specific problem. The second kind of marketing is what I call targeted marketing - the marketing you need to do to sell an event or course that launches on a specific date.
The key to both kinds of marketing is showing up frequently and consistently. There are automation tools that can help you substantially reduce the amount of time you spend on marketing, and with the right strategy (for example, content marketing or regular speaking events) you can build authority, credibility and a substantial following.
Similarly, selling can be made a lot easier if you think about "selling" as the work you do before you get paid for it. My friend Keith Hanna is an executive coach - changing the lives of the people changing the world. He taught me that selling is the coaching I do before I get paid for it. I've adopted that philosophy with my clients - selling is the consulting (problem solving) I do before I get paid for it.
The fear of rejection is probably the biggest barrier to effective sales most professionals have to overcome. But learning that not everyone is ready to buy when you're ready to sell, you're not going to win every sale anyway and that in the end it is a numbers game - all of these make "selling" a lot easier.
There's a learning curve to both marketing and sales - but its one that you will have to go through if you want a successful business.
Businesses that sell products have an inherent advantage - you can scale the business as much as you like as long as your supply chain and providers can keep up - and as much as you're willing to devote your time to.
But a business that sells professional services has inherent limitations. You have only so much time before you hit a ceiling, and you can raise your prices (even substantially) only so much before you're priced out of the market.
So you need leverage.
That leverage comes from what I call the 3-prong strategy. Using the 3-prong strategy, you divide your products and services into three categories:
- 1:1 is where you work directly with one client. You are personally delivering your services to the client, and they get your undivided attention while you're working with them. This is the most expensive option and also the most limited for you as the service provider; a lot of your time can go into this type of work.
- 1:n is where you work with multiple clients at the same time. This could be workshops or courses - the cost to each client is lower because it is spread over more clients and you get the advantage of group dynamics (a group learns faster than an individual).
- 0:n is where you build a product (or productised service) once and you can effectively sell it an unlimited number of times. Think online courses, info products like ebooks or self-study courses. Once your marketing and sales engines are set up this is effectively passive income.
If you're providing professional services, and you want to scale beyond the limitations of your time and what the market is willing to pay, you will eventually have to branch out into 1:n or 0:n types of products and services. The good news is that the 1:1 work gives you the experience and insight you need to create 1:n products and services, and once you have those you can turn the material into 0:n products.
You can certainly scale up to and even beyond a 7-figure income - Elaine Pofeldt has numerous examples of how entrepreneurs have achieved exactly this kind of scale. But you can live quite handsomely on a 6-figure income - scaling beyond that will be a lifestyle decision.
There are many things that go into building a successful lifestyle business - and the five traits I described above are certainly not the only factors. But they are the ones that are common to all the successful lifestyle businesses I've worked with over the years.
- You need to specialise in a well-defined niche so you can become the expert, make it easy for you to find your clients and easy for them to find you, and avoid competition from the big players.
- You need to sell a solution to a business problem rather than trying to sell your technical skills.
- You need to productise your services so you can get paid for proposals, standardise what you're selling so it's easier for clients to make a choice, and invest in getting faster and better at what you do without being penalised for your expertise.
- You need to get good enough at marketing and sales - and the good news is that these are skills you can learn.
- If you want to scale beyond the limitations of your time and what the market will pay, you will have to branch out into working with multiple clients at the same time or even into products you can sell over and over without spending time on each sale.
There are many fears, traps and pitfalls along the way. One of the biggest fears I've seen entrepreneurs struggle with is the idea of niching down - specialising in a small, well-defined niche and turning away other work in favour of focusing on your niche. That fear - of losing clients if you specialise - is a tough one to overcome. Similarly, the fear of rejection is a major barrier to getting good at sales, and the idea that "marketing is sleazy" will prevent many from getting good at marketing.
But all of these fears can be overcome, and you can build a 6-figure business to give you the lifestyle you want - or go beyond.
What you can do now
If you're still wondering about the idea of a "lifestyle" business and just what it means, read my article titled The real truths behind building a lifestyle business. In that article, I looked at some of the truths and myths behind a "lifestyle" business, and the lure of owning a business that allows you to lead the lifestyle you want, on your terms.
And as always, comments are questions are very welcome. Good luck with your business.