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Growing a business within a competitive industry can be cutthroat. Traditionally, the dominant perception has been that the most ruthless companies finish first. Profit margins were thought to be the sole decisive factor in whether a startup grows to dominate the market or fades into obscurity. But during a time when concern is increasing for environmental sustainability, the same principles are being applied to economic activity.
Corporate and domestic consumers are starting to care where their goods and services come from. How a business is run behind the scenes matters, and its origins and practices can prove pivotal for its public image. As a partner in 5D Capital, an investment firm with $50m in the pipeline, Dee Ludlow must prioritize sustainability in all his nine upcoming deals. It’s a project he manages alongside the serial entrepreneur Craig Hill and the home and kitchen business owner Michael Stewart. Ludlow has shared three key ways startup business owners can keep ethical practice at the center of their growth strategy:
Use your own capital
There are a variety of different ways to fund a scaling strategy. Commonly, businesses seek out third-party investments or loans in the hope that they can be paid back once the positive impact kicks in. But a more sustainable way to inject your startup with profitability could be to use your own money effectively first before dabbling with the dollars of others.
“A lot of people like to use other people’s money to grow their business, which is fine if you can do it,” Ludlow said. “But, if you use your capital instead, you can mitigate as much risk as possible while amplifying the upside. That way, you can progress with your strategy at a sustainable rate without doing anything too crazy.”
Bootstrapping your business could reduce risk as underperformance won’t lead to potential debts and liabilities. Its ethical value lies in the personal assumption of responsibility and reduced collateral impact. Advocates also believe steady growth rates are a knock-on benefit of self-funding.
Prepare for the bigger picture
It’s popular for business people to dedicate themselves and their team to one practice, market, or industry. Many even consider it advantageous. However, commitment can quickly turn into tunnel vision, hindering growth rather than catalyzing it. Ethical entrepreneurs are conscious of the wider world and economy when scaling their businesses.
“I know a lot of business people think they are in it for the long game and ignore global factors, but macro factors like the global economic forecast matter hugely. The best business people can identify growth opportunities that will continue during economic declines, such as in the biotech sector.”
The argument is that long-term planning isn’t truly sustainable if it centers around one product or service. Individuals, especially serial entrepreneurs, need to be able to change their operations at the drop of a hat to keep up with environmental trends.
Achieve honest profitability
People often forget the true meaning of profit. Either it is conflated with revenue, a broader figure, or is misinterpreted as a mark of poor performance.
Yet profit is a calculation, not a raw number, and must be contextualized to make any sense to interested parties. Startup heads and investors should focus on creating a meaningfully positive margin, rather than cutting corners, to operate sustainably and ethically in the market.
“Some equity investors and business leaders cut necessary costs just to make their adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) look better,” Ludlow explained. “But you should never cut back on things you need. It’s better to bring more money through the front door to increase your company’s profitability.”
This notion of honest profitability contributes to both ethics and sustainability. Presenting a true reflection of your business will make you more trustworthy and appealing to investors. Moreover, generating greater revenue is a more progressive way to scale than reducing spending, which risks compromising the integrity of your service.
Great read Dee. 5D Capital IPO in the future.