While many entrepreneurs starting a digital agency or service business grow their businesses from $0 to 10,000$ in less than a year, there are quite a few who become increasingly frustrated because they are unable to even begin growing their businesses beyond their first sale. They fall into the trap of erroneously believing that their business skills are lacking. In reality, their offer doesn’t match the market demand.
The main reason why your revenue is kept down with gravity-like force is not due to a lack of business skills on your part, or a poor-quality service. Instead, it’s because your (S)ervice, (O)ffer, and (F)unnel do not match the needs of your (A)audience
After reading and applying insights and frameworks from this article you should know:
- Why you’ve probably fallen into the trap of “perfectionism” and what to do instead
- Who to test your business ideas on (hint: it’s not your grandma)
- How to use come up with niche business ideas – using the S.O.F.A. framework
- How to design a business prototype (in less than 1 hour & under 30$)
- And much more…
This is definitely not another one of the “quick fix”, “tips & tricks” or “hacks” type of articles. The insights & frameworks are a result of combined expertise from developing over 250 businesses in our Tribal Mastermind community. But these insights will only help if you study and apply them right away. They require WORK and thinking. If you do the required work, they’ll help you get over the hump.
- Separate the Problem From the Symptom (Hint: It’s Not Your Business Skills)
- From Perfectionist to Antifragilist: Learn to Rapidly Fail and Pivot
- Iteration vs. Top-Down Design (Why One Works Much Better Than the Other)
- Where to Test Your Business Ideas (Likely Not Where You Think)
- Step 1: How to Come Up With a Business Ideas Fast (The S.O.F.A. Framework)
- Business Case Example: Gazelle Recruitment and PVCA
- Step 2: DESIGN a Prototype (in less than 1 hour and under 30$ )
- Step 3: TEST – Run the experiment(s)
- Step 4: Assess & Iterate
- Avoiding the Analysis Paralysis When Implementing the Framework
- Recommended Books & Resources
Separate the Problem From the Symptom (Hint: It’s Not Your Business Skills)
There are two groups of freelancers and entrepreneurs who waste enormous amounts of time trying to figure out their niche:
The first group is just getting started and is unsure of who they should target or what their niche is. This group ends up wasting their time for a number of months without seeing any results.
They are comparing themselves to other business owners who are not nearly as effective as they are. And they are wondering why the other guys are receiving results despite their efforts. In reality, it’s just that they have a better niche. You can never compensate for business skills with the lack of a great niche.
The second group already runs a business and has been doing so for some time, but some things are not working as they should be. They try to investigate different aspects of the business and cannot determine what is not functioning properly. As a result, they are wasting their time addressing symptoms instead of the actual problem. Often, the root problem is related to their niche. As soon as they make the necessary adjustments, things start going smoothly.
Therefore, this is one of the most significant bottlenecks, and it is incredibly frustrating for anyone who isn’t targeting the appropriate niche.
Action point: Read the description of these two groups, and try to place yourself in one of them. This will give you more clarity on the obstacles in front of you.
From Perfectionist to Antifragilist: Learn to Rapidly Fail and Pivot
The most common mistake among first-time entrepreneurs is an insistence on getting all their “ducks in a row” before going out to (aggressively) market and sell their product or service. Perfectionism is the enemy of entrepreneurship.
Customers will not come just because you built a business. You must begin to value sales as much as the engineering and construction of the business.
Marketing and selling force us to constantly think about and talk with potential customers. This process shortens the feedback loop and allows you to iterate and improve your service much faster while simultaneously generating the revenue and momentum needed to hire employees and manage day-to-day business operations.
The problem, however, is that most entrepreneurs don’t know how to test their ideas fast and pivot, so they:
- Waste time building the service delivery process before validating if there is a demand.
- Waste time sticking to an idea that doesn’t work for too long.
- Never test their new idea because they are experiencing imposter syndrome regarding the delivery.
