Elaine Pofeldt is an independent journalist who specializes in small business and entrepreneurship. She is the author of Tiny Business, Big Money for W.W. Norton & Co. (February 15, 2022), a look at how seven-figure businesses with small teams are reinventing the small business landscape, and The Million-Dollar, One-Person Business (Random House), a guide to how solopreneurs are breaking $1 million in revenue in businesses with no employees except the owners. Her work has appeared in FORTUNE, Money, CNBC, Inc., Forbes, Crain’s New York Business, and many other business publications. She has contributed to the Economist Intelligence Unit. She is also a ghostwriter/collaborative editor.
As a senior editor at FORTUNE Small Business, where she worked for eight years, Elaine was twice nominated for the National Magazine Award for her features and ran the magazine’s annual business plan competition. Elaine graduated from Yale University with a BA in English. She lives in in New Jersey with her husband and their four children and in her free time enjoys taekwondo, yoga and kickboxing.
How do you start from where you are, and do what you can with what you have, especially if you feel like they don’t add up to much?
What is the right path to the right business for YOUR combination of skills, resources, and aptitudes?
And how do you stretch your entrepreneurial gas as far as possible so you can get to positive cash flow and far beyond?
In this episode, two-time author on small business and entrepreneurship, Elaine Pofeldt, talks about the surprising paths successful entrepreneurs have taken to build their million dollar businesses, hacks you can use to make the most of your slim resources, the importance of keeping you and your priorities straight when external investment is involved, and much more.
- Special challenges women face starting up
- How to improve your odds of building a million dollar business
- How to pick your sector
- Smart ways to tackle the extra burdens you face as a woman starting up
- The two funding strategies that give women entrepreneurs an edge
- How to know whether and when to scale your business
- How to be realistic about your entrepreneurial timeline
- Smart ways to stretch your cash when starting up
- How to develop products on a shoestring budget
- How to speed up cash generation on the revenue side
- How to spend money to help you make more money
- How to transition to entrepreneurship for the first time
Links and Resources
Million Dollar One Person Business: Elaine’s first book (affiliate link), where she outlines the pathways to joining this entrepreneurial movement, synthesizing advice from hundreds of business owners who’ve done it.
Tiny Business, Big Money: Elaine’s second book (affiliate link), where she offers her blueprint for getting a running start with your microbusiness—that is, a business with no more than 20 employees, including yourself
Shubha Chakravarthy: Hello Elaine! Welcome to Invisible Ink! We are very excited to have you here.
Elaine Pofeldt: Thank you so much. I’m so happy to be here!
Shubha Chakravarthy: I read both your books and I love them both! There is this common theme of non-traditional entrepreneurship where you put in a small effort and have a big impact. What drove your interest in entrepreneurship?
Elaine Pofeldt: I’ve covered entrepreneurship for many years and one thing I noticed was that we really weren’t covering this segment as reporters. This was the largest group of entrepreneurs in the country, and I found out when I started my own business that there was a dearth of information for people like me who were ambitious about the quality of their business but didn’t necessarily want to scale or were closed out of the networks that allowed businesses to scale.
Shubha Chakravarthy: You first wrote The Million Dollar, One Person Business and then you graduated to Tiny Business, Big Money. What have been some of the most surprising or unusual learnings from writing both of these books?
Elaine Pofeldt: One of the things I found was that a growing number of people are capable of starting one person businesses that get to seven figures and tiny businesses, which I define as one to twenty employees that are getting to that level and beyond, it used to be something that was rarer for these size businesses are there.
I think currently it is about 9% of businesses get to 1 million but now it is increasingly popular. We had the highest number ever in the latest census for non-employer businesses – those are the ones that have no payroll, that got to one to 2.49 million and it was 43,000, which is a tiny fraction, it is less than 1% of all small businesses, but it is more than before.
Every single year that I have been covering this, the number goes up. There is an exponential effect as these entrepreneurs, a lot of times, teach other entrepreneurs what they are doing, and it also ignites the interest of people that are in jobs into starting side hustles and saying, “Hey, you know, maybe I should go full-time with this!”
Shubha Chakravarthy: The statistic you mentioned is really interesting in terms of the increasing number of businesses that hit the $1 million revenue mark. When I looked at the latest statistics, and this might have been a while ago, there is a very sharp discrepancy between the percentage of women founded businesses that hit the million-dollar mark versus the male founded businesses that hit the million-dollar mark. Is this something you have seen as well? If so, what do you think is driving that discrepancy or dichotomy?
Elaine Pofeldt: I have not noticed such a big dichotomy with the non-employer businesses. I think the difference is with the employer businesses because usually employers need to have a credit line at a bank because you have to make payroll on a certain date, and women have had less access to capital than men.
So, if it takes seven employees to get to 1 million to really maintain a level of productivity and you can’t get that credit line at a bank, then you really can’t get to the million unless you are extremely scrappy. Sometimes there is no way through scrappiness that you can get around the fact that you need that cash cushion.
