Dec 10, 2022
Episode 5: How To Turn Your Solution Into a Money Making Business
Solving a problem is one thing but how to make money doing it is a WHOLE other animal. In this episode of Build The Damn Thing, myself and others will guide you through the process of generating income and scaling UP as you build the next big thing!
Hafeezah Muhammad | You Me Healthcare
Cheryl Contee | Impact Seat
Citi Medina | Equal Space
Facebook: Kathryn Finney
Subscribe to our podcast + download each episode on Google Podcasts, Spotify, and Apple Podcasts.
Produced by Genius Guild Content Studios
Executive Producers: Kathryn Finney and Darlene Gillard Jones
Post-Production Company: Prosper Digital TV
Post-Production Manager: Joanes Prosper
Post-Production Supervisor: Jason Pierre
Post-Production Sound Editor: EJ Markland
Co-Music Supervisors: Jason Pierre and Darlene Gillard Jones
Show Music: provided by Prosper Digital TV
Main Show Theme Music: "Self Motivated" Written & Performed by Tamara Bubble
Special Thanks to CBS This Morning and The Apollo Theatre
Hafeezah Muhammed (00:00):
I started my business because in October of 2020, my son, who was six at the time, came to me and said, mommy, I feel like I wanna kill myself as a mom. I felt like a failure, but I was an executive for a large mental health company with over 2000 therapists and I couldn't find care for my son because he was on federally funded insurance. And at that moment I said, I never want another parent to go through what I did. So I went on, I went ahead and I started Umi Healthcare. I was able to turn the solution into money making business because just like most businesses or services that impact the, uh, minority communities, there's a time where they don't usually pay much attention to the services. When I talk about, I say competitors, so there was, this was a unique opportunity to be able to master a, a service which is called like Medicaid, right?
For federally funded insurance. And what most people don't know is that Medicaid reimburses a hundred percent for mental health services, um, from underprivileged children and individuals like in around the world from low income communities. And knowing that is that I was able to leverage those skill sets that I had to be able to accept that type of insurance that's federally funded so that kids can have the care that they need. And in a result in, you know, 18 months we are in, we are at like 615 in a r r and a r r is annual recurrent revenue, which is pretty in pretty interesting cuz when you think about the Medicaid, um, or federally funded insurance, most people don't realize that you can make money from that. And for me it's not usually about making money. Um, I'm a capitalist for sure, I will share that, but it's thinking about all the lives that we're saving and the lives the kids that we're helping who would not have been able to find the care that they need. And as a result for our work, that we get revenue, right? So we've been generating revenue from day one.
Kathryn Finney (02:06):
Sound of the problem is one thing, but how to make money while doing it is a whole other animal. In this episode of Build a Damn Thing, I will guide you to the process of generating income and scaling up as you build the next big thing.
So the steps that a founder needs to take to turn your solution into a money-making business is actually fairly straightforward. You have to determine how much it costs for you to actually make the product. And the cost is all cost, including labor and especially your labor. A lot of entrepreneurs just figure out, oh, this is how much it costs for the raw goods and, you know, the, the, the equipment I need, but they don't factor in their time and how much that will cost. The time of maybe, you know, friends and family who may be assisting at, you know, no, uh, charging no labor costs or, or little labor costs. And figuring all of that out into the cost for business. Um, also figuring out things like interest rates that you might have to pay in loans and figuring everything that cost you that you have to pay out in order to get your product made is a part of the cost of business.
Shark Tank has taught American founders really the sort of fundamentals of business. Um, and I think what often happens with entrepreneurs, you forget that truly a business is about creating something in which people will pay a premium for. And that's what Shark Tank has really taught America about it. Um, I think for a lot of entrepreneurs they're really running hobbies and not businesses. And so when a Shark Tank, you know, they sort of take you through the basic math of a business. Like how much does it cost for you to make it? How much are you charging for it, right? What, how many customers do you have? Um, all these sort of real basics of business. How mu how much does it cost for you to get a customer? Um, which we call customer acquisition cost, right? Or cac. Um, what is the value of that customer over the time that they're a customer for you?
So if you are, you know, a retailer, you know, is this person buying things from you every couple of months or every new season? A business is a true business is an ability to build a product that people wanna pay for and they wanna buy a premium for. In that premium is in very simple terms, the total cost it costs for you to make it plus a premium of whatever the standard premium or in business terms margins is in your particular, um, industry. So if you're in retail, it could be, you know, 40% margin. So it would be the cost for you to make the product, including labor plus an additional 40%. Some industries a 10% margin is good or 20%, but finding that benchmark for your industry is really helpful to understand what the premium should be on top of the cost to make the goods.