This approach makes you very fragile (which is the opposite of Antifragile – a concept from Nassim Taleb). Fear of potentially negative feedback and failure makes you vulnerable to a deadly blow in the future.
If you want to succeed, you need to fall in love with failure and master the process of learning from it.
Iteration vs. Top-Down Design (Why One Works Much Better Than the Other)
One of the most common misunderstandings about putting a business idea to the test is the belief that you must wait until you discover the ideal market niche, even though doing so wastes valuable time. Additionally, it takes excessive time before you start with the actual execution.
This is more analogous to the so-called waterfall management approach, a well-known project management method that involves planning and thinking about how to carry out tasks and then carrying out those tasks. But we live in a world where change is the only constant.
Things you believe have a chance of succeeding turn out to be complete failures.
Also, not many people starting in the digital service business have a large budget for market research. It’s more reasonable to try different strategies and see whether any of them pan out. This process is known as iteration.
Startups often refer to it as “Minimum Viable Product,” tech entrepreneurs call it “bootstrapping”, developers say “iterative design”, and if you ask the Japanese, they will say “Kaizen” – the philosophy of constant improvement.
The reason all these philosophies are very much alike is that they are based on one of the strongest forces in our universe – evolution. Which involves, failure, iteration, and improvement step-by-step.
It does not have to be perfect right from the start – it’s all about getting started and adapting as you go.
Where to Test Your Business Ideas (Likely Not Where You Think)
If perfectionism is the 1st pitfall of growing business owners, the 2nd is validating ideas with the wrong people.
It does you no good to spend 20+ hours creating new innovative ideas and then testing them on your:
- Family members
- People that don’t have a clue
Why? Because these people are not the people that are going to pay you for your service. Only surveying these groups will cause you to:
- Become overly optimistic and married to the idea because people around you confirmed the idea is good, leading to confirmation bias and failure.
- Discard or lose faith in your idea because people close to you said, “That’s a horrible idea.”
- Get confused, and instead of acting, stick to playing fantasy porn in your mind.
The reality is that you cannot tell a GOOD idea from a BAD idea until you take it from fantasy land and move into reality land.
In the game of business, the only accurate measure of the quality of an idea is the revenue that it generates. In other words, a cheque/invoice that didn’t bounce. Everything else is primarily irrelevant background noise.
So, this leads us to the ultimate question: How do you come up with business ideas fast and properly test them?
Step 1: How to Come Up With a Business Ideas Fast (The S.O.F.A. Framework)
An “idea” means that you‘ll create a basic outline of 4 elements. We call it the S.O.F.A. framework:
How you win:
- Service that you want to provide.
- Offer of how you want to present the value of this service.
Where you play:
- Funnel as a communication bridge between your offer and the target audience.
- Audience that is hungry for your service.
Do not try to come up with each of these elements in isolation. Your “how to win”, has to have a matching “where to play”.
At Tribal Mastermind, we specialize in helping employees and freelancers build businesses around digital B2B services. As such, we narrow down business ideas to only:
- Services (not physical products)
- Digitally delivered
- Helping businesses (not individuals) aka. B2B
The first thing you must think of when creating a business idea is service. You must ask yourself:
⦁ What is my service?
⦁ What do I offer?
Here you are trying to align 3 forces: Skill, Passion, & Market Demand.
In a perfect situation (which is never going to happen), you want the service to be something you are highly skilled at. You want to like it and be willing to learn more about it. Note: You can have all of the skill, passion, and curiosity in the world, but it will fail if the service is not valuable in the long term.
You should focus relentlessly on something you’re good at doing, but before that, you must think hard about whether it will be valuable in the future. – Peter Thiel (Author of Zero to One)
Below are a few lenses that you can use:
- Your unique abilities.
- What have you been paid for previously?
- Your skills and accomplishments.
- Demands, trends, and the future.
Some practical questions that you can ask yourself are:
- What are my core skills?
