Founder's Story - Million Dollar Tiny Businesses: Elaine Pofeldt's Guide to Thriving Tiny Businesses | S2: E41

Starting point is 00:00:00 Hey everyone, welcome back to Founders Story. Something that's been super on my mind the last 12 years has been around this solo business owner making over a million dollars. I have a few friends that have done it. My wife has done it. I've seen other people do it. And I think as time has gone on,

Starting point is 00:00:26 it's becoming easier and easier. And I was recently listening to someone and they were telling me about how the next billion dollar companies are going to come from one, two, three employees. That's it. So that's why we have Elaine Hofelt, because she's an author of two incredible books. One is the Million Dollar One Person Business, which I loved, and the new one, which is Tiny Business, Big Money. She's a senior contributor for Forbes. And we're going to dive into all this because I know, Elaine, you've analyzed so many different businesses and so many people in this industry. But I want to say I'm truly honored to have you today and welcome to Founders Story. Thank you so much, Daniel.

Starting point is 00:01:06 It's so great to be here. And thank you for all you do for entrepreneurship. This is an incredible show and what a gift to all the people in the audience. Oh, thank you so much. I appreciate that. You know, let's dive into this because I'm super interested in this whole concept of the tiny business in terms of employees, but these businesses generating significant revenue. So let's go back to

Starting point is 00:01:33 the reason why you became passionate about this. Sure. Well, I've been a journalist for a long time. I was a senior editor at Fortune Small Business Magazine, wrote many stories about startups. When I went freelance in 2007, I found that when I wrote stories about smaller businesses, one-person businesses, they generated a lot more interest among the public than the ones I did about startups. Many people found them more relatable because they wanted to quit their jobs, but they never saw themselves going out to Silicon Valley necessarily and raising capital and all the rest of that. So I started writing about more of these for Forbes. And then, like a lot of writers, I'm very deadline driven.

Starting point is 00:02:18 Sometimes it's hard to get the story out if I don't have to meet the deadline. And I came across these census statistics when I was writing my fifth post of the month for Forbes that showed that there were businesses that were breaking one million in revenue with no employees. They're called non-employer businesses. And when something is called non, you sort of see how somebody feels about it, the government, almost like a non-entity. But I thought they were important and there were more of them than any other business. And that was back in 2012. And I discovered the numbers were climbing every year. They reached an all-time high in 2021, the most recent year available. And it was off to the races.

Starting point is 00:03:02 What types of industries, companies are you seeing mostly in this? Because I think there might be a misconception. If you were to tell me this, I would say I think it's these type of companies. But from reading your books, it's very different. So what do you see? Well, what do you think they would be? Well, maybe you know the answer already. Assume that they're tech companies, like they're some sort of tech company.

Starting point is 00:03:29 Well, it's kind of surprising. And I think this is one of the most fascinating parts of this trend. Professional services have always been the largest number. They're up 48 percent, too, since 2012. Usually you hear don't trade time for dollars, but now what's happening is a lot of these businesses are getting very smart about using automation, contractors, even AI. They're the highest group in terms of AI usage of all the other groups. The other ones are retail is a big one. That's e-commerce, construction, wholesale trade, finance and insurance, real estate, rental and leasing.

Starting point is 00:04:13 It's amazing. And I can understand with all of the automations that have come into place. And I've seen and used a lot of these automations where you really don't need a lot of people or what many people do now is they outsource to countries where maybe, you know, it's it's i had hundreds of employees you know maybe i'm doing x amount of revenue but i have hundreds of employees i never heard many people talking about like profit and i think that's what we're seeing here is these smaller companies or these companies with less employees they're generating you know over a million dollars which is significant and i'd imagine they're taking home way more profit. And there's also way less stress for the entrepreneur.

Starting point is 00:05:10 What are you seeing? They're definitely very profit focused. They're very lifestyle focused, too. You could probably make similar income in a very successful corporate career. But at what cost? And I think a lot of the people starting these businesses are saying, you know, I want to enjoy my life. I love mountain biking. I love my wife or my husband or my kids, but I'm in an airport lounge all the time. And, you know, I'm making big money, but I don't have a life. And so people are saying, what if i redirect all of that energy that i'm giving to

Starting point is 00:05:45 this company and all my network and connections and build something for myself and that's what these million dollar one person businesses are doing some of them even work the four hour work week believe it or not because people say is that a fantasy and actually no know they actually do achieve that. I mean, who doesn't want to work four hours, right? I feel like there's this thing where we judge generations. And I was just listening to Simon Sinek was speaking about how, you know, generation, anyone in their 20s and below, it's like Gen Z and below that they want a lifestyle job. Like they don't care about getting promoted.

