In recent conversations with entrepreneurs and business owners, two main challenges stand out:
Growing without external capital
Loneliness
The first one is easier to dissect.
We’re navigating the ugly part of the fundraising cycle. Back in 2020 and 2021 investors had a “just in case” approach to funding startups. The fear of missing out was the primary force driving decisions. Now the opposite is true.
While a few years ago many startups that shouldn’t have received funding got it, at this point it’s quite likely that many companies that deserve capital are not getting it.
First survive
Just like keeping the body alive is not the same as living, keeping a company going is not the same as thriving. But survival mode is sometimes necessary. In fact most companies experience this at one point or another.
In a recent article about the current fundraising environment, I discussed potential courses of action. The summary: there’s a way forward and it starts with improving your company’s profitability.
What I would add to that is that the single best thing you can do now is to focus on understanding and optimizing your unit economics. This is what investors will be attracted to and it’s what you, as a shareholder of your company, should care about.
Unit economics
If you can’t access new capital for the foreseeable future, improving your unit economics is your best bet. In the ideal case, you realize that you don’t really need capital because your company can create profitable growth on its own. This might sound too difficult but it’s how most businesses were built throughout history.
This topic is like health, there’s a lot of information out there and most of us know the theory but struggle to use the knowledge in practice. If you are in this camp you have an opportunity to change.
Drilling down on your unit economics will provide many benefits. The most important one is understanding where you make money and where you don’t.
When you look at unit economics by products, marketing channels, customer segments, geographies, or any breakdown that makes sense for your business, you get a clear sense of what the market values from you and what it doesn’t. You can double down on what’s working and improve or stop doing what is not working.
The analysis doesn’t need to be complicated. Below is the unit economic analysis for new Starbucks stores (source: Pershing Square Capital Management LP). A new store in the US requires a $680,000 investment and eventually generates $480,000 in operating profits.
That’s a 71% return on invested capital. In China the return is 100%. So yes, we’re paying too much for coffee…which is great news for Starbucks shareholders. These unit economics explain why Starbucks’ stock price is up 200x since the IPO in the early 90s.
If you run a software company you can use Customer Acquisition Costs as your “store opening investment” and the steady state gross profit as the “operating profit”. Customer lifetime value calculations are great but they require reliable data that you might not have yet. Keep it as simple as possible.
Random example from the public markets
The graph at the top shows the evolution of revenues for BioSyent Inc., a Canadian healthcare company. Their track record show that they:
Grew revenues from $1 million in 2009 to $32 million in 2023
Received no new capital, debt or equity, during those 14 years
Did not receive any capital in the 7 years prior to the growth spurt
This example is evidence that external capital is not necessary to achieve rapid growth from a very small starting point. What is necessary? Extraordinary unit economics.
In this case, attractive economics drove the stock price up 120x in those 14 years.
And now the tough one: loneliness
The US Surgeon General issued a report in 2023 titled: Our Epidemic of Loneliness and Isolation. The report summarizes research studies that connect loneliness with disease. The punchline: data from 148 studies shows that social connection improved the rate of survival by 50%.Put differently, lonely people die earlier.
The biological explanation is found in the release of stress hormones and the inflammation that is caused by feelings of isolation. Those conditions increase the chances of chronic illness, leading to shorter lifespans.
This is not very uplifting, I realize that, but it’s useful to understand the stakes involved.
Why do entrepreneurs feel so lonely?
The reference to the report by the Surgeon General is important in showing that this problem is not exclusive to entrepreneurs. So we are discussing here the specific flavor of isolation felt by entrepreneurs.
My sense, purely anecdotal from conversations with a diverse set of entrepreneurs, is that the feelings of loneliness are driven by:
Being outside of the system. Family, school and corporate jobs provide clear expectations. What do they want from me? is the main question. External demands might not be liberating but they do convey a feeling of being part of something bigger, which is great for mental health. The entrepreneur is usually faced with another question: what do I want? The soul out in the wilderness. It can be frightening.
Having to constantly make difficult decisions on their own. The primary job of a founder or business owner is to solve the most difficult problems, whatever they are. While teamwork is energizing, someone has to take risks and face the consequences. And it’s always the same person. Every day. With no end in sight.
Lack of proper rest and exercise. The always-on experience of starting and growing a business means sleepless nights and missed exercise sessions. Very bad for both physical and mental health.
Insufficient time being present with family and friends. I am very guilty of this one. Bringing your body into a room full of loved ones means very little if you’re not present. The benefits of social connection will not be realized if you’re thinking about work all the time.
One suggestion
What can you do about feeling lonely? Apart from the obvious suggestions -be present with loved ones, take care of yourself- I would recommend getting a coach.
I am not referring to executive or performance coaches. While they might help improve effectiveness at work, we’re solving for something bigger.
My suggestion is to work with someone with a broader perspective, like an ontological coach that sits somewhere in the middle between a therapist and a performance coach.
This type of coach will help you understand what drives you and how you can start getting more energy than what you are spending.
If successful, the process will lead to better awareness and with that you will naturally feel more connected to others.
At a broader level, I am suggesting that you use your entrepreneurial journey to grow.
In summary
If you get anything out of this please get this: many others are going through the same challenges. I know because I’m talking to them.
Asking for help is not a sign of weakness. It’s a sign of humility in its best form, the type that will move you forward.