This week, a founder wanted feedback on her sales pitch deck, so I sat in on her pitch. The company has hundreds of thousands in revenue from enterprise clients and product–market fit. The pitch deck was visually impressive, and the value proposition made sense. But I noticed a glaring problem with her pitch: her messaging wasn’t clear. Specifically, when I asked questions, it became apparent that the problem she’s solving is slightly different than what’s in her sales pitch. So the pitch isn’t as effective as it could be.

You might be thinking that your messaging and your sales pitch are the same, but they’re not. Your messaging is a clear articulation of what problem you solve, how you solve it, and why your audience should care. It quickly explains why your company exists and how it adds value. Having a clear message is important because it becomes the basis of lots of critical fundamentals of the company: the recruiting pitch, the investor pitch, the sales pitch, etc. Without clarity, everything built on top of the messaging is less effective, which is what this founder is experiencing.

I think there’s something to be said for founders working on their messaging independently, before beginning to use it in other collateral. Many founders start working on their messaging when they begin building a pitch for investors or customers. But I think messaging is so critical that founders should get clarity on it far in advance of building a pitch. They should clarify their messaging to gain clarity in their minds. If a founder has clarity on the messaging, they’re more confident, which permeates everything else they do. It makes many other facets of company building easier (not easy). For example, it’s easier to close deals with customers, recruit the right talent, and raise growth capital from investors.

This week I chatted with a founder about his fundraise and his longer-term goal. He told me his goal is to build and sell his company. I thought, his company will be built to sell. I asked him a few clarifying questions and learned that his true goal is to have a large enough cash position that he can pursue his other passions and ideas.

Selling a company isn’t a guarantee. A lot of external factors determine if (1) a transaction is possible and (2) if it’s financially feasible to sell the company.

Since 1981, we’ve been in an environment heavy in acquisitions, and it’s all some founders know. However, I’d argue that this is largely a function of interest rates on 10-year U.S. Treasuries, which dropped from almost 16% to 0.5% in 2020 and have since risen to about 4.25% today. Said differently, interest rates were falling, or historically low, for roughly 40 years, which contributed to more borrowing, which led to more acquisitions. People borrowed money, and some of them bought companies with it.

I can’t predict what rates will do going forward, but 40 more years of declining rates seems highly unlikely.

That having been said, I believe that building a company that’s self-sustaining and that generates positive cash flow is a more effective strategy. If customers love the product and it’s generating cash flow, the owner has several options. He can keep the company and reinvest the profits inside or outside the company. If the environment is right for acquisitions, the company likely is more attractive and can command a premium from a buyer because the owner doesn’t “need” to sell.

When you build a company focused on creating sustainable value for customers and cash flow for the long term, your decision process is a lot different. You’re more likely to build something that can withstand whatever external factors the world throws at it. If you build something to sell, you can do everything “right” but still fail to sell simply because outside factors, such as interest rates, create poor market conditions and timing.

This week, I listened to an entrepreneur share how he took out a loan to buy out his cofounder about a year ago. The good news is that the founder now owns 100% of the company and all its upside. The bad news is that revenue has declined slightly, the company is breakeven (no profit), and the monthly debt payments are affecting the founder’s decision-making. He’s now worried about what will happen if the business can no longer generate enough cash to service the debt payments.

I don’t have enough context to say whether debt was right for that founder, but I think about taking on debt in a business using a simple framework. Here are the steps:

• Do I have a clear plan to invest the proceeds, and can that investment generate a return? If not, I won’t take on the debt. For example, I’m not comfortable taking on debt for consumption, but I’ll take on debt to invest in a project that will allow the business to generate more revenue and cash flow.
• If I use the proceeds to invest in something that generates a return, will the percentage return be higher than the interest rate on the debt? If not, I won’t take on the debt. For example, the loan has a 10% interest rate, but the project I’m planning will likely generate a 5% return. That’s not something I’d take on debt for because the return isn’t sufficient to service the debt payments.  
• Can the current business cash flows support the debt payments? If not, I’d think harder about taking on debt and be less inclined to do so if my conviction about my plan to invest the proceeds isn’t strong.

Debt is a form of leverage and a tool. It provides you with more financial resources than you typically would have from customer revenue alone. Like any tool, it’s not good or bad. How you apply the tool makes all the difference.

