Success Conditions – Compounding

It was 2008 and I was holding onto my business for dear life.  A few years earlier I had started selling websites and programming services.  We won some larger contracts so we took a risk and hired 3 employees and moved into a nice office space.   Then the recession hit and immediately companies stopped spending money on technology.  All of the sudden, my wife and I were putting thousands into the business each month to try to stay a float. 

Before I knew it we had blown through $200k in savings and had $80k in debt.  We made the tough decision to lay-off our employees, downsize our office and cut every expense we could.  I thought about getting a second job to pay the bills, but instead decided to work the second job in my company.   I sold new projects during the day and then I would program at night. 

It seemed like I would never climb out of the hole until I had a profound revelation that changed my business forever.  Before we I tell you what happened next, let’s talk about conditions.

Conditions Over Results

I’ve discussed previously how difficult it is to predict the future. We have very little effect on a myriad of events that could help or hinder the end results we desire. What we do have control over are certain conditions on the road to where we want to go. When we focus on these conditions and ensure they are consistently occurring, the future we desire will come about naturally. No matter the exact destination, we know it will be favorable to us.

The trick is that you have to understand some core principles about these conditions to make sure they are working for you and not against you. In fact, these principles are so powerful that they are unavoidable. You will either understand and embrace them leading to desirable outcomes, or you will ignore them at your peril, leading to certain doom.

How I Survived the Financial Crisis

Back to 2008. I was in a bad spot financially and was working crazy hours. I was looking at a list of our previous invoices and I realized that some of them had included support contracts. When I started the business, I did a bunch of stupid stuff, but one smart thing I did was I tried to sell residual annual support contracts. In the mess of my finances, I had forgotten to send out renewals. I didn’t have to sell to new clients and I didn’t even have to do work right away. I just sent out these invoices.

Without realizing it, I was solving a big issue for my clients. A huge problem in the consulting industry is that agencies tend to want to move on to the next project and not provide ongoing support. I didn’t quite know at the time the scope of this pain point for my customers, but I did know that I wanted to create a residual income stream and this seemed to be a way to do that.

In 2008, this gave me the bump I needed to pay the bills. It wasn’t a lot of revenue at the time, but we have continued to invest in this area of our business over 15 years. The scale now has led to a very significant portion of our total revenue. We know these customers very well and we don’t have to re-sell them on our services. Selling is actually an expensive activity, and we save a bunch of marketing dollars by not having to sell very many new customers. We “sell” our existing customers each and every day by providing them outstanding ongoing support.

The scale of our support service has compounded over time. This year our residual support business has passed 50% of our total revenue. We are providing incredible value to our clients and they bring us a profitable stable business year after year.

Understanding Compounding

Whether you are aware of it or not, you are constantly affected by compounding. Each decision you make compounds on previous decisions. If you think about your belief systems, every cognitive narrative you tell yourself is based on stories from your past. These stories compound on top of each other and inform the decisions you make each day.

When you can harness the power of compounding it can create a perception that you are a prophet — being able to see the future. If you can leverage compounding to your advantage, you will be able to predict certain results.

For instance, when I started our company I didn’t know what our business activities would look like in the 2020s. Back then we had built a custom system for our clients to manage their websites. In the 14 years since then, tools like WordPress have made it much easier to manage the content of our client’s websites. I couldn’t have predicted that change. But what I could predict is that customers would continue to need help with technology to grow their business. I knew that if I was serving them well and if I was communicating with them regularly we would be able to continue to be in a position to add value. This value in turn would generate revenue.

Create your Future

As you think about how to grow your business, stop trying to jump on the latest fads. Stop trying to set goals. Instead, decide on a general direction you’d like to go and think strategically about the conditions that will create it. Then set up an intention plan that will ensure you will be able to focus on these conditions over the long-run. Year after year as you implement your intention plan, you will be building on your previous decisions and creating a foundation for growth.

This is the essence of compounding.

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