Moreover, women also have less access to venture capital. They only get a tiny percentage of the venture capital, which also provides a cushion. But I think what we are seeing is now as more women scale their businesses and become angel investors they are backing women owned businesses – not at a huge rate because there aren’t that many women in that category yet, but I think it is going to bring about some change.
Shubha Chakravarthy: That is great news. So, in terms of that, do you think that there is a hidden lesson in there in terms of – if you are a woman and you want to start this kind of businesses or are you better off starting a 1% business and then graduating, so to speak, to a multi-employee business? What is your take on that?
Elaine Pofeldt: I think it is true for almost every type of business that the longer you can go without hiring employees, the more capital you can preserve and the more flexibility you have. But there is a certain point where you may need to hire employees to reach the full potential of the business.
So, staying open to that is important. Also, what I found in Tiny Business, Big Money, when I surveyed 50 of the entrepreneurs who got to seven figures is that on an average, they got to 1 million in revenue in four years, and they hired the first employee in four years.
It wasn’t a scientific study, this was a survey that I did, but I would like to repeat it on a larger scale with a partner who had the capabilities of doing that because I do think that four-year mark is significant.
I mentioned this when I was doing a keynote recently and it was an award ceremony for the Empire State Development Corp. It was for their Entrepreneurship Assistance Centers and there were six awardees who were all seven figure businesses. They were all saying to me afterwards, “Hey, I hit 1 million in four years.” I thought, “Okay, this is not necessarily scientific either, but it was intriguing.” I also think that they stretched their resources as long as they possibly can and then that is something that gives them options.
It is important particularly for entrepreneurs who don’t have that much access to capital because you can’t waste a penny in those businesses and you really don’t have much leeway for making financial mistakes or for running out of money just because you went after an opportunity or things that cause cash flow shortages.
So, I would say that that is the most important thing. I wouldn’t say that you should put up a wall against hiring but postpone it as long as you can and use contractors as long as you can without violating labor laws or other things like that.
Shubha Chakravarthy: Excellent. So, that brings us now to The Million Dollar, One Person Business, what are the foundational principles?
Let’s say that I want to start this kind of business. What are the things I have to keep in mind before I even start my efforts?
Elaine Pofeldt: Well, it does help to look at the categories of businesses where there is more possibility to do it because some businesses just don’t need as many people, and that will give you an advantage. For instance, in E-commerce you can pretty frequently get to a million as one person because you can automate a lot of the marketing side of it.
You can put it on a large platform like Amazon, which gives you leverage right in that action itself. Keep an open mind because professional services is actually the largest category of million dollar one person businesses and we all hear about “Don’t trade time for dollars,” and you shouldn’t really do that but there were professional services businesses that have great business models, and I write about a lot of them in both books and studying how other people are pricing things and packaging out their services can give you ideas.
The same applies to personal services, things like being a life coach, a nutrition coach, or in those types of professions. You don’t want to be charging hourly for the most part unless your hourly rate is very high.
Maybe you want to be selling packages of hours or a flat fee for a project, but price it based not just on the market rate, but what your offer is really worth because it might be worth more than what your competitor is offering.
Shubha Chakravarthy: Great. You mentioned services and you mentioned e-commerce. Are there other real life, brick and mortar sectors, things that involve widgets that also have potential based on your research?
Elaine Pofeldt: Absolutely. Real estate rental and leasing is a hot one and we see that there are a lot of people on Airbnb in that category. It is very lucrative for people that have jobs and want to have a side hustle.
Manufacturing is a really good one too right now. You can be a manufacturer from your living room now because of sites like Alibaba and Maker’s Row. If you have an idea for a new invention, you can find the maker on Alibaba and create a prototype.
You could put it up on a site like Kickstarter, get funding and pre-orders, and then use consumer financing to go and pay the manufacturer. That wasn’t really available to people in the old days of manufacturing when one person had control of the means of production. Now the everyday person can.
Barry Freeder is a British entrepreneur. He came up with something called the Couch Coaster. It was for people that are sitting on the couch watching tv and they have a drink of soda or beer or whatever, and they don’t want to spill it on the couch. He came up with this invention.
He had been, “made redundant at his job” and he had a little bit of a package, so he got a prototype made. Now he has been a manufacturer for several years, something he never thought he would do, and he started making the initial prototypes using cardboard, toilet paper rolls and things like that in his house.
Then, he took it a step further and I thought that was so inspiring because here he was as a corporate employee who thought he always would be one and the next thing you know he is a seven-figure entrepreneur, I wrote about him for Forbes and that story is still live on there.
Shubha Chakravarthy: It is pretty inspiring. Clearly there are questions in terms of what a good fit for you is personally as an entrepreneur to pick a certain sector. There are margins.
So, what are the four or five factors I should look at when I’m considering each of these sectors as a potential fit?