Last month I shared my love for the micro SMB market and my observation that many start-ups overlook it (see here). This week, I listened to a founder who’s targeting this market give an update on his progress. The TL;DR is that it’s starting to work. He’s beginning to land paying customers and see his monthly recurring revenue increase month over month. But it’s tough and taking longer than he expected.

A few of my takeaways from this founder’s experience so far:

• Go-to-market (GTM) – Finding and converting micro SMBs into paying customers is difficult. They’re scattered all over the place and busy operating. You likely can’t find them on tried-and-true places like LinkedIn. Instead, you have to think of them as consumers and market to them that way (I think of them as prosumers). Finding them in the places they’re already hanging out (e.g., Facebook groups or Reddit forums) is a good first step. Figuring out how to add value where they are builds trust and increases the chances that you’ll get them into your sales funnel.
• Wannabes – Targeting aspirational micro SMB entrepreneurs isn’t a great strategy. Even if your GTM is good and you find them, they still may not buy what you’re selling because the problem you’re solving isn’t real to them (yet). Target micro SMBs who are already generating revenue and trying to grow. They’ll instantly understand the value of the solution you’re providing. They’ve tasted some success, and they’re hungry for more. Position yourself as the person trying to help them build their empire.
• Start narrow – Building on the GTM point above, starting with a narrowly defined problem and a narrow persona for an ideal target micro SMB is likely a good approach. It’s much easier to measure the effectiveness of your marketing efforts and iterate on them when you’re focused narrowly. Going wide is akin to trying to boil the ocean (and the micro SMB market is HUGE).
• Moat – Because finding micro SMBs is challenging, many players tend to avoid this market and go after SMBs (mid-market businesses) or enterprises instead. Therefore, if you can figure it out, you’ll have a big competitive advantage. You’re less likely to have competitors because what you’ve done seems impossible to others. Less competition means you can capture a larger share of the market before having to worry about competitive pressures that erode margins.
• Partnerships – If your GTM is working well, other companies will likely want to partner with you or pay you to tap into your micro SMB customer base because they can’t figure out how to replicate what you’ve done. This creates all kinds of opportunities and leverage in relationship conversations. If done strategically, it could get your cost to acquire a customer to zero or even turn into a profit center.
• Runway – Finding your strategy to locate and acquire micro SMBs isn’t like executing a proven playbook, such as enterprise SaaS sales. It’s about creating something from scratch that may not have been done before. Lots of testing and iteration are required. Because there isn’t a predictable formula or strategy, you have no idea how long it will take. Maximizing your runway is critical so you’ll have enough time to experiment and, quite frankly, catch a lucky break.
• Small tickets – Selling to micro SMBs means the average amount you get from a customer is likely to be low. So, you need lots of customers to build a meaningful amount of revenue. That takes time, so you need to give yourself plenty of it. But once it starts rolling at a steady pace, it can snowball quickly.
• Payments – Offering a product that makes it easier for micro SMBs to accept payments from their customers puts you in the revenue path. Once they rely on your product or service to generate their revenue, they’re less likely to leave.
• Workflows – Micro SMBs usually have zero processes and are often one- or two-person companies. If your product offers processes where none exist or automates tedious manual processes, that’s huge to these micro companies because you can help them generate more revenue without needing to add headcount.

I’m excited for this entrepreneur. I think he’s on to something big. If he can crack the GTM for micro SMBs, I think he’ll build a shockingly big business fast.

Last year, I read a book by Felix Dennis. The title—How to Get Rich—isn’t my favorite, but it grabs people’s attention. The book is about succeeding as an entrepreneur, which leads to wealth—it’s not just about how to get rich. Dennis shares numerous lessons he learned the hard way as he built several companies, including Maxim magazine.

The book is a good read and contains lots of useful lessons for entrepreneurs. To see my takeaways, read my blog post series here.

One takeaway that stuck with me is about persistence and stubbornness. I regularly ask myself if I’m being persistent or stubborn when things aren’t going as I’d hoped. Here’s how Dennis describes the difference between the two:

Persistence is having the conviction that you’re right about something and that your point will be confirmed in the future (hopefully shortly). You simply keep going until you’re proven right. This is what entrepreneurs are known for. Simple enough, right? Well, how does persistence differ from stubbornness? Stubbornness is a form of persistence. You persist at something because you think you’ll be proven right. Stubbornness comes in when data or other evidence points to your likely not being right. Said differently, stubbornness is persisting even though signs are pointing to your being wrong.