- What are a few things I do superbly well?
- What skills, expertise, knowledge, strengths, or competencies do I have?
- What characterizes the projects I’ve completed in the past?
- What have I previously been paid for?
- What problems have I successfully solved in the past?
- Am I willing to learn about the service, harness the craft, and bring results to a client?
No matter which combination of these you choose, what you are ultimately looking for is leverage. You want to be able to gain a competitive advantage within the given niche.
If you have so much passion for a particular topic, you will outlast everybody else – great.
If you mastered a certain valuable skill not many other people know how to do well – great.
If you see an opportunity in a growing market that’s still very niche but are confident it will be much bigger – great.
Most of the top founders in history have usually followed the “scratch your own itch” framework: a massive problem they had and had a big desire to solve that problem.
If what you sell involves risk, it’s not a commodity.
Your offer is how you differentiate yourself in the market and capture the value that you create. It’s also how you turn from having freelance gigs/jobs (paid hourly) to having a business (getting paid in proportion to the value you bring).
This is also a big topic, which requires a separate article, but to simplify your lives, here are a few critical elements of an offer:
- Key features of the program
- Degree of customization
- Number of elements
- Number of revisions
- Degree of client involvement
Let’s look at a few more elements that go into creating a solid offer.
1.) Pricing – how you charge your customers
A key lesson regarding pricing is that price is not based on the cost; it is based on value and the customer’s willingness to pay. You can implement several pricing structures within any given offer:
- Monthly retainer (+ setup)
- Flat fee
- Customer-based pricing
2.) Product, Service, Experience, or Transformation
This is how you re-frame your service to meet the client’s needs. Make a list of all the products, services, experiences and transformation you offer to your clients (or want to offer). The highest level of an offer is transformation.
Do you guarantee specific results or not? What happens if you don’t deliver on those results?
4.) Customer Relationship
- Personal assistance
- Self-service (DIY)
- Automated services
- Co-creation (Do-it-with-you)
Critical questions to ask yourself at this stage:
- What does the customer consider as valuable?
- For what value are your customers willing to pay?
Above all, focus manically on the gap between what the customer wants and what the competition is giving them. Where is the customer frustrated?
A funnel – or in other words, channel/medium – is the bridge between the service/offer and your audience. It does you no good to have the most amazing service and offer but be unable to tell anyone about it.
Some key questions that we must answer are:
- Which medium can you use to communicate with your target audience?
- How can you get their attention?
- Is it within your skillset? (If not, can you learn it fast?)
- Can you reach them at a profit?
The best funnels to test your ideas at the beginning are those that are cheap, quick to set up, and manual rather than automated.
- Phone – Cold Calls (most people have a phone, and businesses have a phone number you can find)
- Email – Cold Email (most people have an email, and you can find their personal/business email on the internet)
- LinkedIn – Manual LinkedIn Outreach (most businesses and business people are active on LinkedIn )
Of course, there is a multitude of tools and technologies that can help you figure out “the best” medium and channel and also optimize them. What you don’t want to do is use automation or automate the process before you figure out what works – meaning using Cold Email or LinkedIn automation tools or hiring out your cold calling via Fiverr/Upwork.
This is likely the most critical element of the 4, but why is that?
During classes, one of the questions I like to ask my students is: “If you and I both owned a hamburger stand and we were in a contest to see who could sell the most hamburgers, what advantages would you most like to have on your side to help you win?”
Now, the answers to this question often vary. Some of the students say they would like to have the advantage of having superior meat from which to make their burgers. Others say they would use sesame seed buns. Some mention location and some want to be able to offer the lowest price.
After my students are finished telling me what advantages they would most like to have, I usually say to them something like this: “Ok, I’ll give you every single advantage you have asked for. I, myself, only want one advantage, and if you give it to me, I will (when it comes to selling burgers) whip the pants off all of you!”
“What advantage do you want?” they ask.
