003: The 3 Unsexy Traits That Make a Healthy Business

Charles (: 00:21

welcome to the Unsexy Entrepreneurship podcast. If you're a millennial hoping to start a business, acquire a business, or grow your business, you're in the right place. I'm your co-host, Charles Harris. I'm a CPA. I run a small accounting firm, and with me is Seth Jensen. And Seth, why don't you give us a little bit background about yourself?

Seth Jenson (: 00:39

I have a PhD in business strategy. I run an entrepreneurship institute at Utah Valley University, and I help people build businesses.

Charles (: 00:46

Awesome.

So for this podcast, we're gonna go through the second half of the Mosaic framework for starting a business. And last podcast, we talked about margins. Can you give us a quick recap on margins, Seth?

Seth Jenson (: 00:57

You want big ones. You want your revenues to be high, but you also want your costs to be low so that every service you provide or product provides a big, healthy impact on your net profit, big, healthy margins.

Charles (: 01:09

obsessed customers. I think this one makes a lot of sense. You want people that are obsessed about your product, they really like it. And then we wanna create systems and channels

Seth, do you want to explain systems and channels real quick?

Seth Jenson (: 01:20

Yeah, so you wanna not have to reinvent the wheel within your organization over and over again. So you wanna have a system to acquire customers. You wanna have a system to onboard your hires. You want a system to keep track of your books and these different things so that even a dummy could take over your business and have it thrive.

Charles (: 01:38

And then today we're gonna start with the next piece of mosaic. So this is the A. And what does A stand for in mosaic then?

Seth Jenson (: 01:45

This fourth one, the A, is the one that I spend the most time thinking about in terms of my consulting practice when I'm working with major firms or little firms. This is such a critical component.

and that's to have an advantage, some advantage over the competition. You don't wanna be playing the exact same game by the same rules as everybody else. You wanna cheat as much as you can, legally to be clear, but you know, have some, yes, in the sense of, you know, break convention, so to speak. And really where advantage comes from.

Charles (: 02:08

Yeah, don't cheat on your taxes.

Seth Jenson (: 02:18

is there's a few different ways. There's a few different ways to beat the market or beat your competitors. Differentiation sums up a lot of it. You need to stand out. You need to be able to provide value in a way they can't provide value, right?

A differentiated product or service is key. If you're just like everybody else, it's going to suck competing with them. They're going to slowly eat away at your margins and your market share. So be differentiated, stand out. It's going to make everything easier along your journey. And that could be from niching down. That could be having a formula that's just better than everybody else's. There's a lot of different ways to differentiate, but it's critical to your business. That'll give you an advantage over your customers. Sometimes it's as simple as you've got stuff other people

people don't have, right? So like you have a piece of real estate that's just prime and so people are gonna walk into your taco shop a lot more than other people. That's an example of a rare asset or it could be IP, right? You've got a secret formula for, you know, metal that's stronger than titanium or whatever. People can't use your intellectual property and so that gives you an advantage. Sometimes it's something as, go ahead.

Charles (: 03:15

So kind

of on that, I'm curious, how do you differentiate?

let's say a cleaning service. It's pretty standard across the board, unless you're the person doing the cleaning, right? And so your differentiation is you and your personal relationship with the client. And so again, like you could grow that business, but then you're capped on what you can do to basically your ability. So how do you differentiate something that's kind of standardized?

Seth Jenson (: 03:41

I love that question. There are always ways to differentiate, right? This is really where the fun innovation part of entrepreneurship happens. So again, and I'll add one other way to get advantage before I fully answer that question, which is,

Charles (: 03:57

Okay.

Seth Jenson (: 03:58

sometimes your networks are your advantage, right? Sometimes you just know the right people and can get in the right doors and have access to clients. Sometimes you're differentiated because people like you, right? And you've got really strong relationships, right? So it doesn't have to be complicated, but as you're trying to think about how to differentiate yourself in something that seems very vanilla and blanket, it really goes.

Charles (: 04:09

Ha ha ha.

Seth Jenson (: 04:18

to understanding your customer. So, A, people like things that are different, period. And so sometimes having cleaner cut workers and if we use your cleaning example, maybe you hire young people that are just energized and interested to be in and that's contagious and people wanna help those type of people as opposed to whoever they're used to. It might be that you really go to understand your customer and realize actually what they care about is

you know, looking how their house looks, right? And there's these key things like,

applying a glossy wax to their hardwood floors or it's maybe it's about speed. Maybe it's the thing that really people care about is that you're in and out of the house in 30 minutes and that's what's going to differentiate you. For every industry it's different but I promise you as you go deep and become an expert in that space you're going to see opportunities that your competition is missing and that's partially because every person's journey is different right like whoever is running these competitive firms they're different than you. They have a different perspective and so as you approach your

field with a desire to be better and to provide more value to customers, things are going to stick out to you that your competition just never thought of. So I think it's an encouraging message of any service or product can be differentiated, lean into your passions, be obsessed with your obsessed customers, and opportunities will reveal themselves to you. It doesn't need to be complicated, but it...

