002: Why Most Businesses Fail (And How to Bulletproof Yours From Day One)
Are you a Millennial trying to start, acquire, or grow your first business—but don’t know where to start? In this episode of Unsexy Entrepreneurship, Charles Harris and Dr. Seth Jenson break down the first 3 components of the “MOSAIC” framework: Margins, Obsessed Customers, and Systems & Channels.
From understanding how to price for profit, to identifying the kind of customers who will become your superfans, to building systems that let your business scale without chaos—this episode is packed with practical, real-world advice for new and aspiring entrepreneurs.
💡 What You’ll Learn:
- The MOSAIC framework for the essential business health check
- Why healthy profit margins are more critical than revenue
- How to find (and keep) obsessed customers that drive growth
- Why systems and repeatable channels are the key to a stress-free business
- What most people miss when hiring employees or acquiring an existing company
- How AI and automation are changing operations (and what to do about it)
Whether you’re planning a startup, considering entrepreneurship through acquisition (ETA), or already in the trenches, this episode will give you the clarity and confidence you need to build a business that lasts.
📬 Got a question? Reach out at podcast@charriscpa.com
👍 If you find this helpful, please subscribe, rate the show, and leave a review. We read every single one.
Got questions for Charles and Seth? Submit them HERE.
Transcript
Podcast. If you're a millennial and you're looking to start, acquire, or grow your business, this is the place for you. I'm your host or co-host Charles Harris. I'm with my co-host Seth Jensen. Why don't you tell us a little bit about yourself, Seth?
Seth Jenson (:I'm the director of the Entrepreneurship Institute at Utah Valley University. have PhD in business strategy and entrepreneurship, and I consult firms from multi-billion dollar companies all the way down to people just getting started.
Charles (:Awesome. So today we're going to talk about the fundamentals of a good business. And what did you want to cover with this, Seth?
Seth Jenson (:So I think it's helpful whether you're about to launch a zero to one startup, you've got some idea that you've has been percolating, you want to bring to life or you're thinking about acquiring a business.
I think it's helpful just to have a basic overarching framework to decide what makes a healthy business. Like what are the key fundamentals of any business that means it's solid, that means it's something that you're willing to bet your life on. Since entrepreneurship is a little bit of that, it's betting your career, your life, your income on a business that's hopefully gonna take you somewhere you wanna go. So what are kind of the six things that every healthy business should have?
And I'm curious, like, Charlie, before you built your firm, what did you feel like, hey, I need to make sure my firm has these things? Like, what was kind of your framework going into it?
Charles (:Yeah, so I wanted clients and I wanted to make money and that was pretty much it, right? I think a lot of what we're going to talk about today I didn't think about or know and a lot of it was guesswork for the first, I don't know, six months.
Seth Jenson (:Yeah. And that's totally okay, right? But if you've got an idea of, it's like buying a house, right? Like before you buy the house, you want to make sure the foundation doesn't have cracks in it. You want to make sure that it's sound. You want to know how old it is, these types of things. Before taking the plunge, if I could go back and tell little new entrepreneur Charlie, hey,
These are the things to shoot for. Hopefully that would have given you more confidence and more energy in attacking kind of the path you took. So I've got a pithy acronym for you because that just helps, right? It helps us digest it. I think of your business as a mosaic and that M stands for margins. Now you're an accountant, you know all about margins. So tell us about margins, Charlie.
Charles (:Yeah.
I do.
Well, and this is really interesting too, because I'm going to take this from a story from my own firm starting. so I started my firm while I was working full time. think a lot of entrepreneurs do this and I was thinking I just wanted to be able to replace my salary plus a little bit. And so I ran the margins, what that would take. So I, because I'm an accountant, this is just how I think. So I came up with all the expenses I would need.
which was not nearly as many expenses that I actually have, which I think is really common for an entrepreneur. And then I said, well, how much money do I need to hit all these expenses and then plus give myself the same salary working full time? And it was great to do that math. It was 100 % wrong. ⁓
Seth Jenson (:Right. ⁓
You
Charles (:And I think every entrepreneur goes through this as well, cause we have this grand idea. know, I can start a business and I can make double what I'm making now. And I'll have to work less. And this is awesome. And margins are always a lot harder than that. and a lot of times you don't find that out until you start getting into it. and I'm an accountant. think I'm pretty good at this and I still missed a lot of things. and I think some.
