This is the Most Important Part of any Business
The Amplified Impact Podcast
August 30th, 2023
Today, let’s dive into the crucial components of a thriving business. Picture it as a three-legged stool: marketing, operations, and finance.
Each leg is vital, but the question remains: which one takes the lead?
I was pondering this as I stumbled upon an intriguing tweet from Nick Huber, a fellow entrepreneur.
He emphasizes the immense value of distribution, leveraging his massive following for strategic partnerships.
This sparks a hot debate: is distribution king, or does product and operations rule the roost?
In truth, it’s not a one-size-fits-all answer. Different goals dictate different priorities.
Distribution accelerates quick cash, while product and operations sustain recurring revenue.
Looking for that grand exit? Mastering operations might be your ticket.
Having worn different hats, I can say every seat has its perks.
The key is recognizing the lens through which you view the business. Negotiations get easier when you understand each leg’s worth.
TWEETABLE QUOTE:
“But if the product and the operations suck, then you’re probably not going to increase the lifetime value of your customer.”- Anthony Vicino
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Episode Transcript:
Anthony Vicino:
So I always talk about how there’s three legs to the stool of business. You have to have your your marketing or your way of getting customers, you have to have your operations, which is what do you actually do with those customers? Like what’s the product design? How do you fulfill on it all, all of the customer service, all that stuff. And then you have the finance leg, which is how do you manage cash flows and all these things that you stay in compliance with regulation and make sure that there’s money in the bank for the operations to continue. And when you look at these three legs, one of the questions people will naturally have is which leg is most important? And this especially comes into conversation when you’re looking to start a business with a partner. And maybe you fill one particular bucket. Maybe you’re the marketing person who’s bringing in all the leads and your partner is the operations partner who’s going to do all the fulfillment. And maybe you have a product guy who has that once in a generation patent on a product idea. And as you come to negotiation, the question is who deserves what share? What is a fair, even split for everything? And I got to thinking about this because everybody has a different opinion on this depending on which seat you sit in.
Anthony Vicino:
And this is very important to understand because I think there is no most important leg of the stool. You take any of those legs away and the thing falls over. But with that said, there are certain levers that we want to understand, like the importance of them. And certain people bring more. They wield a bigger stick, right? And so I was thinking about this because I was on Twitter and I saw Nick Huber post something which, if you’re not familiar with him, he’s a big account. Kind of a very similar story to me actually, where he started with what he calls sweaty businesses. I think his was some kind of cleaning service, maybe pressure washing or something. I started with window washing, very similar.
Anthony Vicino:
And then he got into real estate and same with me. So we’re on a similar trajectory in how we’ve done our careers. And what he’s doing now is, because he has such a large audience on Twitter, I think he has like 300,000 followers there. He is able to partner with operators on different services, different businesses that kind of plug into what he’s already doing, like a tax or CPA preparation firm or an insurance company that fulfills products for, say, his real estate portfolio. So he’s doing this really interesting synergistic thing where he’s working with operators and he’s bringing his instant distribution to the table. 300,000 people following you is no joke, right? Like that’s a large audience. And that’s the difference between being able to launch a business and immediately be doing a boom million dollars of recurring revenue within just a couple of months versus having to grind away at that for some people just never get there. So it could be decades or a whole lifetime.
Anthony Vicino:
And so he was talking in a tweet about how he only gets into bed these days with operators who understand that he is going to take 60% of the ownership stake in the company because he believes that the distribution that he brings is so disproportionately valuable in relation to what the operator could bring. And this is an interesting one. And again, it goes back to the idea that it depends on which seat you sit in. Because the distribution guy obviously is going to say, well, without my audience you have nobody to sell to. The product guy is going to say, well, without my product you have nothing to sell to them. And the operations guy is going to say well, without my operations you have no way of fulfilling or collecting payment. So which of the leg of the stool is the most important? And I think the answer really depends on what you’re trying to build. So if the goal is quick cash, instant distribution is probably the way to go if you’re trying to build something.
Anthony Vicino:
And what I mean by that is quick cash is like at this point I have a large enough audience where if I just offer pretty much any product I could sell that and probably make a couple of hundred thousand dollars real quickly, get that money in the door. However, if the product is absolute trash or the fulfillment is absolute garbage, none of those people are going to come back. But I did get that first pop of capital right up front. Right, that’s the thing. Distribution can really get you in the beginning and if you have a large enough audience, you can continue selling to the people in that audience for a long time. But you’re not necessarily going to get recurring revenue if the product and the operation sucks, which leads to the second type of business that you could build then, which is if you want recurring cash, then the distribution is probably not enough on its own. And what I mean by recurring cash is cash that’s coming from the same customers, increasing the lifetime value of a singular customer. Now, you can increase the amount of cash flow coming into the business with just pure distribution.
Anthony Vicino:
But if the product and the operations suck, then you’re probably not going to increase the lifetime value of your customer. So if your goal is to increase the lifetime value of the customer, then you really need to have product and operations. But I would specifically say product, like a great product, is the most surefire way of ensuring people continue coming back and using the thing. Now, if you’re trying to build towards a really big sale and you want to offload this company, then you really need to maximize for enterprise value and at that point, it’s all about systemization and replication. And so the operations person is probably the most important in that system because they’re able to build the machine in a way that they could then offload to a private equity firm and then they can immediately realize the value from that thing because it’s not dependent on the individual’s distribution or the product or anything like that. It’s more about the machine that has been built around it. And so which leg is most important? Again, it all depends. It probably is going to look a particular way depending on which seat you sit in.
Anthony Vicino:
I tend to be more of a well, I’ve sat in all the different seats in different businesses. So at the end of the day, I think the distribution is the hardest one to build. I think that’s the hardest one. Once you know how to build it, though, it’s not that difficult to go and do it in a new vertical. I know how to market, I know how to build an audience, I know how to get leads, I know how to transition those leads from being cold into paying prospects. And so I know how to do that in pretty much any vertical. And so that’s a very valuable skill, but that’s a really hard one to learn. Whereas I think the operations is a little bit easier, it’s a little bit more paint by numbers.
Anthony Vicino:
You just have to have the right mindset for it, be very detail oriented, very systemized. The product is actually quite difficult and I think that one is born from experience and so it’s really hard to peg that one. But typically, I would say the product is the least important in all of these in a way where I always say, like, a million dollar idea is worthless without a million dollars of execution. I think the idea I think people get really they cherish their ideas much more than they’re really worth. I think a good idea executed with excellence is probably going to do better than an excellent idea executed with mediocrity. So those are my thoughts. Those are my thoughts. So which seat should you focus on? Well, in the beginning, when you’re building your first business, you’re going to need to sit in all those seats.
Anthony Vicino:
You’re going to find really quickly what you are naturally skilled that and you’re going to kind of lean towards that. Maybe find a partner to come in and take the other seats. But just understand that depending on where everybody sits on the table, they’re going to think that their seat is the most valuable. And so just go into any negotiation, any contract dispute with that in mind and you’ll be doing all right. So that’s going to do it for me. Guys and gals, I appreciate you being here. We’ll catch you in the next episode. Till then, stay hyper focused, my friend.
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