Elaine Pofeldt: We do want to think about what you are interested in because whatever business you start, even though people say they are starting it for the money, you have to think about it a lot and if you hate the topic, you are not going to want to do the reading, the research, the networking in that industry.
So, pick something you like. You don’t have to love it, but you have to like it. That’s what I found.
There are some people that do what they love but there are people that want to protect what they love. Maybe you want to be a painter and sell some of your paintings, but you don’t want the pressure of trying to turn that into a million dollar one-person business.
So, it is important to know yourself and what you do just for fun versus what you do for your field. I would say that you will have a running start if you start a business in an industry you already have worked in because it would give you shortcuts.
In the first book, Alan Walton started SpyGuy, a spy camera store. He had, as a teenager, worked in a spy camera store in a mall, and so he had spoken with a lot of the customers. He knew a lot of their concerns. He knew which cameras broke down easily. So, when he started his online store, he limited his stock to 100 items that he knew did not require a lot of customer service.
So, that in itself allowed him to be much more efficient. It allowed him to save money on customer service personnel, so he was able to stay a million-dollar one person business for longer.
Eventually he did hire his first employee who did do customer service, but it was well into running the business and now he is a small business. He has got about five people now but that gave him a running start.
It is the same thing with professional services if you network in your own field. Sometimes it is just a matter of whether you are leaving your company or not or maybe you got laid off – a lot of people are getting laid off now and you just ask other people for advice on how you could freelance in that industry.
That can lead to bigger things if you want it to or it could be the business itself. Maybe you are doing high-end freelancing?
Shubha Chakravarthy: Are there themes among the women that you looked at for both of these books? Were there themes that stood out among women entrepreneurs that you felt were different or noteworthy relative to the businesses or just their concerns?
Elaine Pofeldt: The one thing I did find with women is that they do a lot of extra work outside in terms of household responsibilities. If they have children, then it is childcare. If they don’t have children, it is often elder care or things like that. It just seems to be something that women end up being responsible for.
So, they have to manage their time very carefully and a lot of the women that I interviewed do want the ability to work from home, especially if they have children in the home because it gives them more control over how much they can get done in a day.
So, I think that is an important consideration. If you are choosing a business then can it be done easily from your home? Does that matter to you because for some women, it doesn’t matter as they are very mobile. They might be digital nomads; they don’t have children or they do have children but they are digital nomads.
So, it is important to think about the other demands on your time and I think it is also important for men, but it seems like if you looked at it statistically speaking, I think more women have in-home responsibilities that they have to juggle, and we are seeing that with the pandemic.
We saw that a lot of women left corporate. The good news is nobody can call you back into work if you are the boss and that is the advantage of running your own business in a lot of ways. It can be more sustainable, particularly for women in a job because then you are subject to the whims of the company and it is always them deciding.
They want you to do the water cooler talk and have workplace collisions to spark ideas and you may feel you can do it by zoom, but maybe they don’t feel that way, so that puts your job sometimes in jeopardy if you can’t make everything work.
There is also the childcare factor. You have a little more latitude in a home-based business in this environment. I know I’m in the Northeast and childcare still isn’t back to what it was before the pandemic, and many of my friends who are working moms have been struggling with this, and employers don’t always recognize that.
So, if you are having a childcare issue now and you have your own business, you can plan your hours around that. Maybe you just cannot work between three and five because you have got to drive your kids around or whatever the issue may be or maybe you have to bring your laptop in the car and put up a fake zoom backdrop and make it look corporate, who knows?
But you have the freedom to do that, and nobody is giving you a demerit in the company. You are holding you back from advancing. You can still grow your company into seven figures running it that way.
Shubha Chakravarthy: What are some of the concerns that you heard from the women entrepreneurs in your research?
Elaine Pofeldt: Well, the women have definitely had lack of access to capital. I would say that is a really big one. That is a very hard one to bridge in the current environment because just from being a reporter for many years, I don’t think the needle has moved at all in the last 20 years for women in venture capital.
But my thinking is that there are some areas that are working very well for women.
They are excelling in crowdfunding and there was one study that showed that they do even better than men in crowdfunding. It is not a contest, but in terms of investing your time in something that is likely to pay that might be something, especially if you are in a consumer area, then you can tap into your network.
There is one company called Nomad Lane. Vanessa Jeswani started a business with her husband, Kish Vasnani, where they sell travel bags and one of them is called the Bento Bag. They have a lot of pockets and they fit under an airline seat, and it has been a big hit.
They excelled in crowdfunding and I think they had raised $2 million plus on their first round for that bag. She had a lot of tips that she shared in Tiny Business, Big Money such as sending people a calendar invite for the first day of funding so that it would rise up in Indiegogo and then it got the attention of the people in Indiegogo who then supported the campaign even more because everybody loves a rising algorithm.
