How Long Does It Take To Build A Profitable Business?
In today's episode, I'm answering the question - how long does it take to build a profitable business?
Read on for the full transcription or listen to the podcast episode here
So the question, how long does it take to build a profitable business? The answer to this could be super short and sweet. This could be the record shortest podcast episode of all time, because the answer is - there is no answer. If we knew how long it took to make a profitable business, then business and entrepreneurship wouldn't be such an art form. People often think it's a science, because there's a lot of finance, there's a lot of practical stuff that you have to do and follow, but really, the art of business is an art. It's nuanced. It's different for everybody. So my advice would be, how long does it take to make profitable business? Well, that really depends on what kind of business you want to run. There's a few different things that you can do to kind of decide on how long it will take to be profitable and these three things to me really boil down to defining your goals, reinvesting in your business, and making your business sustainable. So let me touch on those.
So number 1, defining your goals. You could literally run a business for 20 years, and it could be a big, multi million pound revenue company with hundreds of employees but you might not be profitable, you might essentially spend more in your business than you earn, that's all profit means for those of you don't know and revenue, the amount of money that you bring into the business minus burn rate, the amount you're spending on your business equals profit, what money is leftover, after you've taken the money you've brought in, and you minus the money you've spent out, that leaves you with your profit. That's really the number you want to pay attention to, so you could spend years building a company, something like Spotify, one of the biggest companies in the world, not very profitable. In fact, I'm fairly certain they've only ever recorded a profit in like one quarter or something. I remember reading that recently there are a multi billion pound, multi billion dollar company, but they're not profitable, because they're not, they're not supposed to be they're not. They're not trying to be necessarily right now because they're the whole business model behind them is expand, expand, expand, get as many us on board become one of the biggest companies in the world and then either sell the company for billions of dollars or IPO, which means they go on the stock market, and that's when they become profitable. And so yeah, at the moment, a company like that, even though they're massive, they're so successful in their own right, but they're not profitable. So you could run one of those businesses, or you could literally start a business tomorrow. Take your 200 pound camera that you bought off eBay, go make a virtual tour for 500 pound, and you're profitable, because you've made 300 pound profit on that job. And actually, the next job you do, even more profit because you already own the kit. So really, it depends on what kind of business you want to run. It depends on what is your goal, long term. Do you want to run a business that gives you enough money every month to do what you want? Go on some holidays, a lifestyle business? Or do you want to build the kind of business where you've got an office and team members and you want to work with huge companies and then potentially sell the company or use the profits to…I don't know, work on artistic work, like that's a very different kind of business. So first define your goals, define what kind of business you want to run, and you can define those goals and change it down the line.
I've changed my mind several times on this I started as a solopreneur working by myself, and in my business, doing all the stuff myself, then I decided I wanted to build a production company. So I worked on building an in house team and working with bigger and bigger crews and clients and then realise that actually as you do that the profit goes down and it's a lot more risk and a lot more hard work and a lot more burnout waiting for you at the end of it. So now I'm in a phase of my life again where I've kind of changed direction and I don't have in house crew that I work with. I've got a couple of in house team members that help me with other things like marketing and delivering of assets, for me and helping me with the more kind of the calm side of the business, but when it comes to shoots and stuff, I will just bring in freelancers. If I work on those kind, I'm more going towards a model where I’m a director, producer for hire and so it's okay to change your mind. It's just you need to decide on, what kind of business you have and where it's going and how much profit you want to make. Because the truth is, all you need to do, to have a profitable business is spend less than you make. That's all it means. And so then it becomes, okay, well, how much do you want to make? And what are you making that money for? You know, it's pointless making 10s of thousands of pounds, if you don't know what you're going to spend that on. Are you killing yourself for hours and weeks and months, just to like, make this money but if you're not gonna plan with that money, then it was all for nothing really? So define your goals. Step number one.
