The following article is the third part of a new American Averagist series called “Reality Check.” It may seem odd that a newsletter and book project dedicated to the great things small business owners are doing in Middle America starts off with depressing topics like sickness, addiction, and insanity, but there is a method to the madness. Everyone who aspires to own and operate a small business should know that the journey from startup to stability is extremely difficult. Only then can they decide whether they truly have what it takes to succeed. So, before we jump into all the great averagists’ stories, let’s consider a few facts about what starting a business is really like. Knowing there are hard times ahead, and the secrets to overcoming them, will make our averagists’ accomplishments even more impressive.
I am a big fan of Steve Jobs but he may be responsible for more personal financial disasters than almost any business visionary over the last quarter century.
Okay, I know that’s a little extreme, but hear me out. During an entrepreneurial career that spanned more than three decades, he produced some of the most memorable observations about business and innovation ever recorded.[i] There’s one quote though that has often caused problems for aspiring entrepreneurs. While introducing Apple’s Think Different advertising campaign in 1997, Steve said that “Those who think they are crazy enough to change the world are the ones who do.” It’s easy to read this and think, “Right on Steve, you get me!” Innovation requires atypical thinking, and to some, this may appear “crazy” when compared to conventional wisdom. But some have taken the concept too far. The cycle of developing a startup begins with the crazy but must evolve into the rational before any money starts to flow. It requires a person to follow a psychological process that’s shaped like a figure eight. On one side of the loop is rationality. On the opposite side is the craziness of innovation and creativity. The middle is where the two sides balance out.
Being the complex creatures we are, our brains are constantly processing information and emotions, so that at any given time, a person might find themselves doing cognitive loops around the figure-eight as fast as our neurons and receptors can fire. If an entrepreneur is lucky, his thought cycle is in sync with whatever problem he’s facing at that moment. If not, and he’s stuck on the wrong side of the loop and problems can start to accumulate. This is where passion comes into play. Passion can keep you focused but it can be a double-edged sword.
Having passion for a business can blind a person to the irrationality of their idea. Just because someone thinks there is a huge market for imported bat dung from Central America doesn’t make it so. And even though there may be one or two other bat-dung-loving customers somewhere in the United States, building a sustainable business on such a thin market is financially impossible.[ii] Irrationally passionate entrepreneurs can’t see that, and their blindness leads them to obsessive behavior that clouds judgement and, in some cases, can even take on the form of a psychological disorder. But because people like Steve Jobs talk about the value and importance of crazy thinking in business, entrepreneurs who have really stupid ideas disregard valid criticism of those ideas. They blame their inability to find customers or investors on other’s inability to recognize their crazy innovation. So, they keep pounding away, repeating the same cycle of failure, trying to produce a product or service that no one wants or needs, not realizing they are living up to Albert Einstein’s definition of true insanity; doing the same thing over and over again expecting different results each time.
John Gartner is a clinical psychologist at Johns Hopkins School of Medical School and writes about this in his book, The Hypomanic Edge: The Link Between Craziness and Success in America. According to Gartner, “Hypomanic [entrepreneurs] are not crazy, but ‘normal’ is not the first word that comes to mind when describing them. [They] live on the edge between normal and abnormal.”[iii] This may be the kind of crazy Steve Jobs was talking about, but it’s not the best way to think when starting a business.
Sooner or later, crazy ideas must connect with real customers. That’s why many founders make terrible CEOs once a company hits its growth stage. They spend too much time thinking about their next idea and neglect critical details in the day-to-day operation of their business. They are always thinking about the next thing, and instead of traveling in productive figure eight thought cycles, they get stuck on the crazy side and spin in circles.
Starting a business, running a business, and growing a business requires an individual to assume multiple personalities. The decision to start must be based on crazy passion but balanced with a rational analysis of the opportunity. As things move forward, a certain amount of analytical thought must drive basic business decisions. The crazy part, what I consider the fun part, starts at conceptualization and returns during growth. That’s when innovative thinking can and should be a priority. But basing any financial decision on incomplete thoughts or irrational dreams is likely to produce outcomes that truly stink.
