I want to go back to talking about casinos. In the old days, guys like the Chicago Outfit and the Kansas City Mob were laundering money through those casinos.
These casinos weren’t the principal business for the owners. The purpose for them wasn’t to make money, but to clean up money.
The new casino operators, like Steve Wynn, had legitimate investors and therefore had an obligation to deliver an expected return.
When your building casinos, they take a long time to build and are expensive.
Few have built as many as Steve Wynn.
From my conversation with him, each project had a focus. Bellagio was a bigger version of the Mirage and the Wynn and subsequent Encore, a customer-focused experience.
He brought his particular vision to a competitive market. Think how competitive. His primary source of income is gambling.
His casinos are on the street with the highest concentration of hotels, restaurants, spas, shows, and casinos in the world. Yet he has always been a top performer, even beating his past returns.
As much control as he had in his business, he still had other investors. Maybe they didn’t have as much say as in different companies, or they gave him latitude because he delivered results.
In the end, he lost control of the business, mainly through personal missteps. His investors got rid of him because he was getting in the way of what they wanted – a reliable return.
Perpetual growth isn’t realistic.
Public companies strive to deliver quarterly earnings predictably, resulting in us thinking perpetual growth is realistic.
Have you bought into the myth? We help perpetuate it because, as owners of public companies, we demand it. We want the stocks we buy to go up.
We already have explored the ideas of cycles. There are always going to be expansions and contractions in the economy.
If that is the case, why do we expect our business or others to buck these trends?
Since you’re building a privately owned business where you’re the sole investor, the growth rate should align with your needs and no one else’s preconceptions.
“I’m looking to earn six figures?”
“I want to be a millionaire!”
Are these statements you came up with after my last email?
Why a million?
I hear these arbitrary goals, but when I press, there isn’t much thought behind them.
This is where small business owners can be different.
We can be realistic about our expectations as an investor and its purpose for its customers and investors.
There it is again, the reader and investor needs…
As an owner-investor, you can make the business less stressful by determining what we want the company to deliver.
An investor that is real about expectation is an asset. This presents in two ways;
- You set reasonable needs
- You articulate/understand your needs (in this case, to yourself)
Remember, this isn’t a game that ends. Your business is a tool that you use to craft cold, hard cash from your creativity.
Every author starts at zero. So we all have to pass through breakeven. There is no shortcut.
The next phase determines what your business needs to grow and what you can take out of the business. This should be revisited annually to make sure that the right growth rate.
Take the time to establish your goal and make sure it aligns with your publishing business and where it needs to go next.
Then figure out how your money needs to be allocated inside the company to fund growth and to its investors to meet their needs.
Right Growth Rate
Can you grow too fast?
Most of my big clients come to me because they were growing too fast.
Since the business is the primary producer of cash flow for the investment, they step on the gas, trying to grow as fast as they can. Suddenly a gap appears between what they need for a living and what the business can produce.
It confused them, “How can my top-line be the best it’s ever been, but I don’t have the cash to make ends meet?”
All the profits had to stay invested, and that results in being cash strapped.
It makes sense to reinvest, but we put little thought into how much to invest.
The act of growth can make the business more fragile.
Instead, we need to think through the process of growth. You can’t win monopoly on the first round. You can play each round well, setting yourself up for a stronger position in the game.
You can overplay by putting too much cash into a property, making you cash poor to pay a small rent. This could force you to mortgage an undeveloped property or tear down a house.
Just like a pro poker player, you look to win a tournament, not only one hand. To win tournaments, it’s more than just knowing the cards. It’s managing your stack and knowing when to hold back.
A thought experiment…
Think through your career.
How many books will you produce?
This is a combination of the number of years you plan to write and the number of books a year you think you can write.
This informs the rounds you get to play. Think of each book launch as a round of play.
Each book a chance to broaden your base and expand your story world.
Each round needs to move you towards your investment goals and customer delight goals. (Notice how there isn’t a focus on rank, visibility, ACOS, or read through?)
Map this out, write down what you want to do. Even if you’re an established author earning mid-six figures, you’ll benefit from thinking through the future and reconciling what effort and cash you propose to put into the business versus what unspoken expectations you have to take money out.
There is nothing wrong with determining you don’t want to work harder if you’re happy with your results. This is what Becca Symes calls QTP or Question the Premise.
In the next email, we will look under the hood of your business system. We will explore systems thinking and how it pertains to business system design.
Most authors ignore this critical phase and focus all their attention on marketing.
Did they ever stop to figure out what it was going to cost?
I even created a tool for modeling your capital. This would be something Annie Duke says improves your decision-making process.
Lefty would see it as a tool for handicapping author businesses.
These two masters of tipping probabilities towards them would agree that the author to bet on was the one that used these tools in decision making.
But it rarely gets used.
If you would like to see it visit our Author Capital page.