Starting point is 00:06:26 A lot of them don't care about owning their own business. They just want their job to fit into their lifestyle and not be too stressed, not work too much. It feels like it's almost the same thing with some people in the business side. It's the lifestyle. It fits into their life, enables them to live a great life. I don't know why we want to judge this.

Starting point is 00:06:47 Older generations, we almost want to judge this and think like, how crazy does that sound? They grew up with efficiency. I have a 14-year-old son, and every day I learn new things about how to do my work more efficiently. He learns things from me. I learn things from him. And so it doesn't make sense to them to do certain things, to commute into an office when it winds up taking three hours of your life and your life force every day when they know you can work just as well remotely. There are a lot of people now that are being forced back into the office and they had built their whole life around remote work. they know it works. Why are you forced to be in the office? It's usually because of the commercial real estate

Starting point is 00:07:28 industry or because of someone's ego, but it doesn't make any sense work-wise. A good manager can manage you from anywhere. It raises the bar for managers and maybe it's harder for the companies to find people who can handle a partially remote workforce with some that are in the office. But I think this upcoming generation of workers, they don't want to live their whole life in an office or in a car or on a train. They realize there's a lot more to life. They still need to make a living. They still want to achieve things and build things, but they don't see a need to waste their time doing things inefficiently. And so I think that's why there's conflict between older generations who really weren't

Starting point is 00:08:11 familiar with some of the ways that younger people are working. And I don't want to say it's purely generational, because I know people that are 70 that are very tech savvy, who are as tech savvy as my son. I think it's more a mindset. Yes, I'm with you on that. It's totally a mindset. And many of the experts that we've had on the show or we've spoken with that have been in AI for a long time, I would say that there's a common theme that there will be a mass job loss in the future like gigantic there's even a really well-known guy i'm not sure if you've heard but mo got that where he says there will be no jobs in the future and he was the head of business the head of ai for google so how do you how do you see this fitting into this whole one bit one person business or these successful businesses run by very,

Starting point is 00:09:05 very few people. But as AI continues to advance and really become just as good, if not better than people and can be even better than people at their job, how do you see this fitting in? We will return to our show shortly. But first, let's talk about today's sponsor, Magnesium Breakthrough by BioOptimizers. Did you know four out of five Americans don't get enough magnesium? Crucial for over 300 biochemical reactions in your body. Here are signs of magnesium deficiency, irritability, anxiety, insomnia, muscle cramps, high blood pressure, and even constipation. I know I suffer from a few of these, but many supplements don't work well because they use low quality magnesium. That's why Magnesium Breakthrough by BioOptimizers is recommended. Offering seven forms of absorbable magnesium, BioOptimizers stands

Starting point is 00:10:07 by their products with a 365-day money-back guarantee. That's insane. So make sure you visit BioOptimizers.com, B-I-O-O-P-T-I-M-I-Z-E-R-S dot com backslash Dan Robbins. That's biooptimizers.com backslash D-A-N-R-O-B-B-I-N-S for a special offer. And make sure you use the code founders, F-O-U-N-D-E-R-S, founders, and you get your 10% off. So check out biooptimizers.com to learn more. And back to the show. I think there's going to be a massive boom in one-person businesses because it's become easier than ever before to start a business. Think of all the tools that exist now that didn't exist 20 or 30 years ago. And now you have all these tech-savvy people inventing more of them. We know so much about working from anywhere.

Starting point is 00:11:04 We have so much information being exchanged. Before there was kind of a lock on information because people had to be basically under one roof to share business information. Now you could have someone, you mentioned you're in the Philippines or you were in the Philippines this morning. I could share information with someone in the Philippines very easily at almost no cost on Zoom, whereas before it was like a long distance call would cost $200. So these factors multiplied by millions of people, entrepreneurship education is no longer confined to an elite few. being done in many different ways, online courses, masterminds, free library events, all kinds of different things. But everyone will be able to start a business if they want to, and you won't need to even really know that much about technology. I just wrote a story about Seek, which is an app that was developed by someone who used low-code and no-code tools.