Persistent people keep going, but they pay attention to red flags. If they’ve made a mistake, they change their plans. They persist, but in a different way—one that’s more likely to be successful. Stubborn people keep going and never course correct when they should.  

I think of persistent people as rational, clear thinkers. They’re grounded in reality and have the mental flexibility to acknowledge when they’ve made a mistake or bad decision. They acknowledge their error, regroup, and refocus their energies on the right activities so they can still achieve their goal.

I was stubborn once. I ignored signs that I was going hard in the wrong direction, and I regretted it. I vowed to do my best to avoid those kinds of mistakes going forward. Since reading Dennis’s book, I regularly ask myself if I’m being persistent or stubborn. I look for signs or data points that signal that I might be right. If I can’t come up with any, I know I’m likely being stubborn and need to course correct and put my energy into different actions that still align with my goal.

Last year, I wrote a post (see here) in which I defined wisdom:

Wisdom is the ability to apply knowledge in a manner that aligns with the outcome you desire. Wisdom means changed behavior and improved decision-making—knowing what to do and when to do it. Wisdom is acquired from experience (yours or someone else’s).

Wisdom is the entrepreneur’s friend because it allows them to hit their goals (e.g., grow their company) faster. Acquiring wisdom from the experiences of other credible entrepreneurs is best because doing so saves a significant amount of time.

How entrepreneurs acquire wisdom from others is something I’ve given a lot of thought to—after all, I’m reading biographies to do just that. Entrepreneurs pay lots of money to be in communities with people going through similar experiences so they can learn from them (EO, YPO, Vistage, Hampton, etc.).

I’ve been thinking about the difference between first-generation and second- or multi-generation entrepreneurs and how the acquisition of wisdom impacts their respective velocities, which is more important than their speed (learn why here).

I’m going to learn more about this, but I hypothesize that second-generation entrepreneurs have a material advantage starting out because they’ve acquired significant wisdom through osmosis from being around and talking to family members who are entrepreneurs. They learn from an early age what works and doesn’t work, and why, from experiences of family. So, when they start their own companies, they have a better idea of what to do and when to do it. Does that mean a second-generation entrepreneur is more likely to be successful? I don’t know. Does it mean a first-generation entrepreneur competing against a second-generation entrepreneur needs greater learning velocity? Likely so.

I’m curious about this and excited to learn more. I’m going to talk to a few entrepreneur friends who grew up in entrepreneurial families to get a feel for whether my thesis is directionally accurate.

This week I caught up with a buddy who’s a software developer. He’s been working on a software idea that he hopes will become a large business. The scope of the project is sizable, so he’s had to hire a few developers to help him get it over the finish line. He shared with me that he’s learned a lot from the experience, the main thing being that he doesn’t want to work on any project that he can’t build by himself. He doesn’t want to manage other developers. He just wants the freedom to work on software ideas he’s curious about, launch them (and hopefully get revenue), and move on to the next project.

As I listened to my buddy, I thought about the indie hackers I’ve researched. The notable ones have one-person shops that have built a portfolio of several companies that collectively generate several million dollars in revenue each year (usually, one of them contributes the most revenue). From what I’ve learned, indie hackers love the process of building but also love new challenges. They don’t want to work on something indefinitely. They want to be individual contributors and work alone so they can move really fast. And most importantly, they want freedom—they want to be in the driver’s seat of their own lives.

I’m pretty sure my buddy is an indie hacker, but he might not realize it yet. I have a lot of respect for indie hackers. I think it’s amazing that they can do what they love; build cool, new stuff; turn it into companies; and generate enough revenue to give them financial freedom (in some cases, serious wealth). What I respect most about them is that everything they do is on their own terms.  

Not every software engineer wants to work at or build a large company. Some just want to continuously work on new ideas they find cool and be in control of their life. They don’t want to rule the world; they just want to live in it the way they see fit. I love it, and I think the indie hacker movement is a great part of the entrepreneurial ecosystem that will likely get much larger and well known in the years to come.

This week, I had a conversation with an early-stage founder building an AI company to help large companies manage software development. He recently completed a substantial fundraising round. He’s from Atlanta, founded his company here, and was splitting his time between San Francisco (SF) and Atlanta, but he recently moved full-time to San Francisco.