And Shark Tank has really brought the sort of entrepreneurial lexicon to the American public and things that we didn't know and that we didn't discuss before, and now we are. And so an each industry is different. The margins are very different in retail, the margins are very different than say, green Tech. Um, margins are very different if you're building a software business, a software as a service business. One of the reasons why software as a service was so deeply attractive, uh, for investors was because the margins were so high in the software and it was so scalable. Like the margins, the, the costs didn't necessarily increase significantly. The more, um, customers you added in. So for example, if you're building, you know, cups for example, or mugs, you know, your cost is gonna be the same whether you have per unit, whether you have one cup made or 10,000 cups.
Now granted you have a discount and there's some utility, but meaning, you know, the raw goods, the, the price is not gonna be as variable. Um, versus if you have software and you make this, you know, you do the code. Once you do the code, the code's kind of done. Um, and it can scale infinitely meaning as you scaled it larger, it didn't necessarily increase the cost to produce it. You don't have to recode programming for each new customer. So the economics of the unit is able to scale quite significantly and it made it very, very attractive because that meant that you could maintain really large margins and produce quite a bit of revenue, which we've seen, um, with some of the recent exits of software companies like Figma and Snowflake that have sold for multiple billions of dollars. And it's because their unit economics are pretty great
Hafeezah Muhammed (07:12):
In ensuring our business continue to make money. It's something that's top of mind and should be top of mind for every entrepreneur. Cuz at times you might have early success and sometimes you might not. So just being able to pivot and know when it's time to make a change. So what I'm doing on building technology for competitors, so eventually my goal is to have different competitors become my customer to be able to send them type of services. So we build, we, we design, illustrate, and write books for mental health and that can be used in treatment. So those are some ways that we're looking to utilize technology to be able to help the masses not only within, within Umi Healthcare, but also to help other therapists who are not weight Yui healthcare or other companies that service the populations that we do.
I am Hafeezah Muhammed the CEO of Youme healthcare and being able to continue to be innovative in our approach is something that's key. Every entrepreneur should make sure that they stay innovative. They're, you know, they're fearless and they're flawless. Flaws happen. Of course, I make a lot of mistakes. I shouldn't say flawless because flaws are great in entrepreneurship. Um, but just making sure you always pivot and know when it's time to pivot and know when it's time to add new products and services and to be able to fail. It's fine. Failure is great because you wouldn't know if what works if you don't fail. So that's how we look at making sure we stay profitable. Is that making sure we add the products and services Definitely by listening to our, um, our patients or customers to making sure that we have the right things for them.
Kathryn Finney (08:52):
So say you have a larger business and you're thinking about adding a new product, using the business model Canvas is a really great way to sort of operationalize whether or not this product is something you can do. We've used it many times within Genius Guild. Um, we used it recently when we were trying to figure out if we could do something around, um, the caregiving, child caregiving space in terms of like doing an incubator or something like that. We're deeply interested in investing in the space, but we're finding particularly from companies of color that there was some challenges and some additional support that was needed. And so we broke out the business model canvas to see if we could actually provide the service. And what we learned is that we could, but it was going to be really costly and time consuming and that wasn't something that we had at that moment to offer. So then we were like, okay, we can't do it. But it helped us save so much time and energy because we were able to put it into paper very quickly without a bunch of extra, you know, pages and verbiage and narrative to just look at what it is that our business is. It's a canvas of what our business, a quick overview, and I highly recommend it for those who are in business. It really helps you make decisions quite quickly.
Cheryl Contee (10:12):
I was lucky enough to found a digital agency then called Fission Strategy that provided consulting and tech services to the nonprofit sector causes and campaigns. Now, some people might say, how do you make money doing that? Well, the nonprofit sector actually consumes 800 billion a year for worse in goods and services. So it's actually a pretty big sector. So we had our little niche as we were working with, you know, many of the leading nonprofits and foundations around the country and having a foot in the world, of course in tech because that those are the services that we're providing. We could see that in the corporate sector there were tools that brought social listening, influencer engagement, marketing automation together in software suites. However, that software, those SaaS products were not really tailored to the nonprofit sector and they weren't really at a price point that, you know, many nonprofits could really afford.