It is crucial that you find that thing that's going to set you apart.

Charles (: 05:43

Yeah, no, that's really, really helpful actually. Cause cause while you were talking, I thought about, I'm a contrarian naturally. I want to find issues with your argument. And I was thinking, well, a screw, right? Like a metal screw that is sold at home Depot. What differentiates them? And then you said, the relationship and I was like, that's, that's probably what it is. It's probably some salesman at that screw manufacturing company who then knows someone at home Depot who can.

work the deal, make sure it happens, and then be consistent because you and I, while we might go and go to Home Depot and buy the screw, I think the real advantage a company has is that they're at Home Depot, not that their screw is going to be significantly better than somebody else's.

Seth Jenson (: 06:21

That's a very astute point that you make that I love how you said that being at Home Depot is when you win, right? Like that is the advantage, right? And there's only so many boxes you can have and that is a relationships game. Although I'll even push back on your screw example because when you get to Home Depot, there's a lot of types of screws. There's the like the water resistant codes and whatever. They've got the star type and the Phillips type and the flat type or whatever.

Charles (: 06:28

Yeah.

Yeah, there are. That's good.

Seth Jenson (: 06:46

and again, the whole idea behind branding is establishing an identity that people relate to in a different way. Right. so you'll, you'll be shocked at, at the opportunities. I really believe there is not a single industry that isn't ripe for, for disruption.

Charles (: 07:00

can have differentiation through all these different things. Are there any other ways that you can really differentiate or have an advantage over the competition?

Seth Jenson (: 07:00

Let's see.

So yeah, in academic literature, there's kind of a few buckets. One is, if you're not really nerdy, there's something called the resource-based view. We've kind of alluded to this already, but it's having things that other people don't have and that they can't reproduce. So again, this could be IP, this could be real estate. Basically, you've just got something and they don't, and so you win. ⁓ The other thing you, yeah, exactly, exactly.

Charles (: 07:27

Yeah, copyright to Mickey Mouse.

Seth Jenson (: 07:31

And so the other thing you can do is just try to always stay ahead. Always be on the cusp of innovation. This is an exhausting way to maintain advantage. But you can always be having, having your product be a little bit faster, smarter, better than everyone, right? There's always ways to improve and you can just try to stay on top of it. To some point you have no choice of doing that a little bit, but that is not typically a sustainable way to maintain advantage. It's just trying to.

stay up with the trends and always be the first person to move and find the opportunities. So I really invite founders to go ahead.

Charles (: 07:59

So from a,

well, from a big company perspective, that makes me immediately think of like a Facebook or, or I guess it's meta or Amazon or something like that. Who's always trying to be on the cusp of innovation. They've been struggling about it recently. I know they're starting to introduce their own AIs and things like that, but they're not as up to date as a chat.

is. And so it's kind of an interesting point to say like, hey, like, you might not be able to stay on the cusp of technology at all times.

Seth Jenson (: 08:25

And in those examples, their advantage is very clear. The reason they have monopoly power is because they have network effects. So you could recreate Instagram in a day. You could hire some coders. Do you have all the features of Instagram? What you can't have is the billions of people that are already using Instagram every day, that are already used to pulling it up, right? Which is why Meta bought Instagram rather than trying to just build an Instagram.

Charles (: 08:48

and create their own.

Seth Jenson (: 08:50

Because they just bought all those users and once they had those users anybody trying to compete has to start with one user And then two user and then three so that customer base is their strategic advantage because let's be honest Facebook as a as a platform has been old and rusty for a very long time right Instagram was going to disrupt Facebook's business model so they just bought the customer base hence monopoly power hence all the legal issues they're facing right now

Charles (: 09:06

Yeah.

Interesting. Well, and that explains

too, like threads. I'm sure you've seen threads. It's kind of a desolate wasteland at this point. It was the attempt to copy Twitter. It's basically the same thing. Personally, I don't see any real issue with threads. It's just no one's on there. And there are still a few, but.