“The only advantage I want,” I reply…
A Starving Crowd!”
Spend some time thinking about these questions:
For an existing business:
- Which type of customer weighs more in your portfolio than in society in general?
- Where do existing customers see the most value in your product/service?
- What was the most common title of a decision-maker?
- Which customers were the easiest to close…and why?
- Who are your customers’ customers? (only for B2B)
For new business:
- WHO can you do it for… who are surprisingly willing to pay large premiums?
- Which 3-5 subcultures/niches do I belong to? What am I a super consumer of?
- Who do you want to buy from us?
In today’s world, you tend to undervalue sales related to engineering, meaning you put a higher value on creating, e.g., software products, over marketing and selling them. If you invented something truly new and valuable but haven’t found a way to sell it – you don’t have a business (or at least any good one).
Superior sales and distribution channels can create a monopoly, even without differentiation. The opposite is not true. Think about that.
Business Case Example: Gazelle Recruitment and PVCA
Let’s look at a real business case example of how we applied the S.O.F.A. framework to create two business ideas.
I thought about recruitment as a product for a long time because I knew how to recruit people. Then at some point, one of my clients (a marketing agency hiring 3 full-timers and 2-3 external freelancers) complained that they needed a designer and were losing money each day they did not have a designer.
They said that hiring locally was too expensive because of local employment taxes and that outsourcing to more freelancers was unsustainable because of communication time and low commitment. They wanted someone who could commit like an employee but work remotely and internationally on a freelancing contract (service agreement). This provided me with an idea about an audience and the challenge the audience was experiencing. To find a solution to this issue, I came up with the following offer:
We will recruit remote employees, train them in fast communication, and immerse them into the company culture.
How we charge was also a part of the offer. There was no additional cost to the employer compared to regular recruitment. Instead, we took 50% of the first month’s employee salary to put towards recruitment and training activities. This ensured that employees were happy and did not have to pay for training or preparation. Instead, they got paid for the training (50% of their salary) while providing value to the company.
When coming up with PVCA, I thought about B2B lead generation via e-mail and phone as a product. There is an abundance of generic B2B generation agencies,so I needed to narrow down the audience even further.
This led me to brainstorm which companies were underserved and eventually led me to solar panels. At the time, there was virtually no competition offering lead generation to solar panel companies.
Step 2: DESIGN a Prototype (in less than 1 hour and under 30$ )
Ok, now let’s move on to step 2. Once you have an idea, to design a prototype you will need a name, website, and e-mail address. Here is how to get it done fast:
Once you are done with the above, you want to add one more thing which is a CNAME record in your CloudFlare DNS settings:
You do it so that when people type your website without www. (ex. domain.com instead of www.domain.com) they still get to your website.
Now that you have the email and website set up, you have the minimum viable foundations to start testing your S.O.F.A hypothesis.
Step 3: TEST – Run the experiment(s)
Back to the business case study:
I don’t set up Lemlist nor any other cold email automation for a test. We first do it manually. To test idea of PVCA I got my assistant to send 70 e-mail via Gmail. We got 7 positive replies (10%).
The two things you need clarity on when running experiments ( testing your ideas) are: assumptions & benchmarks.
Each of your S.O.F.A hypothesis, or in other words, the pairing of “How you win” with “Where you play,” contains certain assumptions. E.g., “These people (X) are going to want to buy (Y), or “X is a major problem for Y people, and I can solve it.”
When you run the experiments, you essentially want to find out where you are wrong (and do it fast). It’s basically the Scientific Method applied to business. Instead of looking for proof that your idea is genius, you are looking to disprove your idea (or parts of it), so you can iterate it and make it better.
The other thing you need clarity on is your benchmarks (KPIs). You need two types of benchmarks/KPIs: critical drivers and results.
You need to set yourself (and your team) a certain measurable standard for the actions you will take to test your idea. These are your critical drivers.
You also need benchmarks to check your results against.
