What is the importance of sustainability in business? How can your business be sustainable?
Sustainability doesn’t just apply to the environment. In The Minimalist Entrepreneur, Sahil Lavingia explains that businesses should be sustainable to avoid overspending, hiring too quickly, and founder conflict.
Below we’ll look at how businesses fail because they don’t take sustainability into consideration.
Focus on Sustainability
One of the major differences between a minimalist business and a venture capital startup is sustainability. Lavingia explains there are a few reasons why you need to consider the importance of sustainability in business: overspending, hiring too quickly, and founder conflict. In order to be sustainable over the long term, you’ll need to be careful to not make these mistakes.
Overspending and Hiring
Carefully monitor your expenses to be sure you’re spending less than you’re making. This might seem obvious, but Lavingia says many business owners don’t pay close enough attention to this.
Some of the ways you can avoid financial problems are:
- Pay yourself the minimum you need at first, and then increase it slowly as you’re able to. Lavingia only paid himself $36,000 per year when he started his business. He raised that as the company grew, but tied his own salary to those of his employees, meaning every employee’s salary increased at the same rate as his.
- Avoid paying for office space if you can do your business without it. (Shortform note: People are increasingly seeking out remote employment, and this trend is expected to continue. So by not having office space, you’ll not only save money, but you’ll likely also attract more applicants to your job openings.)
- Do anything that you can with software instead of hiring a person, because software costs less than paying people. Don’t hire anyone until you actually need help.
- When you do need help in the beginning, hire freelancers on a contract basis, rather than permanent employees. Think about using people who are really interested in the business, and who could learn from you and potentially become full-time employees later. (Shortform note: In their book Rework, Jason Fried and David Heinemeier Hansson suggest hiring your most attractive applicants to do a 20-hour trial project, to see their quality of work. They say this will be a more reliable gauge of their fit for your company than any degree or even work experience. They also advise that you don’t hire anyone to do a job that you haven’t spent some time doing yourself. This will mean you know how to do every job in your company, which will give you some insight into exactly what to look for in a candidate.)
- Pay attention to what your customers are saying. Negative reviews can be financially damaging, so take them seriously.
- If and when you want to invest more into expanding the company and you need more capital, crowdsource the funding from your customers and make them shareholders.
If you’re working with a partner or thinking of it, Lavingia cautions that it’s important to embrace sustainability in business by avoiding conflict and the potential disaster it could cause your business. He says you should treat a business partnership like a marriage, and he offers the following advice:
- Only work with people you trust completely.
- Before committing to a partnership, discuss both of your values, visions, and goals to be sure they align.
- Create detailed, written financial arrangements, so they don’t become a point of contention.
- Establish an exit plan, in case it doesn’t work out.
(Shortform note: Business relationships are similar to marriages in more ways than one, including the fact that nearly half of entrepreneurial partnerships end in a split. The vast majority say the rift was due to different visions for the future direction of the company. This points to the crucial importance of Lavingia’s advice to be sure your visions and goals for the business align.)
Other Budgeting Mistakes to Avoid
Some other common financial mistakes you should watch out for include:
- Not understanding business taxes: It’s crucial that you understand what taxes you need to pay, comply with all regulations, and make your payments on time.
- Not separating business and personal finances: Be sure you have separate accounts for everything, so you can effectively budget and track your business expenses.
- Underestimating expenses: When budgeting for the future, always overestimate your expenses to play it safe and account for unanticipated costs. This should include remembering to account for possible seasonal variations, if your business has an off-season.