Seth Jenson (:Yeah.
Charles (:yeah, go for it Seth.
Seth Jenson (:No, just, love, I love that example. and, and, and you're right that most people, when they're thinking about a business, they go straight to that top line, that revenue figure. They're like, wow, I can charge this much for this product and I can get a million customers and it's going to be, well, look at how big that revenue number is. Revenue is not what makes or breaks a business. It's your margins. How much of that do you actually get to take home at the end of the day? And at its simplest level, your margins are what you're able to charge minus
Charles (:Yeah.
Yeah.
Seth Jenson (:how much it cost you to get that, right? And taxes eat away from your margins and all the software you have to buy to run your company, your employees, there's, like you say, most people aren't aware of just how many line items there are that are gonna make that really beautiful revenue number turn into a much smaller net profit number at the end of the day. And so a healthy business has fat margins. gives you...
you know, the gap between what you charge and what it costs you to provide that service or product is big because you don't know what's coming around the corner that's going to eat away at that margin. The extra costs, the tariffs, right? If you're a CPG firm, if you're a consumer packaged goods, you can't always control some of the line items that are going to increase your costs. So you want big fat healthy margins right out of the gate.
Charles (:Yeah, I think something a lot of people miss, I deal mostly with service based businesses and I think most of them underestimate how expensive it is to hire someone and replace what they're doing. Right. Cause if I am just going to, let's say I'm to go clean homes. it's pretty easy to get to six figures just doing that yourself. But if you're thinking, I don't want to clean homes forever. I'm to hire people to then do it for me. You're going to.
Seth Jenson (:Yo, yeah.
Charles (:underestimate the total expenses because you're not going to be thinking about that employer just thinking, hey, by myself, I can do this. And so it's always better to have fatter margins and be more cautious because you don't know what's coming around. You don't know like, Hey, what does it take to expand and grow?
Seth Jenson (:Yeah.
Mm-hmm.
Yeah. I have students come into my office all the time and say, Hey, I want to, undercut my competition. That's going to be the way that I enter this business. So I'm going to be this company, but cheaper. And I tell them off the gate, like that is possible. It's not that that's an impossible strategy.
but you're shooting yourself in the foot right out of the gate because you're gonna give yourself even less margins than a company that's already at scale. So they're already benefiting from margins that are order quantities that are huge. And so for you to go out of the gate with little profits.
Charles (:Yeah.
Seth Jenson (:That sucks. It's a bad idea. Now, there are some exceptions. Uber did not make money for a very long time. Amazon did not make money for a very long time. These kind of growth-oriented businesses that are literally just trying to capture the entire market as quickly as possible, they'll operate at a loss intentionally to get...
full control over the entire market. But most of us aren't in that situation. Most of us want to approach a business where we're really happy with the revenue coming in and the margins right out the gate so that we're not having to just sink cash into whatever we're doing in the first six, 12 months of our business.
Charles (:Yeah. Well,
and there's one Amazon, one Uber, right? There aren't very many of these companies. They're fortune 500 for a reason. And so I think it is the majority of businesses. I think you need to really pay attention and you want to be profitable right from the get-go. And that's maybe more of an accounting side of it, but I think if you're not profitable right from the get-go, you're really going to struggle as it grows.
Seth Jenson (:It definitely makes it a lot easier to persist when you're not just burning through cash. And again, to really reemphasize your previous point, you don't know what you don't know. So there's some sneaky costs that are going to show up and eat away at your margins. And so you've kind of already got to be factor for those, like be conservative in your estimates. Assume when you take over a business, costs are going to increase. You don't know how, you don't know why, but just assume it. So before you buy that business,
Charles (:Yeah.
Seth Jenson (:give yourself really healthy margins to be dealing with.
Charles (:Yeah, some
like just a helpful little tip that I see people miss all the time is employee costs. think people just don't realize but, employment taxes, the company asked to pay 7.65 % of that. So if you hired someone and you said, I'm only going to pay them a hundred thousand dollars. Really? You're paying them closer to 110,000, which is a big difference. and I've just seen that.
Seth Jenson (:and benefits on top of that potentially.