Starting point is 00:12:04 So imagine those low-code and no-code tools. So imagine those low-code and no-code tools. That's kind of a tongue twister. More people learn how to use them. The tools keep getting better. Then one day I just say to chat GPT, create an app that does blah, blah, blah. And I put it up on the Apple store. I don't think that's that far away because AI is getting smarter. We'll still need human intervention. As far as the jobs go, Jason Allen Scott, who's one of the million dollar one person businesses, he has a business called a podcast company where he helps people create their own podcast. He says, never have a boss, never be a boss. When you think about it, most people hate being bosses and most people hate having bosses. But what we don't

Starting point is 00:12:45 have is the safety and security of jobs in those situations where you don't have a boss and you don't have to be a boss. So I think that's going to be where our societal systems will have to change because we'll reach a tipping point where a certain number of people will not have jobs. They have no exposure to entrepreneurship or other ways of making a living. So that would lead to social unrest unless something else is put into place. And some people are talking about the universal basic income. There's a lot of ideas out there, but right now our systems are for the industrial economy. We don't have many for this new world that we're living in with digital and AI and everything else that's coming out. And eventually, we'll have political leaders in all the countries that came up with all the technology.

Starting point is 00:13:37 You know, they grew up with it and they realized how important it is to adapt everything, our school systems, our social safety net, our transportation system, everything to this new world that we're living in. I think that's the big constraint right now in almost every country that the people that are a little bit more risk averse really will not be able to start a business because they don't thrive on that kind of pressure. Only the people that are like the real high risk entrepreneurs, the people in EO and places like that can handle it. But I think it's going to become easier for people to have that cushion and do this thing. I mean, talk about the great equalizer, right? This could be the great equalizer around the world. I mean, somebody in a remote place in Africa that has Starlink can go online and learn something and start their own one-person business and maybe do a service that sells to people in the US and makes them more money that they do in one day

Starting point is 00:14:38 than they may have in an entire year. I mean, it's really an incredible equalizer that we're going through. And the fact that the technology, as long as you have the internet, you can go and get Claude 3.5, which does coding now. And you could code an app from some island somewhere. I mean, it's an amazing time. I can't imagine 5, 10, 15, 20 years from now, the same conversation, Elaine, that we're going to have then. But I'd love to learn more about the differences in your book. So I've read the first one. I've read a lot of your second one. But for people that have not, what can they

Starting point is 00:15:16 expect with your new book compared to the first? Tiny Business Big Money is the sequel to the Million Dollar One Person Business. I wrote it because as I was following these entrepreneurs, I've gotten to know them very well. Some of them I've interviewed five to seven times, if not more. And I found that some of them were adding one or two employees. And yet it would seem to be a small change, but it was really changing the business. Because now when you have contractors, it's a lot looser. If you have the wrong contractor, you just phase out using them. But if you hire somebody and you sever the relationship, that's a very formal type of thing.

Starting point is 00:15:54 You have to have a lot more compliance, et cetera. So how do you keep all the excitement and joy of the one person business when you're starting to add formal employees? And that's what I looked at. And it was fascinating because they're reinventing business from the ground up. Brian Dean, who started Backlinko, it was an SEO business. He was a copywriter that wrote an article about SEO. It was this giant article, which then turned into a course in response to popular demand. That became his million dollar business. He started to build out his team and he ran the whole thing on Notion.

Starting point is 00:16:32 And then he sold it to a publicly traded company, SEM Rush, which I thought was incredible, right? You could have this tiny business and be acquired by a publicly traded company. There's some things about wealth building in the book that I think are important. One thing is that years ago, you really couldn't sell a one person business or a tiny business with just two employees. It was almost impossible because it was just too small. But now, because they have so much more revenue potential and they're so efficient, in terms of profitability, people are rolling them up. So some people,

Starting point is 00:17:10 in addition to the income from the business are building wealth by selling their business, then they can become angel investors, invest in other businesses, which is very efficient in terms of your time, because you're not doing all the labor of the business. So it's very exciting stuff. And one thing that I did with my daughters who are math students, they're incredible with Excel and they work in my business. We looked at all the businesses in America by the industrial code and we subtracted average payroll from average revenue for all the businesses under 20 employees. And so you could see which businesses generate the most money with the fewest employees. So if you just went to one to four employees, which ones would be the biggest ones? Well, it was kind of interesting. And I'm not saying this as a recommendation because the number one in less than five employees, it was casinos. So I'm subtracting that one. But the second one was buttercreameries, which was really interesting. It's a very automated business. And I thought, wow, is this the next artisan trend, you know, somebody in Brooklyn starts a butter creamery and gives it a cool name.

