Today, I chatted with an entrepreneur who owns a retail company about what can be done to grow sales. One of the projects mentioned was improving the functionality of its website. The entrepreneur views money spent that way as a cost and wants to spend as little as possible. This perspective got me thinking.

Entrepreneurs should keep a close eye on costs. The old saying, “If you watch the pennies, the dollars will take care of themselves,” is true. The best entrepreneurs keep costs under control.

However, expenses and investments are different. An expense is a cost to operate a business that generally covers only a year. Think insurance, taxes, rent, salary, etc. An investment creates an asset that produces revenue (and hopefully profits) for years. An investment should generate a return.

The entrepreneur I was talking with today was thinking of money spent on an ecommerce website as an expense, but I think it’s an investment. A website is an asset that, if properly built, can drive revenue and create a return on the money invested for years.

Entrepreneurs have a dual role. They should manage the costs of the company to ensure short-term profitability. But they’re also capital allocators who must invest profits in ways that will help the company grow long term. Treating investments as expenses will improve short-term profitability at the expense of long-term viability.

A friend of mine, Markell, is an engineer and investor who’s been following my book project journey. Today, he shared an example of a different way to communicate a book’s concepts: a mind map. I like mind maps. They effectively communicate concepts quickly. And creating one is a great exercise in thinking through an idea and all the supporting parts.

My mission with my book project is to create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success.

I’d never considered using a visual like a mind map to communicate entrepreneurial wisdom or an entrepreneur’s journey. But when I looked at what Markell sent me, it clicked. A mind map is a great way to quickly give someone a 50,000-foot view of something. They can then zoom into whatever areas they want to know more about. It’s also a great way to show how actions and ideas build upon each other, how multiple people leverage the ideas, etc. Said differently, it’s an effective communication tool that shows how things are connected.

I’m not sure how to create a mind map of an entrepreneur’s journey or wisdom (or multiple entrepreneurs’ journeys or wisdom), but I’m excited to try to figure it out. It could add a lot of value to my book project.

I’ve been learning more about retrieval augmented generation (RAG) and how it can enhance AI responses and help AI-oriented businesses. Here are a few thoughts based on my understanding today:

• The better the data, the better the responses from AI. Data can be a moat that will keep competitors away. Data aggregated in a single source will be valuable because it will enhance the output from AI. Assuming that AI will aggregate disparate data, organize it, and provide a quality response isn’t a winning strategy as of today.
• Data structure matters for large data sets. AI struggles to make sense of large data sets. The data needs to be structured so AI can easily understand connections within it. And when I say data, I’m including text.
• AI will make it easy to build solutions. I see new niche AI apps launching daily. Competition is ramping up. To succeed long-term, entrepreneurs building AI solutions will need a proprietary data set or a unique way to distribute their solution to customers (e.g., brand credibility or a creative way to acquire customers)—ideally both. Absent these two things, having a sustainable edge over competitors will be difficult.

I’m still learning, but those are my thoughts right now.

Last week I talked to an entrepreneur who’s shuttering his start-up after several years. The company is at breakeven, but it’s not growing. He shared with me what he’d learned from his journey.

The market is the main thing he wishes he’d paid attention to in the beginning. The market he entered looked good at first glance because it’s large. However, it’s slowly shrinking, and shrinking market forces have made it difficult for him to acquire customers because he has to steal market share from other companies. He now recognizes the huge role the market played in his company’s trajectory, but he didn’t understand it until he was in deep. If he knew then what he knows now, he wouldn’t have started a company in that market.

Markets matter a lot for entrepreneurs, especially if they aim for outsize success. Growing markets are good, and new, rapidly growing markets are the best. This founder is talented, but that wasn’t enough to overcome a shrinking market. He recognizes this now and says his next company must be in a growing market.

Shuttering a company isn’t ideal, but it happens often in entrepreneurship. This founder gained valuable wisdom from his first company. I’m excited to see what the next leg of his journey looks like.

