“To create a business that does good in the world, it’s got to be a profitable business that makes money and then has this overflow of cash you can then use to invest in all the good things you’re doing.” Sam, on establishing business priorities
For most businesses, nothing is more important than money.
- Episode 43: Don’t Compete On Price
- Episode 8: How To Start A Coffee Shop
Resources Mentioned In This Episode Of The Lazy Entrepreneur Podcast:
01:14 – The source of the title quote
02:30 – Giving comes from overflow
05:48 – Consequences of having a split vision
07:23 – The background of many of the digital nomads in Bali
10:00 – Separating charity and profit
SAM: Hello and welcome back to another episode of the lazy entrepreneur we’re your hosts, Sam and Emma Priestly.
SAM: We’re reporting to you from Bali at the moment and I hope that’ll give us some extra insights.
EMMA: Meeting some more digital nomads means.
SAM: Meeting some more digital nomads and actually the next few episodes I’ve got coming up a little bit are based on sort of stuff I see people doing out here that I think is either wrong or can be improved upon.
EMMA: That’s a very diplomatic way of putting it.
EMMA: So let’s start off with this, that is in business, money is either important or the most important thing. Money is either important or the most important thing. I wish I knew where that quote was from, I didn’t make it up. I heard it somewhere and I’ve been googling frantically and I just can’t find it anywhere. So I think it must’ve been on on the podcast or something.
EMMA: We’ve heard it together somewhere, either we listen or watch something or.
SAM: Yeah but wherever it was, we heard it maybe a couple of months ago and it’s really stuck with me because I think it sums up a few mistakes I’ve made in the past.
EMMA: I remembered where it’s from.
SAM: Where is it from?
EMMA: That talk we went to at Hush Heath Winery, the CEO talking.
SAM: Oh well there we go. This quote is attributed to the CEO of Hush Heath who I imagine might have stolen it from someone else, judging by chatting to him. Cool so there we go, money is either important or the most important thing. And yeah and I think it sums up a few mistakes that I’ve made in businesses before and also a big problem I saw when I was running my grants, so I had this scheme where I was giving grants and new businesses and it meant that I received hundreds and hundreds of applications of people’s business plans for their new businesses, and I think this quote sums up one of the big things wrong with a lot of them and also we’re in Bali which is kind of where all the people who want to do good and start a business seem to end up. So at the co-working spaces we’re at, there’s a lot of people who are trying to start good businesses. They want to make money but they also want to do some good for the world. And then interestingly enough we went to church yesterday.
SAM: And in that, one of the things they were talking about was giving and in that he said that you could only give if you’re good with money, and giving comes from the overflow so you have to make the money and then have more than you need in order to be able to give it away. And that’s the same in a business, that businesses can only spend money on stuff that isn’t that important for the business itself, for the running the business if it’s making money it’s doing good. Because most businesses aren’t at that point, most businesses are really struggling to get by and for them, money is the most important thing because without it, their doors close. So let me talk to you a little bit about the coffee shop that I used to run. It’s still there but I’m not involved anymore and that was something where we have this idea that we’d have a business that kind of made money but also be good, it was a not for profit, we had all this kind of ethical problems we saw with other businesses, a lot of coffee shops we wanted to write and yeah so some examples of that are we wanted to pay them a living wage, which was higher than what most other coffee shops were paying. We didn’t want to do split out contracts, so what most coffee shops would do is they’d have busy times of the day and they’d only pay people to work at busy times. You’d have to come in at the morning, work and then you’d have this unpaid time in the middle, and then you’d have to come back in in the afternoon.
EMMA: That’s awful.
SAM: Yeah that’s just what everyone does because that’s the way for them to manage stock, that’s cash flow. So decided not to do that, we also decided not to do zero hour contracts which at the time were quite a big thing in London and yeah a lot of that sort of employment instability that a lot of people were suffering with. We also wanted to pay long-term sick leave and maternity leave and that sort of thing which is quite hard to do when you’re a small business and small coffee shop, and we did all that but the business really really struggled and part of it was because of this we weren’t able to compete. We didn’t first of all make sure we had an overflow of money to spend on all these things because all these things cost money. It costs money to have all these people working when it’s not busy and you don’t need them. It costs money to have people on set contracts that mean we can’t drop people and hire new people depending on sort of the seasonality of the business or whatever happens. It costs money to pay people when they’re not working because they’re sick, and obviously it cost money to pay people more than the minimum wage, that they would have accepted them at every other coffee shop worth paying.
SAM: But what we didn’t do, we didn’t get the business to a profitable enough point that we could start to offer these things, we said right from the word go this is what we’re gonna do, the business is here to do good, it’s gonna be fine it’s a business, all these charities. They got rubbish coffee shops, we’re a do good coffee shop, it’ll be really really popular and everyone will understand our mission and it’ll be great. But it didn’t really work out like that, the business never really made any money, it kind of broke even but break even isn’t good enough because we took on a load of debt in order to finance it and we weren’t able to pay back our debts which basically means the business failed. And yes the business is still going now, but that’s because me and someone else basically paid all the debt out of our own pocket and then stepped away from the business just let it keep running.
EMMA: So you’re saying in the strategy, when you set up the coffee shop, money wasn’t the most important thing and it should have been.