So, things like that can really work for women better than trying to go after venture capital. There are women that have the kind of business that does well, and they have those networks. I would never discourage anybody from doing it. But I think that sometimes going after things where the odds are really stacked against you can distract you from things where you can quickly get the capital you need and then just hit the ground running and grow the business.
Bootstrapping is also something that I’d say all of these businesses excel at, because if you are running a million-dollar one person business or a million-dollar one person plus one employee business, it is not all that different.
Maybe you don’t need venture capital. Maybe you don’t need to give away your equity in exchange for capital, and you can use smart cash flow to fund your growth and you own the whole company.
There is also your banking relationship, which can be helpful. If you have very good credit and you own a home, you may be able to get some business loans and it is never a bad idea to start building some business credit. Maybe you get a business credit card.
Maybe that is all that you need at the moment, and then as you are building the company and it has more revenue and consistent profits, then when investors look at it later, if you were to go that route, it looks very attractive.
Shubha Chakravarthy: These are excellent suggestions. One thing on the question of especially taking money from investors or from lenders, a big part of it is how profitable your business is expected to be and how much you expect it to grow.
So, as this person who is aspiring to start on, what have you seen work, especially among women. How much thought did they give into, for example, the expected margins? To how profitable it is going to be? How much volume they could drive from just being a one-person business? Any thoughts?
Elaine Pofeldt: I would say that you can’t lose by being profitable. Some people run at break even, or some people try to run at a loss for tax reasons. But I think being at least marginally profitable consistently for several years is good.
Ideally you want to be at the profit level that is considered good for your industry. It can really vary. For instance, in the E-Commerce businesses that are getting acquired a lot of you need to have about 25% profit and you don’t want to be far below that and try to get an investor or try to sell the business because you won’t be competitive.
So, you need to really look at industry journals or talk to people in your industry about what is current right now as far as typical profits.
I think you should always run as lean as possible. You don’t want to have a lot of waste in the business. It never serves you to be burning through money. Even though folks who have had experience with a venture backed company, a lot of times they are almost forced to spend large amounts of money and staff up and do all kinds of marketing.
But that isn’t always sustainable if you don’t have the backer anymore.
So, for those businesses, I think a lot of them are started with a lifestyle goal in mind. If you want it to be sustainable and you do plan to run it for a while, profits are your friend. They are your friend if you go to the bank, and they are your friend if you go to an investor.
Shubha Chakravarthy: What have you seen in your research, especially among the women in terms of your starting out goals? You mentioned lifestyle business, right? It has almost become a derogatory term in the investor circles, but what have you seen in terms of how they started out with scale ambitions and how that transformed over time? If it even did as they got their sea legs and as they gained more?
Elaine Pofeldt: I think every business has a natural size, but it’s not always evident in the beginning and I think there are different stages of realization of what that size should be.
So, in the beginning, you are probably just quitting your job or you just got laid off and you just want to start it and some people that I interviewed had a vision of scaling right from the beginning. An example would be Brooklyn, and it was a husband-and-wife team that were running this sheet business, a direct-to-consumer sheet business from their apartment in Brooklyn when I first met them.
Then they raised venture capital several times and they scaled, and they always had that ambition of scaling up and being a venture backed company.
There are others that it takes shape over time, and they are just open to what the universe tells them about the business. Without sounding too weird, they are just listening to the signals from the market. “Are people asking for this? Are retailers contacting me? Do my B2B customers want more? Do they want something that requires a larger team? Do they want bigger commitments from me?”
They are really listening to those things and then also listening to themselves and saying, “Do I want that?” Because some people have deliberately chosen to stay small, and I think the pandemic prompted a lot of thinking about that.
I just spoke and wrote a story about Sol Orwell who was in the first book, and he runs Examine.com. It is a site that sells reports on nutrition and initially he was a digital nomad and he wanted to keep the business at a certain size.
He mostly had contractors and when I spoke with him recently, he had scaled up and he wants to go to nine figures, and he realized he would have more impact with his nutrition by doing that and having some employees now. He now wants to take it as far as he can go and I think that speaks to his core values as a person and as an entrepreneur.
I think it is important to take your own temperature in that regard from time to time because we all evolve as people and sometimes people apologize to me if they have gone beyond being a one-person business, and I’m never angry at anyone for going to employees.
I think it’s a great thing if you add employees. I don’t think it’s a religion that the business has to be a certain size and you can never deviate from it no matter what. It is the right size for you at the time. That’s all that really matters. Beyond that I think it’s good to just stay open. it’s an adventure when you start a business.
You’ll know if you’re growing too fast because certain things won’t hurt, right? You’ll run out of cash, or your lifestyle will suffer and as far as the whole thing that you mentioned about lifestyle, I know that investors may sneer at that, but I also think it’s important to examine why they are sneering, and I think it is great for investors who want a quick exit if you work 24 /7 and you grow it into the next unicorn.
But that might not be the best thing for the business or for you. It is really important to think about what you hope to achieve, and although they may be supporting you and helping you, your responsibilities are to yourself, to your customers, to your community, and to the investors, not just the investors.
