The Optimizing for Happiness Business Plan

There are a couple of things that most of us have in common in the week between Christmas and New Years:

  • We spend time with family
  • We eat a lot of leftovers
  • We create our New Years resolution list

We love our New Years resolutions because they give us hope for the upcoming year.  This year is a little different for me, because my new year started on October 24th.  That was the day that I became a full-time business owner and my life changed dramatically (it also happened to be my birthday).

I spent the months leading up to the big day putting a lot of thought into what I wanted my company, Red Monocle, to be like.  This is something that I don’t see a lot of other startup founders doing – we tend to jump right into writing code or marketing.  We don’t take the time to establish a couple of basic principles to base the rest of our decisions on.  I think this is a mistake, because you’re much more likely to be happy with where your company ends up in ten years if you know what kind of company will make you happy.

Starting a company is hard.  There are a lot of decisions with far-reaching consequences that you have to make with very little information.  Rather than looking at short-term goals, I focus on a long term goal: optimizing for happiness.  When I need to make a decision I think about the possible consequences of my options years down the line, and chose the option that I think will be happier with.

Below are a few examples of the decisions that I made using this principle, and the consequences to Red Monocle and to my day-to-day life.

Pricing

Pricing a product is one of the most critical and impactful things that a startup founder does, particularly for SaaS companies.  If you set a low price point then need to make sure the cost of acquiring each customer is very low.  You can’t spend your day cold-calling leads if you’ll get $10 a month from them.  But you can if you’ll get $10,000 a month from acquiring a customer.

I chose a low price point for Red Monocle’s products.  The biggest reason was so that I couldn’t do a lot of hand-holding in sales, something that I knew I wouldn’t enjoy.  Another thing I like about low pricing is that I need a large number of customers instead of a small number, which means that if a single customer outgrows my product that’s ok, I’ll lose 2% of my monthly revenue, not 40%.

A low price point means that I spend a large portion of my days on inbound marketing.  I try to create useful content here on the Software Smitten blog and in other places, so people I’ve helped will think of Red Monocle the next time they need a Help tool.

Low pricing has consequences for the product, too.  New customers have to be setup automatically, and the cost to service a customer has to be comfortably lower than the revenue the customer provides.  This puts a ceiling on the product complexity.  Joel York over at the Chaotic Flow blog has an excellent article that explains this more.

Company size

It might seem silly to think about company size when you’re first starting out as a single founder.  But you’ll make different decisions now if you know you want a large company versus a small one.  For example, a large company requires rapid growth, and you’ll likely need to take investment to hire a lot of people.  A small company can grow at a comfortable rate, adding people when revenue can naturally support it.

I envision myself working with a small group of passionate people at Red Monocle in 10 years.  If I wanted to work with a large group than I would need to plan for much more rapid growth.  Rapid growth means that I would be looking for investors right now, and tweaking the rest of my business plan to attract attention.  Instead, I’m working on my product and trying to produce useful marketing content.

Exit Strategy

A mentor of mine told me that every company needs an exit strategy, and you have three options: get bought, go public, or die.  Because my motivation for starting a company was to build products that I would be proud of, this was an easy choice: I’ll have Red Monocle as long as it makes me happy.

Of course, this decision has impacts on the business plan as well.  Going public usually means that you need to build products that the public understand, so you typically don’t want to enter too small of a niche market.  Getting bought means that you typically worry more about getting lots of users and press coverage rather than profitability.

Deciding to have Red Monocle long term gives me the freedom to make decisions based on what I would like to do with my day.

Optimizing for happiness when making decisions enables us be in control over our own destiny, rather than chance.  This year, as you start your business, big project or resolutions list, consider ways that you can regain control over your own happiness.