Charles (:yeah, for sure, if you're offering 401ks or anything like that. So just important to realize that there's more costs involved.
Seth Jenson (:Yeah. And, and you know, in future episodes, we can get into the minutia of, of planning a business around some of these issues, right? So are you going to hire contractors or full-time employees? Are you going to do part-time or full-time? There's ways to have more control over your margins. I was talking with a company that's brand new. This is likely to be a venture backed company.
but they're innovating in their space, but they're also innovating in their business model in really cool ways where they have incredible flexibility over their costs. Until they're at scale, they don't need to hire. They can just contract. They can grow and contract that contract base however they need. It's a really intelligent approach to the early moments of their business. And you can tell that margins are on their mind this whole time, which is awesome.
Charles (:Interesting.
So.
Seth Jenson (:So again,
there's lots of going to there, but the main takeaway is healthy fat margins. That's what you're looking for.
Charles (:So what's the next step in our mosaic?
Seth Jenson (:Yep. So the stands for margins. O stands for obsessed customers. And this really speaks to a couple issues, right? But if you've got obsessed customers, it means you tend to have these other things. It means that you're providing value, which I know sounds so basic, but that's what a business is.
And it's most fundamental a business exists to provide value for customers. There's some desire they need met and your product or service is meeting that it's valuable to them. They're willing to give you money, which is a storage of value for the thing you're doing. So obsessed customers means you've hit something that is valuable to them. And it also means you're likely to retain them. Right. That's where that obsession comes into play.
because unfortunately some businesses, it's very easy to get customers, but it's very hard to keep customers. And you wanna build a business or acquire a business that is both valuable and retains those customers. So, know, well, we'll get into this later, but FAD businesses can provide a lot of value initially, but the FAD moves on.
and all of sudden you can't retain your customers, they weren't really obsessed with what you're doing.
Charles (:So this
brings to mind a story for me. think of Airbnb when they started, and they really struggled to get going. there was really no, proof of concept. Well, there was a proof of concept, but no one was a constant client. and they tell a story where someone who is helping them and consulting them said, well, who's using your product? And they said, this pocket in New York city. And they said, well, have you talked to them?
And they said, no, which is just mind blowing. and, and I think it's something that all entrepreneurs can kind of miss. miss some of the obvious things. And so I don't blame them at all. but then they flew out to New York the next day. They talked with their clients. They realized the issues that their, their product was having, and they figured out why they liked their product. And that's what the big breakthrough was for them. And then they started iterating and improving and.
Obviously it's a billion dollar company now. So it worked out pretty well that way.
Seth Jenson (:Absolutely. Airbnb is one of my favorite case studies for so many different things. But you're right, they became super customer focused and there's always gonna be those power users of any business. And those are the people you wanna hone in on and really understand, because they know your product better than you do in some cases, because they are using it in the context you might not have even thought of or for the reasons you might not have even thought of. But if they're obsessed, if they're so excited about what you're doing.
Charles (:You
Yeah.
Seth Jenson (:A, you want them to exist. they don't exist, it's a problem. And when they do exist, you really want to understand them. They become your obsession in so many ways. So again.
Charles (:So how do you
find those super users, those super clients?
Seth Jenson (:Yeah, well the Airbnb example is a good one where, I mean, you've got to take a look at your business and see who those people are that keep lining up, right? They're often the most vocal in some cases as well, right? The people that actually care enough to tell you about features they need and want. But in some sense...
You've got to do the work to find them, especially in those early days. A lot of the validating a business is finding them. Who are they? What are they like? Where do they live? That's where your strategy starts in the zero to one. It starts with that customer. know, what value you're providing tells you what product to build. Where they are tells you what your marketing channels need to be and how you're going to best access them.
you know, even to the minutia of like, where do they purchase your product and how, right? Like where's the right place to meet them with money in hand.
You know, if you're a supplier of a specialty equipment in the construction space, trade shows might be the place where you find your obsessed customers and they're most likely to want to engage in a buying attitude, right? If you are selling specialty knives on e-commerce, it might be Reddit forums where people are discussing, you know, the best hunting knives that you can find, right? Every industry is going to be different. Your obsessed customers are going to be living in different places in the economy.
but it's essential that you know who they are and that you find them and that they exist. So if you're looking to buy a business and you can't find these obsessed customers, there's just customers coming and going all the time, that's a bad sign. You need them to come and want to stay.
