5 Things I Just Learned After 14 Years of Business | Ep 873

In this episode, the speaker shares five essential business lessons learned from achieving over $250 million in revenue in 2024. The first lesson revolves around the 'cost of change' in business operations; whenever changes are made, there's generally a 20% drop in performance. This realization helps in evaluating which improvements are genuinely worth pursuing. Rather than chasing every small improvement, the speaker emphasizes focusing on changes that have a significant upside and accepting that some aspects of the business may remain imperfect to prevent constant performance dips.

The second lesson highlights the importance of revenue retention as opposed to virality. While word of mouth can drive growth, some industries have inherent disincentives for customers to refer competitors. Thus, the speaker assesses the real measure of business health using revenue retention metrics rather than just focusing on how viral a product may be.

The third lesson covers the LTV (lifetime value) to CAC (customer acquisition cost) ratio, emphasizing its importance in understanding profitability. The speaker stresses the need to calculate LTV based on gross profit rather than revenue and outlines how different business models affect the ideal LTV to CAC ratio.

Moving on, the fourth lesson tackles the challenge many entrepreneurs face when scaling a business, particularly between one to three million dollars in revenue. The speaker identifies this range as the 'swamp' where businesses often struggle due to difficulties in scaling their operations and the high costs involved in bringing in talent.

Finally, the fifth lesson focuses on the difficulty of maintaining focus in the face of FOMO (fear of missing out). The speaker discusses how setting arbitrary timelines can hinder progress, suggesting that entrepreneurs should model their journeys on successful long-term businesses rather than succumbing to the rush of expansion.

Key Takeaways

• The constant cost of operational changes can lead to significant performance drops and should be carefully evaluated.
• Revenue retention is critical; not all products will benefit equally from virality.
• Understanding LTV to CAC ratios in the context of gross profit is essential for measuring business health.
• Scaling a business, especially in the $1-3 million revenue range, presents unique challenges that require careful management.
• Focusing on one business venture is often more beneficial than spreading oneself too thin with multiple opportunities.