SAM: Exactly we had a split vision basically and money was quite far down the list of priorities for business, but it is a business. Money is either the most important thing, and when it’s not the most important thing because you got overflow, it’s still very important. And this kind of concept applies to like normal life as well, say we for instance when we were living in Tunbridge Wells, we would choose to shop local and we would pay quite a lot more for sort of the meat and groceries that we’re eating to support local businesses and we wanted to not support factory farming and stuff like that.
EMMA: And have better quality food.
SAM: And have better quality food, but a lot of people can’t afford to do that because for them, money is the most important thing because if they don’t get the best value they can out of their shopping, then they can’t afford it.
SAM: This is a problem I see with a lot of the businesses that we see starting in Bali, they kind of got this ethical idea and they want to just attach a business to the side of it and the money side of it is kind of a second thought. They’re like, oh let’s just have a clothes shop that competes with all the other clothes stores out there, charges the same prices, but everything is ethically sourced which costs five times the amount of money.
EMMA: Yeah doesn’t make any sense.
SAM: It doesn’t make sense, like you can’t compete with those businesses who for them money is like the ultimate goal and that’s what they’re doing by putting money third or fourth or fifth on your list.
EMMA: Do you think it’s a bit of a rebellion though with digital nomads that a lot of people that we’ve met so far in Bali have come from big corporate jobs in cities where money has been the focus of the company they’ve worked for, not necessarily them and they want to do something good in the world and kind of rebelling against having a business to make a lot of money.
SAM: Yeah I think that’s definitely true. And I’m not saying there’s anything wrong with wanting to do good in the world, it’s very admirable and that’s kind of what we want to do as well but to create a business that does good in the world, it’s got to be a profitable business that makes money and then has this over flow of cash you can then use to invest in all the good things you’re doing or the stuff you want to do, so even if you want to create a business where ideally money is going to be sort of fifth down the list, to begin with money’s gonna be the most important thing.
SAM: And I think a lot of people go into this position thinking, well I don’t need to be that on it with the numbers because that’s not the focus of the business, and they say I’m not very good with numbers but doesn’t matter because that’s not what we’re trying to do here. That’s not true at all, this is one of the things they were talking about in this church talk we went to yesterday. In order to be the best giver possible, you’ve got to be the best with your finances possible and the best at managing your money and not spending too much and earning as much as possible. And the same is for your business. I think there is a implicit contradiction between a for profit business and a sort of social enterprise, or a charity. Something that is there to kind of do good. You can have both and some people do have both very well, but whenever I’ve tried to do it, it hasn’t worked out.
SAM: And I haven’t seen many people manage to get that balance right. I think it’s better to focus on a business to make money and then from the overflow of that, you can either change that business a bit to make it more good, or you can then go and put that money in something completely different, a completely different venture whose sole purpose is to do good.
SAM: Keeping those two separate also helps to make it very clear to your customers as to what is going on.
EMMA: Yeah what are your values.
SAM: Yeah what are your values? Like you understand a charity, you understand charity wants your money for a certain…
SAM: And then that money gets spent. You understand a business, a business wants your custom in order to make money, but there’s a next level of education to say I want you to shop at my butchers where the meat is double the price of the supermarket down the road because this comes from the local farm and Bob the farmer makes it and he brings it in every week. I’ve been to see the cows and they have a great life.
EMMA: And if if the butcher doesn’t get enough customers, he’s going to fail and is going to have to close.
SAM: He’s going to have to close or he’s going to have to compromise on his original vision of using the more expensive ethical farmer.
SAM: And this is the problem we get with farmers in the UK. The margins are getting tighter and tighter and so they’re having to make compromises they don’t want to make in order to make money because for them, money has suddenly become the most important thing because without it, they’re gonna have to close and they’ll be out of business. So yeah so this basically what I want to say. Regardless of your business, you gotta take the money side really seriously, really really seriously. Even if your ultimate goal is to do good, first of all you’ve got to make a profitable business to have an overflow that you can then use and it’s all well and good saying you’re going act in a more ethical way than all your competitors, but your competitors are probably in the money is the most important thing and they’re probably not doing as well as you think they are, they’re probably, their margins are probably a lot tighter than you expect. So if you’re going to do the exact same business, you’re going to really struggle to spend more money than them, and still have a successful business. So yeah you might be able to do it, what we could have done with the coffee shop is we could have said the coffee here is six pounds instead of two pound fifty because and then list all the reasons why.
EMMA: Yeah, do you think you would have got many customers?
SAM: And I think we would have got 0 customers.
EMMA: Yeah and also reflecting on the coffee shop business that starts were one of the highest costs, so maybe you could take some of your values to other parts of the business.
SAM: Yeah indeed and like there’s a lot of stuff you can do which doesn’t cost you any extra money.
SAM: Like good culture in a business where you can treat your employees a lot better than most other bosses do. And stuff like that, so there is things you can do. But I think really what I am trying to say is take the money side really seriously. And that’s kind of it. Short and sweet. Money is either important or the most important thing. That’s true in business. That’s true in life. You need an overflow before you can start using that money for good. And the better you are with money and managing your business, and making it the most efficient, profitable business possible, the larger overflow for doing good or for making those ethical changes that you want in the world.
SAM: Cool, well thanks for listening. If you have any feedback, please email me at hello at sam priestley dot com.