Seth Jenson (: 09:29

Right. And they had

a fighting chance because they were hoping to convert Instagram and Facebook to threads, right? They were able to use that competitive advantage they have to apply to threads. Again, jury's still out whether that they're going to be successful because you're right, there's no differentiator really.

Charles (: 09:33

convert, yeah.

They could survive at this point. I don't know, right? But from what I've seen, it hasn't been very active. Interesting.

Seth Jenson (: 09:46

Yeah. Yeah.

But I love,

Twitter is an interesting example of this because there were forums, there were blogs, there were Facebook, there were places to post sentences before Twitter came to be. So Twitter's innovation was really shortening it, making it bite-sized. That was how they differentiated themselves. And that was a valuable way that people wanted to interface with social media that unlocked Twitter's, know, you

hundreds of millions of active users, right? So that's my point of anyone can differentiate. You can be surprised where you can add value to your customers in ways that are counterintuitive or fresh or new. But the key is to not be satisfied trying to do the exact same thing everybody else is, right? I have people come and want to start a restaurant and they're like, I love Italian food. I want to start an Italian restaurant. And I'm like, great. How is your Italian restaurant going to be different?

Is it going to be more authentic? Is it going to have better ingredients? Is it going to have a better location? Something's got to be better about your Italian restaurant for it to survive and beat Olive Garden and beat Nicolo's down the street and whatever it might be. You've got to find a way to differentiate yourself or maintain advantage over your competition. Critical.

Charles (: 10:57

Well,

I liked your example of meta as well and talking about how they're trying to leverage that to create an advantage somewhere else. or they're trying to leverage their advantage to something else. Right. And I think we can do that in our businesses too, as we establish what we already have, then we can leverage that to create more. ⁓ I think oftentimes we think about PE doing this or private equity of buying multiple companies that are the same basic.

Seth Jenson (: 11:07

Mm-hmm.

Definitely.

Charles (: 11:22

a company and merging them together to kind of create a bigger advantage and more, more market power. Right. And we don't have to do that. I'm not suggesting that necessarily, but you can use what you already have to create more, more market power.

Seth Jenson (: 11:28

Yeah. Yeah.

Well, and we've mentioned Airbnb. Airbnb is currently launching a bunch of experiences, but the fundamental idea behind that experience push to be a little bit of the everything app. They're using their strategic advantages that they applied in the kind of real estate space or the hospitality space, which for them.

are all about trust with the host, being able to efficiently facilitate trust between a traveler and a host. Now they're applying that same principle and the same systems and the same thing that really makes Airbnb unique to these experiences, which helps them expand. But anyway, that's a whole nother conversation. I think you're right. Advantage, your strategic.

Charles (: 12:13

Yeah, that's cool.

Seth Jenson (: 12:16

advantage your differentiator should be core to your strategy. And if you're going to expand, that should still remain your focus and your core. You don't want to sacrifice that chasing something else. So to wrap up these last two parts of our mosaics, we've talked about margins, talked about obsessed customers, talked about systems and channels, talked about advantage and differentiating yourself.

The fifth one I call indispensable and this is just a gut check with You know is your business a fad business is your business gonna blow away with the wind? Are you providing value that people are like I need this this isn't just a walk This isn't just a nice thing to have but I really need this product in my life because the more indispensable you are the easier it is to retain customers the less likely you're gonna struggle to

maintain advantage and continue to grow. one metaphor that's commonly used is the pain point you're solving for your customers, a mosquito bite or a shark bite. Because if it's a mosquito bite, it's gonna be easy for them to just brush off the nuisance or put some cream on it. If it's a shark bite, if you're solving a shark bite for them,

they're going to stick around and they're going to pay you whatever it takes to get that shark bite resolved. ⁓ And I think that's, that speaks to this indispensable quality really, really nicely.

Charles (: 13:25

Yeah.

So what happens for a company who... well, what's been coming to my mind is the Snuggie. Which I'm sure you remember from a few... boy, maybe it's dozen years ago now. This is very much a fleeting company. I'm sure they still are around and I'm sure they make still decent money. But for a while there, you could have said they were going to make billions. How do you transition a company that's solving a mosquito bite to solving a shark bite?

Seth Jenson (: 13:38

Mm-hmm.

Yeah.

Charles (: 13:56

Is that possible?

Seth Jenson (: 13:56

So

it's funny you use that example in some sense because my wife currently owns a comfy, which is like a snuggie, but like a giant hoodie essentially. And it's one of her most prized possessions. Like you would think that a slightly more comfortable oversized hoodie would be more of a mosquito bite than a snake bite. But we are obsessed customers of this product, right? Like as soon as winter comes, even before

Charles (: 14:05

⁓ okay.