So, it is important to really be clear on what you stand for and not let that pressure to get to an offering or an exit for the investors because you let go of your vision for the business because you are the entrepreneur and it is hard to resist that.
Sometimes the entrepreneurs get chewed up and spat out. I hate when I see that because sometimes these are really great businesses at the same time, sometimes the investors can be a tremendous asset, but you have to work together, and they have to listen to you.
Shubha Chakravarthy: Excellent. In terms of coming to the right business, I’m just taking a slight detour here. What have you seen in terms of how long it took for someone to find the one for them, and what were the steps they took to eventually land on the right one-person business that they ended up going with it?
Elaine Pofeldt: It can take years sometimes. So, if you started a business, anyone out there who is listening and it failed, you now think you are not an entrepreneur.
I would just do a reality check by reading some of these stories because some of them tried five businesses before they found their million-dollar business. Anthony Coombs is an example. He runs Splendies. It is a box company that sells lingerie for women, and he actually started out in politics.
He worked in Washington for a short time, got disillusioned, quit his job working for a congressman, worked as a waiter for a short time, and then he started business selling mosaic tiles from his dorm room at University of Pennsylvania, and he learned a lot from doing that.
He moved onto another business that. It was actually a tech business that would help people meet other people in close proximity using their phone. It was a little bit before its time, and no, it didn’t catch on at the time.
Then he sold cars online and that was doing really well, but he was miserable because he had no lifestyle, and he ran into somebody in the airport and was telling them he was never sleeping or working all the time and they said you should read The 4-Hour Work Week.
So, he got inspired by Tim Ferriss and then he started this business with the idea that it wouldn’t take up all of his time. It wound up having a lot of community around it and there are two Facebook communities that just sprung up organically and I think it is at over 15 million with no employees and he has got a team of contractors supporting it on the back.
It is an incredible success story, but it took him years to get there. But he enjoyed the journey, and he loves entrepreneurship, so he never viewed any of the other businesses as a failure.
One of the things that some of them have shared with me is they have little ways of testing their ideas that minimize that journey in terms of how long it takes.
One woman entrepreneur from the book, Ana Gavia, she is from Australia, and she wanted to create a bikini that didn’t malfunction in the water. She was a medical student and she started sketching her designs and she only had $200 to invest in the business.
I love this story because it was such a low start-up cost, and she created this one sketch, and she found a factory on Alibaba that would make the prototype for that amount of money. She actually decided not to make a dress because she didn’t have enough money to do it with all the fabric included.
She put it up on Instagram and bought ads to drive traffic to it and set it up so that she could take pre-orders through an E-Commerce store, a simple one that she set up, and she got about a thousand orders.
Then she placed the order with the factory. It was a small order for the factory, but the agreement going in was that they were an up-and-coming factory, and that they would do this. Then she did that with every single design and she built Pink Colada, the business, to a multimillion-dollar business.
Now it has employees. It has expanded into the US and so she minimized her risk that way, and she also was able to test her ideas because although she loved the bikinis, the customers have to love them too, and she was agnostic about them. So if customers didn’t like one, she just didn’t make it.
So, she preserved her start-up capital, which is the thing to observe. If you have limited start-up capital, it is a way to minimize your outlay on things that don’t go anywhere.
Another entrepreneur who does something similar, Jason Vander Griendt, he does CAD design, and he also does a lot of things in the engineering space and product design. If he has a new idea, he puts it up on a $30 GoDaddy website for one month and drives ads to it. It is the same thing. He sees if he gets inquiries. If he doesn’t then he doesn’t make the product and that is a good practice.
I think you can do the same thing with a course or any kind of productized information. If you have people in professional services then put out feelers first. See if people are really willing to spend money by taking pre-orders. You can always offer a refund if you don’t go forward with it.
Say you are doing a course and only two people sign up, then that is probably not it. So then you just give them a refund, but at least you can measure the interest. It is not necessarily a failure. Maybe your copywriting needs to be adjusted to focus on a different aspect of the course, or maybe you put it up at the wrong time of year for people who would take that course.
Maybe budgets have been drained by that time of the year or something that you hadn’t thought about, but this way you find out without spending a ton of money developing something that nobody is interested in at the moment.
Shubha Chakravarthy: I love the whole A/B testing and running small ads and things like that. Are there other hacks that entrepreneurs have shared with you?
For example, what if you don’t know the specific product, but you know what problem you want to solve? Are there examples that come to mind in terms of how entrepreneurs found the right product concept and then went and built it or sold it?
Elaine Pofeldt: Barry Freeder was an example. The one who did the Couch Coaster thing. He was making all these different prototypes out of cardboard in his house and he tested it out.
Katherine Krug, who did BetterBack, she was using water jugs in her house to design this posture support device and then she got some product designers who are freelancers who did it for her. That is a way to test it on yourself and then you can also test it on people that might buy it.