I'm Cheryl Contee, chief innovation officer at the Impact seat and chair and founder at Dub Big Things Today we saw an opportunity to meet a need. So we bootstrapped internally, we, we created the product, we got some of our, uh, clients interested and loved it. But you know, we got to a point where it was clear that in order for this fledgling little, little hatchling of a, of a enterprise SAS to get bigger, we needed capital investment. And, and that's true of a lot of software products. So, and we had seen other folks in our sector, you know, peers go off and build great software companies. So we said, how hard could it be? <laugh> famous last words,
Kathryn Finney (12:06):
I find a lot of entrepreneurs think of their needs but not their customer needs. And your value proposition is here's what we do better than anyone else to help solve a particular problem for you. So, um, with the budget fashionista, my first company, our value proposition really was we were providing information on how our customers could save money and live a fabulous life. And if you, you know, are looking to live a great life and not spend a lot of money, which a lot of people are <laugh>, that's a great value proposition about why you should turn to our site and why you should use our products is that we help you live this great life without spending a lot of money. An example of that is Whole Foods whose value proposition has moved, you know, a little bit away from organic produce, vegan plant-based foods to more now community and how they're a, uh, grocery store that really focused on sustainability and sustainable food and climate and things like that, which is a, a little bit of a different value proposition than what it started with. Um, not that it wasn't a part of it, but it wasn't the one that was front and center. The interesting about a value proposition is that it doesn't have to be static. It can change as your company changes.
CBS Audio (13:27):
Low capacity bankrupted the institution. By the mid 1970s, a 1600 seat facility just couldn't compete with larger venues.
Jonelle Procope (13:36):
If you drove by, you wouldn't even know that the Apollo was alive and operating.
CBS Audio (13:41):
Janelle Procope became executive director of the Apollo after New York Media magnet. Percy Sutton failed with his grand plan to revive the theater in the early 1990s. Her partner in rebuilding former Time Warner, chairman Dick Parsons, together, they came up with the innovative idea to turn a for-profit business into a nonprofit cultural center.
Jonelle Procope (14:07):
Think about this. There is no other performing arts center in the country that focuses on the African American narrative telling our stories.
Kathryn Finney (14:20):
So the way to turn your business into a money-making solution is to find what is called product market fit. That basically means that you're building a product that the market wants and actively wants and purchases. And so finding product market fit is really like the golden rail to building successful business, whether it's a startup, whether it's a small business. Oftentimes entrepreneurs confuse the fact that there's a market for the product with the market wanting your product, right? So there's a market for amazing art out there, but that doesn't mean the market wants my like stick figure drawings, right? Like, um, there was a market for cars, uh, Ford's Model T was not the first car actually, and there was a lot of cars out there, but the market wanted the model tea <laugh> it didn't want the other cars. And so it's just really important to not confuse that. So yes, there may be a market for what it is that you're doing, but that doesn't mean that they want your version of it.
Citi Medina (15:25):
What has always been a pain point, and I think many of my founders of color will, will share this, is how do you monetize? How do you set your pricing structure and how do you abide by differentiating your pricing structure in the market, right? And in certain points you have to be very solid in your self-work, which is intrinsically woven into the fabric of how you built your business. Because every personal limitation I have had has led to a limitation in my company in some form or other.
My name is Medina. I am the proud founder of Equal Space and I am a digital advocate for equity space for people of color.
Either it was a severe gap in my team that I didn't see, or it showed itself up in a, a gap in pricing structure. So with equal space, it has always been an evolving conversation in how we monetize either in micro doses, multiple funnels, or what really is, um, coming back to the, the, the nucleus of what are we charging for and what is our service.
Kathryn Finney (16:33):
So my metric of success, and I cannot harp on this enough, is going back to the cost to make it or to provide the service plus whatever the margin is in your industry. And if you can't charge that, then it's gonna be very hard for your business to be successful. And it's very easy. A quick Google search will help you find what the average margins are for your particular industry. So if you're building a hair product company, you can quickly Google and to find out what are the margins, average margins you see in hair care products and use that plus the cost of labor and everything else to determine whether or not what your price should be. And then once you determine your price, then see if people are gonna pay it. And if people are not buying your product at the price you need to charge in order for it to be sustainable.