Charles (:Do you have an example of customers coming and going? Because I'm curious what that would look like.
Seth Jenson (:Yeah, it's a good question. I think you see this a lot in restaurant concepts, for example. Restaurants are a very difficult business to be in, period. ⁓
Charles (:Yeah.
Seth Jenson (:Sometimes it's about location and your obsessed customers are people that only have access between lunchtime and you're just the closest thing to them. And so your food sucks, but they're like, you're the only game in town. And so I keep coming back to you, right? Again, maybe that's a twist on an obsessed customer, but other establishments, they don't have that thing that keeps people coming. They're either competing in a very...
competitive space, right? Their tacos are just like everybody else's tacos and there's four taco places within the same mile. So yeah, they'll get people in the door, but since there's nothing special, they don't keep people coming back every week for it, Again, there's services that...
are easy to switch, right? So things like, I think of like pest control companies, for example, there's certain parts of the U.S. where it's very easy to build up a pest control company.
but it's very hard to differentiate yourself. And so you sign up customers because you have a good sales team, but at the end of the day, people don't like paying for pest control and they don't like some random person trudging around their backyard. And unless your service is better than the others, it's hard to retain those customers long-term. And so if they come and you're just constantly relying on your sales team to keep people coming in the door, and that's a bad sign, right? Like,
Marketing and sales is expensive. You want to keep the customers that you pay to get in the door.
Charles (:Yeah.
Well, it's really interesting because I think, Chick-fil-A really made that point stand out to me, right? Cause I can immediately think, I know the super customer and they're a restaurant too, which is really hard to do, but I know exactly who the customer of Chick-fil-A is. and so it's helpful to, and they're obsessed. Yeah. And I think that's for a lot of bigger chains, there are those obsessed clients. And if, if they're not, then that's when the people start struggling. So I think of.
Seth Jenson (:Yeah.
And they're obsessed. People will drive out of their way to get there, right?
Charles (:like an Applebee's who's been struggling recently. It's hard to differentiate them from Chili's or any of these other like casual dining experiences. Whereas Chipotle's kind of managed to break that mold a little bit by creating super customers in a lot of ways.
Seth Jenson (:Yep, yep, you're exactly right. And food is actually a really great example. And Chick-fil-A, for example, enjoys way higher margins and their franchises are, the revenue is like so much higher than your average McDonald's because they're able to really cater to that obsessed customer base that come back and back and back and are willing to spend more for waffle fries than the person right down the street, so to speak. So yeah, that's a great example.
Charles (:But you totally can find those
wherever you go. Cause I think of, some clients I know they, they don't market in the typical, what you would think of. don't do Facebook ads. They don't do even email marketing, but they have a very select subset and they know exactly where to find them. And they go straight to them and they advertise to them exactly in that category. and they obviously run very, very healthy businesses.
Seth Jenson (:Yeah.
Charles (:So it's really finding them.
Seth Jenson (:And that
that speaks to kind of to link the and the O, margins and the obsessed customers to some degree.
There's kind of a sneaky third category in here that I would call market sizing. So how big your market is and your margins and how obsessed your customers are, how good your retention is can kind of counteract your market size. So for example, if you've got a low margin product, you better have a huge market to sell to because you're all about scale at that point. If you're only making 50 cents a sale, you better sell.
millions, hopefully billions of them. If you've got a huge market, or sorry, a huge margin, then you can be satisfied with five customers, right? If you're charging them each $100,000 a year, five customers is great, right? And so if you've gotten obsessed and highly retained customer base and you've got big margins, a small market is perfectly fine. But if you've got a lot of throughput,
and small margins, you've really got to go after much bigger markets, which is just something to think about as you navigate kind of those early decisions.
Charles (:Yeah, that's really good.
When you're thinking about either buying a business or starting a business, that's really important to understand and grasp, right?
Seth Jenson (:My personal attitude is I love high margins because it means I don't have to have very many customers. I hate, I hate like, again, we were joking before this podcast, like a podcast is the worst for me because I don't want billions of people listening and saying Seth's voice sucks or whatever. the customer service element is not my favorite part. So that my dream business and the one that I've built is a consulting practice where if I get a few customers a year, it's, know.