So, Jessica Ochoa Hendrix, she did Killer Snails. It is a business that has an educational game aimed at middle school girls about science. She was doing a lot of work with the New York Museum of Natural History and she was working with two people, a scientist and a professor. So, they all had their networks where they were working with people who would use the games like educators. They were able to test it that way.
There as a lot of examples of that, of just putting it out there and just letting your ego go completely and just taking the feedback and seeing what people say and if they don’t like it. Not viewing it as a value judgment on you as a person or your thinking, but just valuable feedback that you can use to keep iterating and making your product better or getting sharper or addressing things that maybe weren’t apparent in the beginning.
Like Jason Vander Griendt, he is very successful with his business, but he had another app that he designed. He spent $29,000 on it or something in that neighborhood to buy sunglasses, which he loves and collects at the best prices. But he didn’t really look at the market carefully and as soon as he launched it, he took it down because he realized there was too much competition. There were other apps that were already doing this. It was an expensive lesson, but he’ll never make that mistake again.
So, there are things that maybe you’ll find out early, maybe somebody will just tell you, “Oh, by the way, I use another app that’s just like this” and you didn’t know about it. So now you know, and you didn’t spend the $29,000, but everybody makes those kinds of mistakes along the way.
You’re not going to get out of being an entrepreneur without betting on something that didn’t work. But that is part of the joy of it. When you do find the thing that works it is so much fun because you did all those other experiments along the way to get where you did.
Shubha Chakravarthy: Provided you don’t run out of cash.
Elaine Pofeldt: Hopefully you are conserving it. That is what I think these businesses all have in common. They are very good at conserving their cash and being really resourceful about how they do things.
Shubha Chakravarthy: This brings me to another great point, which is, we can talk about a lot about the things such as marketing or getting the right talent. Those are important, but I think there is enough material out there for people to find.
The things where I don’t see as much, and I’d love for you to talk about are how you can conserve cash and how do you stretch that dollar as a million-dollar one person business or an aspiring million-dollar one person business? Are there things you’ve seen that work well?
Elaine Pofeldt: Usually, in terms of getting the work done what works best is starting with an automation first policy before you start bringing on people. People are the most important aspect of running a business and usually real estate is second.
So, if you can run it in your home, that is ideal because then you save those real estate costs. Some businesses cannot be run that way. So, if that is the case, then you want to be very slow to add people, even slow to add people you put on retainer like a marketing agency because those types of recurring costs can be hard to maintain if you have unsteady cash flow.
Usually what I do in my own business is that if I have a situation that’s taking up my time, like making appointments for my interviews then as a reporter, I think, “Okay, I need help with this. What is the easiest way to get this done that doesn’t involve people?”
Of course, there are these scheduling apps that you and I both use. That is a very simple solution that might save me three or four hours a week.
I look at things that maybe shouldn’t take that much time to take me time because I don’t really know how to do them right. An example would be bookkeeping. I use Bench. I was using QuickBooks, but I never really learned double entry accounting, and therefore I never did it right.
Then when I gave it over to a bookkeeper, it was a mess. It would cost me a fortune for her to undo what I had done and then I found out about Bench where you upload your documents, it all gets input. There are probably competitors that do the same thing. They use AI. I’m not paid by Bench or anything. There is a bookkeeper you can talk to, but a lot of it is automated.
So, for me, I think it is about $200 a month. That is well worth it because it saves me probably 10 or 15 hours a month that I would be dealing with the bookkeeper and dealing with the whole project. I shouldn’t be doing that. I’m a writer. It is not really what I excel in.
So, keep looking for things like that. Then when you’ve totally exhausted those things, then I would look at how I could get things done in the most economical way with the person that is most junior for the most part.
So, if you are sending out an e-newsletter, say you are hiring someone to write it. They don’t necessarily have to be the person who sends it out. Maybe your teenager can send it out, but you have a pro that you pay $150 an hour to write it, with a flat fee, because they are good. You are not going to have to edit it.
So, you invest in quality at that level, but then hire someone else to do the lower-level work that doesn’t have to be done by a seasoned professional.
Sometimes you can save money by hiring someone who is further along in their career development because you don’t have to redo the work. I know Sol Orwell said he was hiring a designer who was pricey if you looked at it in terms of what her hourly rate was, but her work was so good, and she required so few hours that it actually saved him money. Hiring someone in that situation would have been costlier.
So don’t only look at the hourly rate for people that you are hiring or what their fee is. Look at how efficient they are and what it the real cost of hiring them. You may have to do some test projects to figure that out.
Also, at a certain point, it may pay to put people on routine, or if you are using someone a lot and they do have a high hourly rate, maybe they would appreciate the steady cash flow. So, you could maybe pay them 80%. of what you have been paying, but agree to pay them a monthly retainer.
So, there are different stages of those relationships where you realize, “Oh, hey, wait a minute. I’m using Shubha 80 hours a month. Maybe this is time to convert over to a retainer arrangement that can save you money too.”
