Justin Jackson started an interesting thread on Twitter recently, where he posits that a business needs to grow in revenue in order to keep pace with costs.
In the thread, he backs up the idea with a theoretical 2% per year growth in business costs and cost of living.
On the surface, the argument seems to hold weight. It costs money to run a business, and if costs go up by 2%, your revenue needs to go up in order to sustain the business.
But what if costs went down by 2%?
Do costs really need to go up?
Pick any market right now, especially on the internet, and you’ll probably see increased competition and thus, lower prices.
We switched from ConvertKit to MailChimp and saved about 15%. Then we switched from MailChimp to MailerLite and saved another 30%. We did the same for web hosting, too.
Groove are lowering their prices by 30% from January.
It’s not a guarantee that costs can and will increase year on year.
Could you switch suppliers? Find a new web host? Reduce your email list? There are many ways to reduce your costs.
The cost-of-living for employees is a valid point, but there are a lot of companies of one now – using freelancers as/when needed instead of salaried employees.
Not growing does not mean dying
There are many, many business models that can and do sustain revenue without growth and without increasing costs. There’s nothing conventional about internet business nowadays.
When Justin talks about the labour market, cost of goods, competition, the cost to acquire a customer, he’s drawing from his own experience building software/SaaS products.
Products where he is very much the “face” of the company.
When you are the face of the company, especially a software company in a competitive space, the time and money costs most likely will be more susceptible to increases each year.
But what about a humble publishing company? One of the businesses we run offer history teaching worksheets and materials.
- The product is complete (bar incremental changes)
- The site runs on WordPress
- The subscription plugin was a one-time payment
- Customer support is minimal (and outsourced at $200 a month)
- Customer acquisition is 100% organic from search
- There is literally no competition offering what we do
99% of the business is passive and would sustain growth over many, many years without fluctuation.
And this is just one example. We spoke with an iPhone app developer a while back who wanted to sell his portfolio of apps.
He hadn’t touched them in 3 years and they were still making $100k+ a year – even though they were not compatible with the latest iOS.
Dying is a very loose way to describe that business. Declining, sure, but there is a world of difference between short-term decline and long-term death.
Even a minimal time and monetary investment to make those apps compatible with the latest iOS would probably be enough to sustain revenue without growth.
Sustaining revenue doesn’t mean growth stops
The fundamental basis of the argument is that costs go up, and therefore revenue needs to go up.
I don’t believe costs do need to go up and the examples provided are confirmation bias based on Justin’s experiences.
I know many affiliate marketers making five figures a month with just a WordPress blog and a writer who charges $0.02-0.04 per word.
Their costs don’t go up. They can produce 30 articles a month, covering more and more topics and continue to make money.
Since their traffic is organic, they could stop investing altogether and continue to earn revenue (assuming a competitor doesn’t outrank them!).
The other challenge: it’s hard to stop a successful company from growing!
“Now the bad news. Let’s say all of this works: you create this little company and it’s making $30k a month in profit. What happens next? It keeps growing that’s what it does.”
Yep, this is true. If you built your business well then you’re going to continue generating revenue.
IMO, it’s very easy for a business to coast when they hit enough revenue. Nobody is saying “oh, I hit $30k so I better turn Stripe off now so I don’t earn more”.
It’s the perspective of the business owner that changes when you reach a number that is enough.
Switching from a growth mentality to a sustain mentality for me means working fewer hours, spending more time with the kids, reading more books, and getting more sleep.
It’s very easy to read a thread like this, clearly seen through the lens of a SaaS company founder, and miss the obvious…
Not all businesses have the same challenges.