This article was originally published on Dell for Entrepreneurs.
As consumers, it’s easy to assume that the brands we consistently rely on have a strong foundation that’s built to last. But for many companies, that’s just not the case.
One-hit wonders litter the business landscape. Robert Croak, the man behind Silly Bandz, came up with the animal-shaped bracelet concept after a visit to a supplier in China. As the bands grew in popularity, his company released new themes to boost their collectability. But logistics problems and copycat companies forced Croak’s business to invest in other products that would support its “lifestyle brand” goal — Slap Watches, Rad Bandz, and RadRingz — none of which have taken off like Silly Bandz.
Similarly, Fab.com burned through $14 million per month before it instituted layoffs. The e-commerce company raised $150 million in its last round, not the $300 million it had anticipated — leading its co-founder, Jason Goldberg, to pivot to Hem, a furnishing business. Fab.com’s capital and valuation will go with Goldberg; Fab.com itself has shuttered everywhere but in the U.S.
But the lessons learned by these companies that were kept afloat by single product lines have also been learned by established companies such as Salesforce.com. The cloud computing company has experienced 38 percent year-over-year revenue growth, yet it’s been steadily losing money. While investors are content with its rapid growth for the time being, it’s not a sustainable business model in its current form.
If you’re looking for more than high topline growth and a quick exit, a different set of principles should guide your decision-making process. Here are four elements every business needs to achieve long-term sustainability:
Despite the success of companies like Salesforce.com, most businesses need to turn a profit to survive in the long term. The market always gives a few companies a free pass to grow without making money because they have the potential to completely dominate their market. However, counting on your company becoming the next Facebook or Google is like dropping out of school to become the next Michael Jordan. It won’t work for 99.9 percent of us, but we tend to focus on the wrong side of that equation.
Profitability is the key to self-sufficiency. If you’re not profitable, you will always have to rely on outside capital to stay afloat, sell, or go public, which means you’ll be forced to give up a fair amount of control.
I worked in a business that everyone loved 10 years ago, but it never made a dime. Investors kept funding the gap, so sustainability was never a pressing concern. Eventually, it went under, and everyone was very surprised — especially the customers. I wasn’t.
2. Engaged Employees
To create a lasting organization, you need to hire people who aren’t just looking for a higher salary or a better title. Your team should believe in the company as much as you do and be firmly committed to its mission.
Part of promoting engagement is clearly communicating your vision and drawing people to your purpose by demonstrating the values you want to see. When the company’s leadership is invested in the mission, it sets an example for the rest of the team.
If your voluntary turnover rate is higher than 10 percent for the people you want to keep, it’s a red flag that something’s misaligned in your hiring process. You may need to step back, look at the bigger picture, and be more selective about bringing in high-quality people who align with your culture and values.
3. A Self-Reliant Team
Scalable leadership is just as important as a scalable business model. In the beginning, a company’s founder is usually at the center of things. He or she has infectious enthusiasm that drives the company during the startup phase, but a company can’t rely on one person forever.
To be sustainable, your organization needs to be equipped to survive without you. If the founder can step away from the business for three or four weeks without everything falling apart, it’s a good sign that the business has a solid base of self-reliant team players who can solve problems and drive the day-to-day business.
4. Leaders Working on the Business
In the beginning, many companies focus only on building the best product or service possible. This often leads to early hype, rapid success, and a collapse from not having a sustainable foundation to support the subsequent growth. By focusing only on the end product or service (rather than the company itself), a leader is not setting the business up to scale.
Founders and CEOs who plan for the future spend as much time working on their business as they do working in it. This sometimes means getting involved in less sexy tasks, such as developing operating systems and processes, managing financial controls, hiring the right people, and building a culture. They devote a majority of their time to leadership development, strategic planning, goal setting, and organizational alignment — tasks that contribute to a company’s long-standing security.
You hear a lot about the quick wins at companies that experience overnight success, but you seldom hear about the companies that fail because they weren’t self-sufficient. While building a product or service that you’re passionate about is important, you must also set your sights on building a sustainable business if you hope to be around for the next five, 10, or 20 years.