I was curious about why he moved, and he told me he had two main reasons:

• Talent – Only a few hundred people in the world know how to train large language models the way his company needs them trained, and those people are all in SF. He needs to be there to recruit talent.
• Ground zero – The biggest breakthroughs are happening daily in SF. When you’re there, you’re working alongside the people making them. Because you know what they’re working on, you can build complementary products six or eight months before other people—who aren’t even aware the breakthrough is coming. Additionally, being physically closer to large-model companies like OpenAI enables you to gain access to useful information such as product roadmaps, which allows you to stay ahead of the curve in your building and decision-making.

This founder’s perspective is unique, given his knowledge of and deep entrenchment in both cities. I found it helpful. I understand why he moved to SF, but I’m hopeful that Atlanta will attract and produce more AI talent over the next few years, making it feel like ground zero. If so, hopefully, talented AI founders won’t need to move to achieve outsize success.

I’ve been chatting with an early-stage founder and providing feedback about his pitch deck. He’s sharp and a go-getter, and I enjoy working with him. He’s looking to raise a seed round from a venture capital firm and wanted my thoughts, since I’ve been inside an early-stage venture capital firm.

One of the things I’ve been questioning is the problem he’s trying to solve. He wasn’t stating it succinctly—he alluded to it, mentioning other problems as well. It was up to me, the reader, to reach the correct conclusion about the main problem he’s solving. I’d talked to him, so I could do that, but what about the investors who see a few pitch decks a day and would see his pitch cold? They won’t take the time to try to figure out the problem; they’ll just say no and move on to the next pitch deck.

Businesses exist to solve a problem for their customers. Customers pay for that solution if it provides value to them. It’s that simple. The customer’s problem is the foundation of the business. Solve their problem in a way that customers value, and they’ll pay you for that value. If you can’t articulate the problem clearly, that failure cascades through all aspects of the business and makes everything harder. Raising money and closing customers is harder, and even recruiting may be more challenging.

Understanding the one main problem you’re solving and communicating it clearly is harder than it sounds. If you can’t articulate your problem in a way that people instantly understand (even if they disagree with it), consider spending some time refining it and getting feedback until you nail it. Getting this right as early as possible will give you a north star that will make decision-making, fundraising, and a host of other things easier (not easy!) down the road.

I recently chatted with an early-stage entrepreneur who built an app that enables businesses to accept almost any payment method. As I learned about the problem he’s solving, he mentioned that his target customers are “micro SMBs.” That caught my attention—I liked that framing.

“SMB” stands for small and midsize business. It’s normally applied to any company that’s not a huge enterprise. This bucket is pretty wide. For example, a midsize company might be a retailer with $75 million in annual revenue and 150 employees. A small company might be a graphic design shop with 10 employees doing $1 million in revenue. Though they’re both SMBs, their complexity and problems differ wildly.

The micro SMB is the smallest business in this group. I think of it as solopreneurs (i.e., the founder is the only employee) and teams of up to five people doing $500,000 or less in annual revenue.

For many years, I’ve been bullish on building a business that solves problems for SMBs as a way to build a large business. According to an older book by Verne Harnish, only 4 percent of businesses in the U.S. have revenue of more than $1 million a year. Translation: the market to serve small businesses is huge. If you can solve a problem they have, you can get a lot of customers.

I love going after micro SMBs because they don’t expect perfection, there are tons of them, you’re usually selling to the owner, and they make purchase decisions quickly. Solutions to problems they couldn’t solve themselves and solutions that significantly free up their time so they can work on other parts of their business do great in this market. They’ll often buy on the spot if you check either of those boxes.

One knock against micro SMBs by investors and founders has to do with the process of selling to them. Price points for solutions in this market are often lower, which means you can’t afford outbound sales teams in many cases. That’s true, but I don’t think it’s a negative. I think of this market as more of a prosumer market. You’re marketing to a sophisticated consumer who is more willing to spend than the average consumer. Instead of outbound sales, strategies that gain this customer’s attention or educate them can attract them. Easier said than done, but highly effective when done strategically.

My conversation with this founder crystallized something for me. I like serving the SMB market, but I love serving the micro SMB market. It’s a tough-looking market, but once you nail it you can build a massive business with customers who often won’t consider switching solutions because they’re too busy running their small business.