3 Things Every Business Needs to Thrive (and will die without)

30.07.20 10:03 AM By Grant

The Guru Pitch

Every successful business is made up of only 3 components. These 3 components are pervasive throughout every industry and size of business. For small business owners, there is 100 different paths to take every day and it can get quite overwhelming. At Denali, working solely on these three components has kept us laser focused on our path to victory and has made the “dark abyss” of starting out as entrepreneurs 10X brighter. My last name isn't Cardone and I'm not a guru, but hopefully this mind-frame will help you conceptualize your business and clarify a path forward.

Here are the 3 components every company needs to thrive (and will die without). 

1. Human Labor

While all 3 of these components are as old as time, human labor is the most primary of all of them. From the building The Great Pyramids (not the kind of labor  I'm recommending) to sales jobs today, it’s evident that the “grind” is going to be one of the biggest influencers on humankind’s production. This may seem obvious, but a good workforce or work ethic will decide the success or failure of a given project. This is also why culture is so important for every company; it dictates how happy, productive, and long-lasting a company's most valuable asset will be. The effects of this "grit" and effort applies to you personally in your daily goals and the success of global economies.

On global economies, Ray Dalio cites that credit cycles wax and wane, but productivity is what drives long term growth. On a large scale, this is driven first by population growth and then multiplied by the effectiveness of technology (which aids how much productivity that population can pump out). 

Ray Dalio - How the Economic Machine Works

Source: Ray Dalio – How the economic machine works

This leads me to the second component every business needs to be successful.

2. Technology

With how pervasive and prevalent technology is today, it’s appalling how so many small business owners focus almost no energy on building their technological capabilities. In real estate, we rely a lot on capital and a lot on the humanastic “grind,” but the differentiator between the good and the “great” in real estate will be technology. With a customized CRM, we can track to the decimal places what our KPI’s are. How many offers does it take to get a deal? What’s our closing percentage? What is our biggest lead source and how do we focus on optimizing that? All these questions and more we can answer more quickly and therefore make data driven decisions on how best to grow our company.

Technology is the multiplier on your efforts and money. If you can create processes and systems that turn a 10 minute task into a 30 second task, you will be able to turn out 20X production. That’s huge. Without technologies from the screw to pulleys to the computer to API calls, our civilization would not have been able to scale to the size it is today. We’d still be walking from place to place in the woods, without grocery stores, and without a reasonable path forward to video calling Grandma Faye. If technology is such a huge value-add to our society, why don’t all business owners recognize that tech is just as essential to their businesses?

3. Capital

“You have to spend money to make money,” the saying goes. Well, you have to have money to spend money first. I’ve witnessed several entrepreneurs who have risen to greatness, not because they are great operators, but because they are great capital raisers. This is something I vastly undervalued before I raised capital for a hedge fund for a couple of years. Capital allows you to hire labor, invest in technology, and invest for returns.

If you think of the top billionaires of the world, all of them have one thing in common - they are fantastic capital raisers. Leaders like Bill Gates, Jeff Bezos, Mark Zuckerburg have started with a great idea, but would be nowhere close to where they are without raising lots of money to execute on that idea.

The 3 Components of a Successful Business Summed Up

Every successful company needs at least one of these components to live and grow. While they are all individually important, once one pillar is established, it feeds into the other two, forming a positive feedback loop of growth. Google started with good technology, not much human labor or capital. But very quickly, capital was drawn like a bug to a flame when their technology was proven. This capital allowed Google to hire programmers and therefore build more technology. Many hedge funds and private equity firms start with a large sum of capital from wealthy friends, family, and seed investors. Without the assets under management, they wouldn’t have the opportunity to hire analysts and build trading algorithms that then attract more capital. Just as having one component makes it easier to acquire the other two, I will say it is near impossible to start from ground zero on all three.

I can’t take credit for relating these three components to overall production first. It’s a well known tenant of global economics in the Solow’s production function, relating labor, tech, and capital to an economy’s total production.

How to Grow a Successful Business

Y = Total productive output

K = Capital

A = Technology

L = Labor

𝛼 = Share of output due to capital

So how do we apply this to growing small businesses? At Denali, we’ve categorized our road map to growth into these three buckets. If a given initiative doesn’t fit into these buckets, it’s not worth our time.

What do you think? Is there another big category that isn’t contained in these three? I’ve found that becoming laser-focused on these three pillars has set us on a much clearer path to victory. What do you focus on to make your “machine” work?