This week, I committed to reading my highlights from David Allen’s Getting Things Done and Tiago Forte’s Building a Second Brain. It’s been a few months since I read them. Today, I read highlights from Getting Things Done. A few thoughts:

• This is a framework book (mostly). It teaches you a method you can use when executing your work to get more done with less stress.
• In school and at my first job, I was never taught how to work; I was just expected to get a lot of work done. Looking back, I was pretty inefficient, and I wish I’d known about this framework. I suspect most people are never taught how to work efficiently. They work hard but might not be efficient or strategic in their efforts.
• Context switching is a challenge for many. Often, the ramp-up period when starting a new task is a pain point. Some of this book’s methods can resolve this.
• Teaching this framework to employees at smaller companies could increase the velocity (which matters more than speed) of the company’s execution.
• A lot of entrepreneurs approach managing execution as a top-down activity. Some end up micromanaging because of this approach. This framework is more bottom-up—it empowers the employee and removes the need to micromanage.
• I like the idea of equipping employees with training on this framework, combined with a strong vision/mission and a goal-setting framework (such as OKRs or EOS), to create a company with high execution velocity.

I’m looking forward to fine-tuning how I execute the ideas in these books.

I was chatting this week with an entrepreneur who’s trying to figure out how to solve a problem outside his expertise. This founder is facing the starting-from-scratch dilemma. He’s trying to solve a problem and figure out what his next action should be, but it’s so far outside his domain he doesn’t even know where to start.

Experience gives you the best shot at resolving a problem or determining your next action. You can acquire experience by doing things yourself (and often failing) or by learning from what other people learned by doing things. When I’m starting from scratch, I like the second option.

I crystallize the problem I want to solve and write it down. Then I find material from people who’ve solved the problem and had outsize success. Books are my preference because they’re long form and more thought out. But if I’m trying to do something tactical or something that requires recent experience, I listen to podcasts where the person explains what they did (not someone else giving their opinion or interpretation). I want the wisdom straight from the horse’s mouth. If possible, I try to learn from the experiences of several people.

This usually solves the starting-from-scratch issue. It doesn’t magically give me a solution to my problem or tell me what action to take, but it often gets me 70% to 75% there.

I then try to figure out how to apply what I learned from others to my situation. Copying exactly what they did usually doesn’t work because their situation was different from mine. Once I figure this out, I’m close to 100%. I know where to start, and I have a good idea of how I want to solve the problem and what the next action to take is.

I still fail and learn more along the way, but the entire process is much faster because I’m not learning foundational lessons from the ground up. Instead, I’m taking what works and building on it.

The next time you need to solve a problem or figure out what action to take but don’t know where to start, consider getting clear on the problem you’re trying to solve (write it down) and finding books or other content from people who’ve solved that exact problem. Learn from their experiences and try to figure out how you can apply what they learned to your situation. It isn’t perfect, but it’s a lot quicker than the alternative.

A few weeks back, I visited a friend who’s a founder. Their business moved to a new location, and they asked me to check out the new space. I’ve known the founder for years and know what products the business offers, but I didn’t really understand how it offers them. So I decided to use my visit to learn “how the sausage is made.”

I toured the space and observed how the operation runs. It’s a well-oiled machine, but one thing caught my attention: one process seemed high priority but inefficient compared to everything else they did. I made inquiries and learned that the process is critical to generating revenue, which makes it a high priority, and it has to be done multiple times a week. This critical, inefficient process is the founder’s biggest annoyance and time suck.

After I left, I started making mental notes about new technologies I learn about that might automate parts of this process. I read about one promising new technology and shared it with the founder this weekend.

Two big takeaways from this experience:

• In Sam Zell’s autobiography, he said that visiting people in their environment is a great way to learn about them. Zell was right. Going to visit people and watching them do their normal work is the best way to understand their workflows and problems. It’s also the best way to deeply understand their pain points. Visiting this entrepreneur’s office helped me understand the severity of their pain. Video meetings and phone calls are good, but in-person visits are best.
• This founder has a never-ending to-do list. After I shared the new technology with them, they were excited about reducing the time and cost associated with this process. However, they’re not looking forward to learning how to use a new technology. In fact, they don’t really care about the technology or how it works. They want a solution to the problem. They want a service that takes care of everything from start to finish. The end result, including its quality, are all that matters.