Well right now, yeah.

Seth Jenson (: 14:22

It's like, even before it's quite cold enough, that thing is out of the closet and worn almost every single day. And if we were to lose it, it would be devastating. We would buy another one instantly. you know, really, our customers...

Charles (: 14:27

you

Seth Jenson (: 14:37

are going to find value in what they find value in, right? What's indispensable to me might not be indispensable to you. And that's why you're really tailoring towards those customers that you're obsessed with.

Charles (: 14:46

my point is we're talking about like a Snuggie, which is maybe not indispensable, to me, but there are probably some people that that is indispensable too. And so for me, it's solving a mosquito bite and for others, it's solving a shark bite. And so they probably are still around in business would be my guess. And, so you can grow rapidly and huge and then shrink back down and kind of become more of a manageable company as well.

So it's not the end of the world to not be indispensable to everyone.

Seth Jenson (: 15:11

Yeah.

you can't be indispensable to everyone, Or most, I mean, there's the Googles and there's, but for most people, you're gonna find your people that are just, you are solving their life's ambitions for them, right? Again, I think about Lego, right? Is Lego indispensable? In some sense, it helps babysit our kids for hours, right? That's really useful. And now they're moving into the adult space and adults are finding

Charles (: 15:32

Hahaha

Yeah.

Seth Jenson (: 15:37

working with their hands are really enjoyable. I just bought a very expensive Lego set. I'm not gonna lie. I'm one of those guys. I guess I'm not ashamed to, yeah, you got one too. And so again, indispensable doesn't need to be you're a first responder, right? It can be Snuggies, can be Legos, it can be really good food, but.

Charles (: 15:43

That's a Lego flower, actually. Yeah.

Seth Jenson (: 15:55

What you don't wanna be is something that people don't care about or that's gonna change with the wind. you wanna, again, it kind of speaks a little bit to that advantage. You want to have something that is different and better such that people don't wanna go anywhere else for it, right? And so you can see some of these concepts mixing and supporting each other, but.

Be wary of buying a business or building a business that people go meh to, or they're like, yeah, it'd be nice, guess. Find something that people are going to be able to say, hey, I need this in my life.

Charles (: 16:27

Interesting.

So we talked about margins, obsessed customers, systems and channels, advantage, and then indispensability. What's the final piece of our mosaic?

Seth Jenson (: 16:37

This is one that's really in your wheelhouse, but it's having a clean closet. No skeletons in the closet, right? Now, you might think this only applies to acquisition businesses, but a lot of people will start filling their closets very quickly in their early zero to one stages as well.

And this can be anything from the ownership structure. It's gonna be those things that make it hard for your business to thrive and grow from a legal accounting standpoint. ownership structure is a big one. Do you own the company, right? Or have you given away ownership and control over your company? What are the terms of investment that you have? Are they gonna support your business or are they gonna crush your business? Are your books healthy and organized?

Or are there scary things hiding in the financials of your book? Are you encroaching on someone's legal territory? What's that? Yeah.

Charles (: 17:22

Yeah, I'll probably go on. I'll go on a little pet peeve that I'm sure every accountant

in the entire world will say, and I hope I'm sure you say it to your students as well, but keep business and personal separate, separate bank accounts, keep it separate. Cause these closets, they fill up so fast. If you have no idea of what things are what, and I love my entrepreneur clients. They're awesome.

But it is scary and even scary from my perspective when I open up a book and there are millions of Amazon purchases or Venmo or any of these things that we use to collect and transact money and we have no record of what they are. And I can make a good attempt at it, but if the IRS came knocking or if you're trying to sell your company, boy, there's no guarantee that

what I can guess at is going to be accurate. And it's just a terrifying thing that I see too often. And so just make sure to keep everything separate. But that's my own little clean closet rant for a second there.

Seth Jenson (: 18:21

there's a lot of nooks and crannies of a business that can accumulate this baggage, right? And these kinds of problems that the founders have just been kicking it down the road, but it festers in some sense, right? And this really speaks to the need to have really great mentors, advisors, and professional help in making these decisions if you're not experienced in them. know, hire someone like Charlie to...

Go over the books and understand, are these healthy? Are there blind spots? Are there mysteries that need solving? When you're setting up your business, don't just set up whatever your uncle built, an LLC, because he did it. Find out what the right legal entity for your business is. When you're hiring people, protect your equity. Understand the implications of giving away pieces of your company, right? Because...