Step number two reinvesting in your business. This is really important and this is something that again, you have to reassess. So for example, in order to be profitable, you might need to wonder one year, spend loads of money on kit, that you're reinvesting in the business so that you can work on bigger client projects, because you're going to up the quality of your productions, you might need to reinvest in training and up-skilling to be able to deliver a better service or deliver more of that service. So being able to shoot a virtual tour, but then also being able to do the kind of, the post production, being able to do…maybe you're even doing you know, a bit of your own coding to build a VR app, like whatever it might be, you might need to reinvest in those things. And that year, you might not be profitable. But the next year, you might have made yourself twice as profitable as you were before, because you've reinvested in the business. This is something that I constantly have to remind myself, because it can be very easy, especially when you're going through tough times…we are now in COVID. It's very easy to just kind of run on that treadmill, get as much cash in the bank, without thinking long term about what you want for your life, but also for your business. At the end of the day, if that money sits in the bank, it's taxable. So reinvesting in your business, if reinvesting 3000 pounds this year means that next year, you're going to make an extra 20,000 pounds, well, that's really worthwhile. So profitability can sometimes be a spectrum, because for me personally, my business wasn't profitable for the first two years, at least, because every single time, I made a load of money, and you know, whether it was like 1000 pound here, or 5000 there or whatever it might be, I then immediately went and spent all of that money on either new kit or new software that would make my processes more efficient, or better, higher quality, I would also spend all that money on travelling to go and meet people in the community, the amount of money that I spend on train tickets, back and forth to London, and cheap hotels so that I can go to the networking meet-ups. And I was really going hard, reinvesting that money and I spent a lot of my own money doing things for free. I would travel down and do all sorts of mentoring or being a kind of training person, the training leader on workshops and things because I knew that was the right thing to do, to get my name out there. See, it would introduce me to a new network, it would be around like minded people, it would help me refine my skills. That cost me money, but in the long run, that has made my business more profitable. It meant that for those two years, I spent thousands of my own money to get to that point. I'm now the other way, now I can make 10 times that because I put in that work to begin with. So it really depends, it’s so individual. So don't worry - if sometimes you are profitable, and other days, other months or other years, you have to reinvest, which means you're not profitable, because oftentimes that will mean that you're more profitable in the long run. But again, it depends. Because if your aim is just to have enough money every month, to pay your rent, pay your bills, maybe go out for a nice meal, maybe take your partner or your family somewhere nice on holiday a couple times a year, that profit looks very different to someone whose profit is hundreds of thousands so that they can build a company that they can sell to a bigger company. You know what I mean? So really, number one, define your goals, number two, don't be afraid to reinvest in your business to make you more profitable long term and number three, sustainability and making a business that is sustainable, in my opinion, is more important than making a business that is profitable.
This is kind of again, it's a bit of a philosophical viewpoint but I've done several things in the past that have made me profit, but were just not sustainable. I would come off the back of a six month, really intense project and just be a horrible human being because I would be horribly burned out, I'd been feeding my body nothing but crap. I'd been doing, you know, sleeping like minimal amount of hours every night because I would be working so hard and I just end up fobbing off my friends and not seeing my family. When I did, I'd be grouchy and just in a bad mood because I'd be tired and burned out from work. And I'd have 1,000,001 things buzzing around my head that I needed to get done for that particular job and now I look back, and I go, I definitely don't regret it because I needed to do those things, I needed to have those experiences to get to where I am today, but at the same time that is just not sustainable. And for me, now, I would much rather run a business that was slightly less profitable, but way more sustainable. And I would rather have five years of really consistent, fluid, work that excites me, but doesn't burn me out than two years of very, very intense work that really destroys your soul. And again, that is a personal choice and it depends on where you are in your life. What other factors are there, do you have a family that you're trying to balance? Do you have, you know, a degree or education that you're undergoing? And is there other things in your life that dictate how profitable you can be? Don't worry about it, the aim is not to be the most profitable company, you are only in this race with yourself.
The amount of profit that I need every month is not going to be the same as the amount of profit you need every month, is not going to be the same as the profit that Richard Branson needs every month. You know, it's so individual. So don't compare yourself. Don't try and think hard. But, you know, if I did an extra three projects, I could have, you know, an extra 10 grand in the bank, okay, great… but what's that 10 grand for? Is it worth it? Is it worth the extra hours, the extra pain in the ass, the extra sweat, blood and tears, the extra pissing everyone off in your life? Is it worth it to be that little bit extra profitable? And for some people, it will be and for others, maybe not.
Sustainability to me feels like the most important thing in a business now and it's taken me a long time to realise that. So there you go. Those are my three points for basically not answering the question, how long does it take to be profitable? Because the real answer is it depends, it depends on those three things. Define your goals, know when to reinvest in your business and prioritising sustainability rather than profitability.
Listen to the Alex Makes VR podcast here
Subscribe to the newsletter here
Follow Alex on Instagram here