Starting point is 00:18:27 There's a lot of ideas back there for people that are creative. B2B e-commerce is a big area for all the size categories from 1 to 20 employees. So I would encourage people to look at that. If you're looking for your next business idea, one thing that is a misconception, because we were talking about that earlier, is that you always have to be super innovative to create a multi-million dollar business. Sometimes you can iterate on an existing idea like B2B e-commerce. Maybe you just do it a little bit better incrementally with your processes. Maybe your marketing is just more interesting. If you're looking for a boring idea that you can build on, you'll find some businesses that you have no idea are that profitable.

Starting point is 00:19:10 And I realize that payroll is not the only cost in these businesses. For people that are very savvy about business, for instance, a buttercream rate could have a lot of electricity costs. So if you're interested in these categories, you need to look at market research reports, visit these actual businesses, do any due diligence that you would normally do. But it gives you a sense of the low employee businesses out there. It's a very exhaustive appendix. And I found it just fascinating to see who came out on top with these businesses.

Starting point is 00:19:44 Some of them are heavily populated by private equity who they know a lot about profitability. So there may be less opportunities than others, but there are a lot where as an individual, you can get involved. I really want a vegan butter creamery. Like that would be amazing because i love butter i can't really eat butter but i would love to eat butter so i'm gonna i'm gonna think about that one i mean that could be a thing i appreciate that it's it that's very interesting with the data and research that you've been doing and all the things and that's why i really enjoyed your book the ford with ver Harnish, who's always incredible. I love reading his stuff. Hats off to you for helping with that. But really amazing book. If you want to buy the book, they want to

Starting point is 00:20:31 learn more information about you. They want to read your articles. How can they do so? They can go to elainepofeld.com. The spelling is in the show notes. We're tinybusinessbigmoney.com. You can go to elainepofeld.com. There's information there. The book is on Amazon and all major, both books are on Amazon and the major online booksellers or your library. And I'm on LinkedIn, Twitter, Facebook under my full name or Instagram

Starting point is 00:21:00 under million dollar one person business. Write to me. I'm a journalist. It makes me a better journalist to know what's on your mind, what you're curious about. If you have a great story, I do write back and I love hearing from people. So I hope you'll reach out. I know that a lot of businesses or a lot of business owners that I've known, they have issues trying to raise money, trying to get capital. So they say, I can't do this because I don't have the funds or I don't have the means to get the funds. What are you seeing with these

Starting point is 00:21:31 companies? Well, one of the most encouraging trends with these companies is that access to capital is not an issue. They're mostly self-funded and women and people of color are starting one person businesses at a faster rate than the general population. So I think we're going to see a lot more people owning businesses with million dollar revenue from demographics that historically have been kept out of business building by lack of access to capital. Well, Lane, this has been great yeah i've been following you for many years love the books i think it's such a an interesting topic we were talking before around like when will the one person billion dollar valuation come maybe within the next 365 days somebody will have that with what's going on and i love this this. And I think a lot of the

Starting point is 00:22:26 inspiration is going to come from them reading your book because you're putting all this data and research. You're doing so much of the work that it's really impacting a lot of people. So hats off to you. Thank you for that. I hope everyone checks out the book. And I can't wait to have you on, Elaine. I want to find out in six months from now, I'd love to understand what is the data then? Like what trends are changing? Where are you seeing things? So I hope you come back again. I hope everyone checks out your book.

Starting point is 00:22:53 But thank you for joining us today, Elaine. Thank you so much, Daniel. What a pleasure. Thank you for tuning in to Founders Story. Keep exploring, keep dreaming, and join us next time for more inspiring entrepreneurial journeys.

Founder's Story - Million Dollar Tiny Businesses: Elaine Pofeldt's Guide to Thriving Tiny Businesses | S2: E41

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