The best funnels to test your ideas at the beginning are those that are cheap, quick to set up, and manual rather than automated. It does not make sense to automate (or outsource) something before it is proven to work.
I’ll share examples for three of the funnels we talked about above:
- Manual Cold Email Outreach. Critical driver: 10 people contacted /day. Benchmark: 10% reply rate → worth continuing
- Manual LinkedIn. Critical driver: 20 connection requests/day and messages to those who accepted. <10% Connection Rate = Clear Loser ; >25% Connection Rate = Clear Winner
- Cold Calls. Critical Driver (KPI): 20 calls per hour. 5% or 1 positive reply is a very good benchmark.
Action point: Pick one of the above funnels, with a preference for one that you have experience with or feel more confident in learning. (In TribalMastermind, we have entire dedicated sections with proven guidelines for each of these three funnels and more).
Step 4: Assess & Iterate
We got 10% positive replies with PVCA, and with Gazelle Recruitment we got an actual sale right away. Both are proven.
Okay, so you started running the experiments to try and disprove your ideas.
One of the more common pitfalls you can fall into at this stage (and many entrepreneurs do) is to either pivot too fast (before you gather statistical significance). Or get stuck in no man’s land because you don’t learn from your trials & errors.
Each test and experiment that you run should result in an assessment. In analyzing the results, you can determine:
- Yes – People buy it, and it seems to work; you keep on bootstrapping and improving.
- Maybe – The worst type of outcome. You should try to get more data.
- No – You pivot on the idea because it doesn’t exactly work, but it might work if you change one of the 4 variables. For example, you offer the same product to a different audience that might need it more, or you change the funnel to reach the original audience.
The only true validation of your idea is a check (from the customer), that hasn’t bounced. Ideally, two or three, so you know it wasn’t a fluke. But this is not the only measure of success. If you are getting on sales calls, getting positive replies, or any other type of positive reaction, it means you’re on the right track. You just need to improve some aspects of your process.
This constant process of testing, assessing, and iterating while playing around with the 4 variables (Service, Offer, Funnel, Audience) is very much like picking a lock. You got the 2 numbers right; now you need to work on the other two. But maybe while you are working on the other two, the other one stops working. So it’s a constant, ongoing process of tweaking and testing.
Action point: Ask yourself these questions next time you finish running an experiment/test:
- What am I learning about my strengths and my weaknesses?
- What’s working, and what isn’t?
- What could I do a bit better next time?
- What value was added to the business?
- Do customers want it and will pay for it?
Avoiding the Analysis Paralysis When Implementing the Framework
It’s impossible to tell good ideas from bad ideas when you’re thinking about them. You need to test them against the market.
If you tend towards perfectionism, planning, and thinking, lean towards execution.
If you have been executing and running around being busy but can’t seem to make any meaningful change in your business, it may be the right time to step back and do some thinking time session. Get back to the S.O.F.A framework and analyze which of the 4 parts is not working correctly.
You need to stop killing fires and ask bigger questions.
Action point: Ask yourself (credit Keith Cunningham) these questions if you find yourself stuck in analysis-paralysis:
- What am I really capable of doing?
- What am I willing to do?
- Is this solution congruent with my existing (or easily acquired) skills, resources, and level of commitment?
- What first step can I take right now?
Everything we mentioned in this article may seem like a lot of hard work. The truth is, yes, it is. Starting a business requires a ton of perseverance, which is why very few people do it. Equally difficult is turning your freelance gig into a proper business. Trying to win this game by pure trial n’ error is stupid.
The 4-step process and S.O.F.A. framework from this article should help you speed up the process and give you enough structure so you don’t repeatedly bang your head against the wall wondering why the wall isn’t moving.
So don’t get discouraged and sail with the wind. The path can be quite lonely sometimes, so connect with fellow digital service providers and share both your successes & failures. (And of course, let us know if/how the article helped you)