Charles (:You
You
Seth Jenson (:you know, five and six figure revenue for me. And that's just how I like it. Big fat margins. The only costs are me and my time. And I'm able to charge a significant amount of money because my customers love what I'm able to provide. I'm able to go in there and work for hours or days with them and create enormous value for them, right? So very happy customers willing to pay me a lot and not very many of them.
That's my dream business. But not everybody's that way. Some of them want to be, you know, the new Nike, you know, and have, you know, millions of customers and apparel has much smaller margins than other things. And that is, we could have a whole conversation about that where different industries tend to have different margins. Financial services, huge margins. Groceries, tiny margins, right? But people have different passions and spaces. And so...
But be aware, know what you're getting into, right? We're all about you being cognizant of these factors in your choices.
Charles (:No, it makes perfect sense. I think of Alex Hormozi. I'm sure most people on here know who he is, but he often says to sell to the rich because they have problems that they're willing to pay more to fix, right? And I think that's true. Generally speaking, and that's kind of the sad state of affairs we live in, but, and you can make other businesses work. I'm not saying you can't, but generally if you're thinking what's the easiest path to success, it's probably high margins, select few.
clients.
Seth Jenson (:Yeah, the luxury space is very popular for that exact same reason. The only caveat I'll put to what you say, because I agree, the luxury space is so much easier to, because of those margins.
But it sometimes means that those small, you know, those lower ticket items are, there's a lot less competition sometimes, right? Like sometimes there's opportunity because it's a little bit harder. And so you're able to capture more market share, right? So pros and cons to everything. Do what you're most excited about and confident in, but be aware of what game you're playing.
Charles (:No, that's perfect. All right, so we're talking about Mosaic. We talked about margins. We talked about obsessed customers. What's the next step?
Seth Jenson (:So people often think of their business as just this hodgepodge of things happening that don't have anything to do with each other in some sense. It's hard to like organize the chaos, so to speak, especially in those early stages, but the best businesses have systems and channels that are established and clear so that you know if I put X amount of money into marketing, get
why amount of customers, right? There's a system in place. If I'm going to hire someone, there's a way to onboard them and help them add value to the company quickly and efficiently.
So basically there's pathways within your business that there's a clear causal link between, right? And again, this could be your sales engine. If I hire these people and I train them this way, I send them out into the world, I get this many customers. Or if I buy this many meta ads on Instagram, I get this much or whatever.
You just wanna keep, you wanna build systems like this in your business. If you're buying a business, you wanna look for these systems because it means that you have more control. That's not just black boxed how you're gonna be successful. And it also lets you know where you can improve, right? You can take a look at the systems in place and say, is this worth it? Is there a better way to do it? But if you can't identify systems or channels, then it's hard to improve on the recipe, right? So,
Control the chaos. Don't try to reinvent everything, every step of the process from scratch over and over again. Build systems that'll do the work for you.
Charles (:Yeah. from a lot of service-based businesses I've seen, if you have those processes, you can bring in unskilled or novice people into the field, which can be so helpful. because they come in cheaper and they don't have preconceptions of previous companies where they might've been doing things incorrectly or, we've all seen that. And then the other thing too, I think, which is really cool and the world is changing AI is coming and
Seth Jenson (:Exactly.
Absolutely.
Charles (:It's potential
that a lot of these things, if we can create standard practices in our business, we can replace people. that's sad because people will lose jobs, but the most expensive part of a business is almost always the people.
Seth Jenson (:And not just replace, but enhance, right? So in some cases, yeah, and you'll see this in all the major firms. They are hiring less certain roles because AI can do more, but it also unlocks the potential. Like you say, you can hire someone that's, maybe this is their first job. And so they don't have this vast experience, but all of a sudden you have these tools and these systems you can hand them that increase their productivity and give them more confidence in their ability to be successful in their roles. So.
Again, imagine yourself being hired into a new company without any good systems and the chaos and how scary that feels. like, wait, how am I supposed to do the thing you told me to do? Like you didn't give me any way to do it, right?
Charles (:We've
all been there. We've had a boss who just threw us in and said, luck, get the work done. And you don't know even what work they want you to get done.
Seth Jenson (:Absolutely.