These decisions will literally make or break businesses. Often companies die not because they didn't have a great product, but because they ended up sharing with founders, part of their co-founders or investors that did not end up being helpful to their business.

Hostile takeovers are real. Legal battles happen all the time over ownership or IP and things like that. So you just want to keep your books clean. You want to keep your legal clean. You want to keep your ownership structure clean. And if you don't know how to do that well, get great mentors and advisors.

Charles (: 19:21

Interesting.

Yeah.

Yeah. And I won't advise on here, accounting, specific things, cause it's going to vary depending on each person, but talk to someone. accountants can be pretty affordable, especially for like, Hey, a one-off consulting fee to make sure your books are set up right the first time. cause I've seen that a few times too, where, you get a quick books account and you're all excited. Cause you're like, now I'm organized.

And then you start sorting things and there are six different accounts for meals and you have no idea what the difference is. and they are treated differently. but I, I don't even think that's necessarily the most important thing, but I think what you can really do is you can set up your business so you can actually see what's going on in your business. And if you set it up wrong, it's impossible to tell. And then things get messy and get confusing. And then before you know it, you're just stuck in a vicious cycle of.

of not sure how your company's doing. Can you even afford to keep going? What are your margins, right? We're going to go back to margins because we don't have clear, clear books. and then on the legal front, again, I'm not going to advise legally one way or the other, but talk to a lawyer, talk to a CPA. I don't even advise my clients on,

ownership structures besides tax implications. So I usually say, Hey, look, this makes sense from a tax standpoint. Please talk to a lawyer before you make a decision. I can give you best practices, but I won't advise like this is what you should do, especially when you start talking about equity, right? And things can get really complicated really fast. If you're in a partnership, talk with a lawyer, get a partnership agreement written up. I don't care if it's your dad or your brother.

or your best friend from forever ago, you wanna get things in writing, cause it'll save a lot of headache and heartache later on. And I've just seen that too often.

Seth Jenson (: 21:16

And the other beautiful thing here, because I think you're absolutely right. You're making really key decisions. It helps to have someone in your corner. And if you're intimidated by this and you don't know what questions to ask, the internet is an awesome resource to help you know what you don't know, right? Like use AI to structure your questions. So when you approach people, sometimes you'll get your answer clean and done just by using AI and the internet.

lots of resources, YouTube, all those different things. So some of the low-hanging fruit you can just learn and know enough to be dangerous, so to speak. And then when you're making really important decisions like purchasing a business or setting up a...

Charles (: 21:40

Yeah.

Seth Jenson (: 21:50

an equity structure with a co-owner, then it usually makes sense to involve a professional in that space or rely on someone with that expertise that's in your corner. So again, feel empowered to go out and learn these things. You've got so many resources online, but then when push comes to shove, it does help to bring someone on that knows what they're doing from a professional standpoint a lot of the time. ⁓

Charles (: 22:10

Yeah. And we talked about

it earlier, in a previous podcast, but entrepreneurship really is about constant learning and growing as a person as well. And this is just another one of those things. And I am confident people can learn everything that's on that is involved in this. but sometimes it's important to realize when to outsource stuff. not always right from the get go, but, just keep that in mind. There are people that do this for a living and they can really help you.

Seth Jenson (: 22:27

100%.

Charles (: 22:32

and save you a lot of time and effort. but yeah, I agree with Seth to go to AI first, say, Hey, make a partnership agreement for me and this person I'm going into business with, then take that to a lawyer. It's going to be less expensive. It'll be faster. And you can kind of go through basic terms with them prior to even seeing a lawyer and you can say, Hey, what are we missing? What's missing or how, how is this going to mess with either of us down the road?

and use the tools we have. are so many good ones now.

Seth Jenson (: 22:58

for sure. And I love the opportunity cost is such a real thing happening in every decision you make as a business owner. So it's important to have clean closets, but you might not be the one, it might not be worth your time to do the cleaning of the closet, right? Sometimes it makes sense to hire that out just for your time. And so you can focus on other fundamentals of your business that matter more, right? And that goes with a lot of the things we talk about. So.

Charles (: 23:11

Yeah.

Seth Jenson (: 23:21

A lot of things to think about. Again, we're gonna go deep into all of these subjects and help you actually get into the weeds so that you can feel confident with each individual one. But as you're thinking about our business, we really like the Mosaic Framework, margins, obsessed customers, systems.

having an advantage over your competition, having indispensable, not a fad business, and having really clean closets. That will just help you gut check whether this is a direction you should take from zero to one or whether you're going to acquire this business.

Charles (: 23:48

Awesome.