And again, this isn't like, you know, oh, I'm gonna overcharge people. You're basing your price based on industry standards, which is why I say look up what the traditional margins are in your industry. So your price, you have research about why you're charging the price that you are charging, right? Um, if you don't have people willing to pay it, then it's not a business. It, it just isn't. And I find with us as people of color, we, we try to make things into business. We like to say we're business people because you get like a lot of props and stuff like that, but many of us aren't because we're not charging enough. And then we also come from communities where people don't necessarily want to sometimes pay the the true cost or they don't wanna pay the true cost from people who look like them.
They're always like trying to get a hookup. Uh, I remember being at a family event and a cousin who, uh, came up to me, I was like, oh, will, where can I get one of those books? And I was like, Amazon, Barnes and Noble, <laugh>, you know, and anyone who's black understands what he was really asking, can I get a free book? And I'm like, my book is $20, dude. I know that you have a good paying job. You can buy a $20 book, you can do that. You can support me, your cousin, who's helped you in ways, um, that well more than $20. But I think sometimes as a culture we try to like get over on each other that it somehow should be free. And I'm like, but that's not how we create sustainability. Even in our own culture. We don't create sustainable economies by us taking advantage of each other. Um, and so as builders, particularly builders and particularly those form communities that are resource poor communities where everyone wants a hookup, it's very, very, very important to be able to consistently charge what it actually costs for you to do the business and scale it in order for it to be sustainable.
Citi Medina (19:30):
So in our first iteration equals they started, um, as a solution and a social impact mission to provide safe space and brave space for people of color. And when we first started it was just a popup. So it was a popup twice a week free to all to build the community safety and community trust. Because whether you're of color or not, you have to build trust with our, with our community there's a lot of trauma and a lot of, there's a lot of cloak and dagger and then there's a lot of like way too many showmen and show people up in the game. So you have to show that your sauce is real and that your formula and your recipe is true. So we started out in that and then we at a, after our first, I say three quarters, we started to activate a pricing structure that we thought was a equitable and b made sense to the numbers.
So I'm always very grateful for my co-founder, uh, Raphael because rai's our COO and really looked at, okay, what's our overhead look like? What are the margins that we need in order to eek out profit so that we have sustainable funds in case anything goes left and right? And then we set those prices and we were informed by the market in a certain capacity. But co-working is that cold transaction. That's why we say it's co-working is the transaction, it's the seat cost. The day passed the weekly pass. At one point in our world we had a night entrepreneur pass, which was for like two nights a week for those who had nine to fives and started working after five. Um, in our space we had a monthly and then we had suites. And so when we first did those things, we really did it truly by the numbers.
So, you know, in our first year we started noticing, oh, we're getting this many day passes a day, we're getting this many weekly. How do we create a more robust product? Cuz at the end of the day, it's not what you did, it's what you're doing that's going to get people to want to pay for your service and or good. So for equal space, we started doubling down on what the space felt like, how it celebrated black and brown and queer voices, the artwork on the walls, the music playing, the kind of food we brought in every week, the programming. Um, and after year one we started realizing the program was the intangible thing that we needed to start to monetize on it. So our pricing really has grown to reflect every stage of our growth, but also us knowing our formula enough to start putting dollar tags to them. And that price only goes up and we have to learn to be unafraid as founders to set a price that is worthy of us and not be dictated to our worth.
Kathryn Finney (22:15):
Again, a a business is a true business is an ability to build a product that people wanna pay for and they wanna buy a premium for. And that premium is in very simple terms, the total cost it costs for you to make it, including your salary, which is something that I see a lot of entrepreneurs forget is that they don't add in the labor costs, including their labor costs. And you would add up all the times that they buy things from you and on the amount they spend and that would be their lifetime value. And so you could then look at that versus the cost acquired a customer. And that helps you to see whether or not your business is actually bringing in people who, who pay for the cost to acquire them. But these are all really basic things that a lot of people forget when they're looking at starting a business.
So it's really, really, really, I wanna stress important for you to ask people and ask for advice. And I know that's really hard when you're talking about money, particularly in African American communities cuz we get so afraid and I don't want them to think that I'm like this or I don't want them to judge me or things like that. But you need that information, you need that information, um, to be able to know, um, how to move, um, and how to, how to set yourself up for success. Being a solo entrepreneur can get lonely at times and know one person can do every single thing In the next episode of Build a Damn Thing, you'll hear about building a team and the importance of having the right team at the right time.