Yep. I've seen the power of systems in basically every field I've ever played in, even the academic world, the people that are most successful in publishing the best research, they've built a system to do it, right? They've put the right people doing the right things so that it's just a rinse and repeat for them, right? And you'd think academics is all about the lone wolf, you know, starting from scratch and solving these problems alone in their office. Nope.
The best academics, like the best entrepreneurs, have amazing systems that are fail-proof. They know, I put this in on one end and this pops out the other. It makes your job so much easier and less stressful as a young owner.
Charles (:Well, it can also help clarify where you're losing people and why too, right? Cause we talked, I mostly think about systems as, inside a business doing things, but in their client, in the acquisition of clients, oftentimes I think it's helpful to know where you lost someone. Cause then you can do a deep dive into why. ⁓ and that's something that I think a lot of businesses miss as well. They're just like, this person talked to me.
Seth Jenson (:you
Absolutely.
Charles (:They disappeared. don't know what happened. And when you dig in, it's like, well, I didn't send a follow up email on this date when I should have. And, you know, we can break down a lot more and learn a lot more about a company that way too.
Seth Jenson (:Yeah, yeah.
That's a fantastic example. And I think it's important to realize that in the very, very early stages of building a business, it's hard to have systems because you're really just answering a lot of the questions you have in those early stages and you don't know all the different components of a system that you could build.
But you wanna keep systems front of mind, right? As you're exploring those early customers, you need to be asking yourselves, what channels do I have to access them? And what systems could I put in play here that would repeatedly bring them to my service? So again, don't feel like if you don't have great systems, you're doomed, but just realize the power that they can have in your business. And certainly if you're looking to acquire a business,
look for those systems and channels because if they don't have them set up, you don't know whether you're gonna be able to reproduce the success they've had to that point, right? They've had something happening that's been successful, but if there's not a clear pathway, you can only hope and pray that you're gonna be able to recreate it, right? So it's really helpful in making that purchase confidently to know what system's working and how they're doing so.
Charles (:Well, it's interesting you bring that up too, cause I almost acquired an accounting firm when I was just starting out. ⁓ and I, I really thought about it. I I'm sure I talked to you about it. Actually, I would imagine I did. but as I dug in, it terrified me. And I think the reason why is because they had a ton of clients and I didn't know the exceptions and the rules for each client.
Seth Jenson (:Yeah.
Rings a bell.
Charles (:And every time I saw a new client, I would get a note or a little message being like, and this client requires this, or you have to do this for this person or something along those lines, right? There wasn't like a clear cut and we request a W two, we get the W two, we fill out the W two and we submit, right? And that's obviously as basic as it comes for an accounting firm, but,
Seth Jenson (:you
expectations it sounds like.
Charles (:There, there was no clear path. so losing the owner and then stepping into that role and basically being this whole proprietor. It terrified me, right? Like, cause I didn't know what to expect, what hidden things would come out. I didn't know how many clients would call and be like, well, why didn't you do this? The last guy did it. It's like, well, that's not the normal in accounting firms. And so I love to think about that and then view it from an ETA or entrepreneurship through acquisition mindset and.
Seth Jenson (:Right.
Charles (:think, does this company have systems? Can I replicate it? Is everything in place where if I just step in, I can take my expertise and expand the company in the right way versus coming into something, having to take over the owner's role and not knowing what's going on.
Seth Jenson (:Mm-hmm.
Yeah, and bad systems, you know, can be improved, right? So if you could identify in your business or when you're looking to acquire a system and be able to improve it, awesome. You know, that's a way you can add value, right, to that and improve on what they're doing.
The really scary part is when you just can't see any systems to be had, right? And systems don't have to be complicated. I love your example of onboarding clients, setting expectations, helping them understand what platform is going to be best to communicate with you, communication throughout, follow-up in certain increments, having a CRM potentially, a customer management system. That can all
you know, really simple but incredibly value adding within your organization.
Seth Jenson (:So we've covered margins, obsessed customers, systems and channels, the first half of framework. And we know there's a lot to digest. So in our next episode, we'll go ahead and tackle the rest of our mosaic. We're gonna talk about advantage. We're gonna talk about indispensability in our business. We're gonna talk about having a clean closet as business owners.