There’s an opportunity to provide services that solve painful problems in specific small business niches. If new technologies such as AI are used to do most of the work, the services potentially can be high margin and scale nicely to seven or even eight figures in revenue with a small team. To understand what problems niche small businesses need solutions to, visit their operations. Look for points of frustration and inefficiencies that impact revenue generation. Then find technologies that solve the problem. Create a service offering that handles solving the problem from A to Z. Seems like a decent playbook for building a scalable services business in a niche.

This week, I talked with a friend who’s considering selling his company to a private equity (PE) firm. He’s been reinvesting profits back into growth initiatives for years, but in the future, rapid growth is less likely. He’s spent years building a business that’s his biggest asset, and now he’s looking for it to generate a return. The business is past the high-growth stage, so it has to shift from optimizing for revenue growth to increase its valuation to optimizing for free cash flow. Whether under his or a PE firm’s ownership, that’s the business’s next chapter.

Private businesses are assets, and entrepreneurs should seek a return on them. For some businesses, that means sacrificing profit to grow revenue rapidly with the goal of increasing the enterprise’s value (i.e., valuation). For others, it means increasing the distributable cash the business generates. Identifying the best way to generate the highest return is the entrepreneur’s job. Entrepreneurs should seek to avoid ending up with an asset that doesn’t generate a return. Companies with no or minimal growth and no or minimal free cash flow typically fall into this bucket.

Researching apps to help a friend solve a problem with their business, I came across two popular apps and decided to research their founders. I learned some interesting things. Each app does over $100k in monthly revenue, with 80% or higher net profit margins. I know this because both founders talk openly about revenue figures in interviews, and one even shares the revenue figures in his social media bio.

Both founders built their apps and maintain them without the help of a team. And neither is interested in scaling their company. They’re happy to grow revenue but uninterested in recruiting or managing a team. They’re hackers who want to quickly build products others find useful and will pay for. With this philosophy, they’re not focused on B2B customers; they’ve created apps that are B2C oriented. The apps are self-service with low price points ($40). Often, people will pay for one-time usage, so they’re less focused on recurring revenue. I’m assuming this works because their apps appeal to a large global market and they acquire many new customers via word of mouth, which keeps customer acquisition costs low.  

I’m intrigued by both of these indie hacker founders. I want to learn more about their approach to quickly building and launching one-person companies that generate over $1 million in annual revenue.

I met with an entrepreneur who’s had early success in a highly competitive industry. The products his company sells are readily available from competitors, so there isn’t much differentiation. His company’s current strategy is to provide products for a low price. Its prices aren’t the absolute lowest, but they’re on the lower end of the spectrum.

As a founder, I operated in a market where price-taking was the strategy. The automotive parts we sold were readily available from multiple retailers, so there was no product differentiation. This led to lots of competition. Since we all sold the same parts, each competitor tried to take the lowest possible margin that allowed it to make a small profit. With small profit margins, the focus was on volume. A little bit of profit per order and a ton of orders can add up to a decent total profit.

This strategy can work, but it often requires scale. Companies like Walmart have proved it’s possible. Winners in this type of market are often hyper-focused on efficiency. The company that can operate with the leanest and most efficient cost structure can afford to sell for less than competitors. Lower prices attract more customers. More customers mean more volume, and more volume makes it possible to negotiate with suppliers for lower costs. If executed well, this strategy can create a flywheel that grows the company.

The entrepreneur I met with doesn’t want to be in a price-taker business forever. The lack of customer loyalty and inability to control margins concern him. He wants to move from being a price taker to being a price maker. And he wants to set prices based on the value created for customers. He’s exploring creating proprietary products and services focused on niche customer problems to accomplish this.

You can build a successful company being either a price taker or price maker. Having built a company that was the former, I want my next company to be the latter.