The other thing I would say is be organized in how you run your business because a lot of times entrepreneurs have so much going on. By being disorganized, they add costs to the business.
So, things like paying your taxes late or things like that, that can just creep up on you. If you put some systems in place to avoid that happening, you can really save a lot of money or getting the proper insurance for your business.
Ask yourself about the things that you don’t really like doing. Who really does like doing those things? Who likes paying their taxes? But staying on top of them is important. So, those are just some things you can do.
The other thing that doesn’t cost any money is investing time in building your network. A lot of times it feels like going to lunch with a friendly colleague is an expenditure of time because you have got to get in your car or get on the train and go there. It takes half a day.
Those relationships where you have those face-to-face interactions or on zoom, if you are still not face-to-face, they really get things done more efficiently for you later because instead of having to write a three-paragraph pitch to a stranger for something you already had lunch with them. They know you. You send them one sentence, “Would you be interested in this?” Then you jump on the phone. It is a shortcut to getting things done. So, it really saves you time in the long run, or even just the clients you already have.
Don’t rush through the calls. Allow an extra 15 minutes of space at the end where you are just chit-chatting with them and learning about them because sometimes you can make a referral to a client that could use their services and you start deepening the relationship so that they think of you too and it is not like you are looking for a quid pro quo because they are going to be some people, maybe they are so junior to you in their career that they are never going to be in a position to help you for 20 years, but you just want to pay it forward in your profession.
It is not a waste of time. It is just a good thing to be doing. It creates good karma doing those things.
Doing those things is underrated in terms of helping you accelerate the growth of your business. It also shakes up your ideas because you can be in this echo chamber of your own mind, especially in these micro businesses where problems that seem insurmountable.
For me, the QuickBooks thing was huge. I was like, QuickBooks is a great product for people that know double entry accounting. But I was mad at myself every day that I wasn’t working on it.
Then I was complaining to this podcaster about why I couldn’t get caught up and he was like, “Oh, you have got to use Bench!” So, it was just that interaction where we were talking off the cuff that solved the problem for me and that is valuable.
Shubha Chakravarthy: Yes. Those are excellent ideas. So, you talked a lot about the cost side. Are there things on the revenue side which can also help you conserve cash or bring cash in faster?
How would you think about cash management from a revenue perspective? Are there models that you should think about or practices?
Elaine Pofeldt: Well, definitely invoicing on time is important. If you are allowed to invoice after a project is completed, it depends on the industry. Some businesses you get paid at the time of the service delivery or you are selling a product and you get paid at that moment.
So usually, the cash flow issues are in businesses that get paid later. A part of this is having time in your schedule at least every week or having somebody on your team who is managing invoicing, and also keeping an eye on projects that are near completion that are bumping along because you can’t invoice until they are done.
Sometimes it just would take one hour or two hours to get this thing to completion, and then you can invoice. That is going to greatly improve your cash flow.
It is also important to follow up on the invoices. You don’t want to be a badger but if something is really late, what I found is if something is going to take 60 days or more, usually something went wrong in the system unless I know that it is like a non-profit that pays in 60. Something is wrong. The invoice is lost. I didn’t code it correctly. So, just a gentle inquiry.
You can always say something, if it is an existing client, that they are always very prompt about paying invoices and that you noticed that this one has been late and you wanted to check to see if it got lost in inbox land or something because usually they are not out to get you or maybe they are having an issue.
Sometimes there have been people migrating to new tech platforms in the pandemic. I’ve had a couple of clients like that where they said, “Oh, we had to re-enter all our invoices into the system. We are sorry.” So, at least I know what’s going on. They didn’t fly to Aruba and not pay me.
Communicating is good and always keeping a pleasant tone about it is necessary because if you go in angry, it is not good. It is not good for the client relationship.
But then again, if somebody is taking advantage of you, sometimes it is a rookie mistake, and you allow a little too much latitude and it is nine months into it and they still haven’t paid you, well then you don’t really want to do the next project until you get paid.
You can say, “I’m a very small business and I notice you are still getting caught up on paying me for the first one. So, I’m happy to work with you once that one is cleared and let’s make an appointment for next month.”
Shubha Chakravarthy: Excellent. I love all of these. I know we are getting close to our time, so, just as a first timer, let’s say you are moving from a corporate job or some other line of work and this is the first time you are out in the business world, and you want to be an entrepreneur.
Are there things that you’ve seen work well for those who have that double learning curve in terms of industry or best practices?
Elaine Pofeldt: Most important thing is to show up daily, if possible, at least five days a week to work on the business because there is some type of mysterious process that happens with anything when you show up daily, whether it is yoga, martial arts, taking care of your plants, or whatever it is, it is that daily reminder of the fact that what you are working on is important.
A lot of people in corporate jobs who are transitioning, or if you are a homemaker, you may be very busy with all the household responsibilities. So, it may be hard to find the time.
So, you need to find the time where you will show up regularly and there are not going to be unexpected interruptions and make that your time when you work on the business.
It shouldn’t be time when you are on call to do something else like working for your employer or driving your child to school because then it will never happen as you’ll be torn between two things. You are short changing both relationships, your relationship with the business and your relationship with whoever else you are supposed to be spending that time with.
But it doesn’t have to be a lot of time. It could be that today you have 15 minutes, and you are going to research intellectual property protection, or today you are going to find out where the SBDC – the Small Business Development Corp is in your county because you have some questions about the proper way to set up a business and you have no money to hire a lawyer. So, you want to know if you should do an LLC or an S corp or just do a DBA.
Just do one small task every day and then all of a sudden at the end of the week, you’ve gotten a lot done, but also your unconscious is percolating about the business. The more you think about it, the more the ideas keep flowing.
If you stop and start, then each time you have to refresh your memory of what you were working on. You also have a sense of failure that you have no momentum going and you see other people doing it, and then you think, “Oh, maybe I’m not an entrepreneur.”
You are really just a busy person and having an accountability partner can be really helpful. It could be that some people need a coach, like a peer coach who kicks their butt and cracks the whip.
Other people need somebody who is more supportive and maybe has a similar type of lifestyle. I know for me, when I started freelancing, I partnered with Elizabeth MacBride, who was the one who introduced you, and we both had small children at the time and we were sharing this beat at Crain’s New York.
It was a small business beat where there was a newsletter and then there was the weekly coverage. At different stages of that relationship, she did the newsletter more, or I did and our motto for the business was “No stress” because we had a lot of stress. We were working mothers juggling a lot.
For me, I think that relationship more than anything kept me as a freelancer because we both did similar work. We were not going to poach each other’s clients, but we were there to help each other out.
If one of us had too much work and not enough capacity, and we had a similar knowledge base, but we each had our own strength, like she’s an expert in personal finance, I can cover personal finance, but it is not my core expertise.
So, finding someone like that can be helpful. It didn’t cost us any money and it helped us grow our businesses because sometimes she just didn’t want to take a project and would refer to me or vice versa.
It was just personal preference, but we needed somebody very good to refer to that we trusted that we deliver it and had the right people skills to work with clients and be successful on that front as well. So, I would say that is really important.
Shubha Chakravarthy: I know that we are running out of time, so last question. Let’s say we have someone coming in wanting to start this business. What five things would you suggest they do on Monday morning to get started?
Elaine Pofeldt: Well, I would say select the hour of the day that you are going to work on this and put it in your calendar. Find your accountability partner. Look at your family budget or your personal budget.
Look for ways that you can live below your means because let’s face it, everybody is self-financing in the beginning. So, the less you spend on household expenses, it could be just getting a new cable deal or something like that. It can free up money. You can invest in the business, or it can give you a cushion if clients are slow to pay you.
I would say work on building your network. So, it might be that you flesh out your LinkedIn profile one day a week. One day it is your Facebook. Another day, maybe you are going to take some time to go to an Eventbrite meeting in your industry where cameras are turned on and you’ll be networking online.
It really depends on your lifestyle. Then I would also say, just start it. Sit down at your computer on day five and do some type of work in the business, whatever it is, some kind of concrete project.
It may be looking into how much a GoDaddy website costs or whatever website you are going to use. Or put up the first page of your website or find a web designer.
Just do one concrete task and then at the end of the week, make a list of the things you are going to knock off next week, and then chip away at them. If you find you are biting off more than you can chew then reduce the size of the tasks because you are probably working or taking care of kids or something that is interfering with your ability to get things done.
You want to build a sense of success, so do it in small wins, and you will be surprised all of a sudden. It is a momentum game. You are going to find the momentum going, or you might learn enough about the business to say, “Hey, there is this aspect of this that I really don’t like. I’m not doing it. I hate doing trade show sales or whatever it is. I need to rethink this.”
Then don’t quit being an entrepreneur, but just go back to the drawing board and think about, “Okay, what did I learn from this? What did I like about it? How can I now improve upon what I’m doing and make this a business that works for me?”
It may take a few tries and it may take starting a completely different business, but now you are an experienced entrepreneur. You have already learned from failure, which is a badge of success for entrepreneurs, and you have had the guts to do it.
It takes courage to be an entrepreneur. There is a lot of resistance to doing it. There is internal resistance and external resistance from society, from our families, and from everybody.
Now you’ve broken through that. So, give yourself credit for your bravery and courage and build on that. Now you are really going to be unstoppable.
Shubha Chakravarthy: Thank you so much, Elaine. This has been a very informative, enlightening, and encouraging discussion, so thank you for taking the time to share your insights and everything you have learned through your research and your own experiences! It has been awesome!
Elaine Pofeldt: Thank you so much, Shubha! What a pleasure to speak with you. You are such an informed interviewer. Thank you!