Averagists don’t dream big, they think big. If they happen to fulfill Steve Jobs’ prophecy and create something that truly changes the world, they are more than happy to see where that goes. But changing that isn’t high on their priority list. Their ideal job is built around their life rather than their life around their job. Most aren’t even interested in getting rich. They simply want to earn a decent living. The exact definition of what that means varies, but according to one study conducted by researchers at Princeton University, $75,000 a year seems to be the sweet spot for a happy life in most of Middle America.[iv] Many of the small-town entrepreneurs I know started their businesses so they can live where they want, work with people they like, and do something meaningful for the people around them. They think of their customers as friends, or at least know them as familiar faces. There is a reason why this type of connection is so important. Knowing and recognizing your customers makes doing business an exercise in humanity. Rural entrepreneurs seem to know this better than most.
Amy Mclaughlin and Sean Means opened Lafayette Flats in Fayetteville, WV.
Amy Mclaughlin and Sean Means own a vacation rental business in Fayetteville, West Virginia. With a population of just 2,900 people, Fayetteville has been listed as one of the “Top 10 Coolest Small Towns in America.” Adjacent to the New River Gorge, it’s a popular destination for people looking to experience whitewater rafting, rock climbing, hiking, and mountain biking. Twenty-two percent of the entire population of the United States lives within a day’s drive from Fayetteville, and many who visit see it as an unspoiled example of what an adventure destination should be; small, quaint, and uncrowded. But that’s changing. In 2021, 77,000 acres around the gorge was designated as the New River Gorge National Park and Preserve. Whenever an area achieves National Park status, interest spikes. Now, Fayetteville is receiving international attention by both travelers and major publications like Conde Nast’s Traveler, the Washington Post, Outside Magazine, and dozens of travel blogs.
Amy and Sean live just an hour away and have been regular visitors to the area for most of their lives. In 2013, instead of travelling out west, they decided to rent an apartment in Fayetteville for the entire season and truly become part of the community. As they looked for options in a very scant property market, they found an old building situated on a picturesque square directly across from the county courthouse. It was for sale. Originally built in 1906 by Italian immigrants, the outside was beautiful stonework, but inside it was a wreck. Sean had been the executive director of Habitat for Humanity in West Virginia for over twenty-years, and he recognized the building’s potential. After some intense planning they used a portfolio-based loan from their retirement accounts to help secure a bank loan. They bought the building, gutted it, and turned it into four high-end loft apartments tailored for out-of-town guests willing to pay for an upscale place to stay as they explored the park. They called it Lafayette Flats.
Their business has grown dramatically over the years, and a large part of that success has come from repeat customers. In fact, having a loyal customer base saved them when the COVID pandemic crushed an entire season’s worth of reservations. Sean recalls that it was hard not to panic. “It was the scariest day of our lives. When the stay-at-home orders started coming out, we had numerous bookings for the spring and summer and every one of them cancelled over a period of two or three days. When someone books a flat, we get their money, so we had to refund all that money. It was really scary.”
Over the years, Amy used blog posts, social media, and a carefully curated email list to establish a constant line of communication with every customer who stayed at their place. “One of the things that really helped us during that time was [when] repeat guests started coming back. They knew the space, they trusted us, they knew we were clean freaks, and we were communicating with them, telling them what we were doing. We were having those kind of email conversations with our guests. Through that, we learned that it was important to communicate and establish those types of relationships. By the end of the summer we had fully recovered.”
As Amy and Sean’s experience demonstrates, businesses in rural areas or small towns depend on inspiring repeat customers who are loyal and passionate, not just for the product or service, but for the business itself. Most of the time, businesses like theirs only survive if their customer base comes from outside the town. Today’s technology allows people to build those kinds of relationships. In the past that wasn’t possible. Now it is. Relying exclusively on locals simply won’t work. It’s not enough for a rabid coffee fan like me to say, “Well, my small town doesn’t have a cool coffee shop like some of the larger towns. I bet if I start one here, people will come.” That may be true, and customers may indeed show-up and spend their hard-earned money. But if the entire daily customer base is just a few dozen people, averagists realize long before opening the doors they may be setting themselves up for failure. This is hard for people who are dedicated to their hometowns and communities to admit, but ignoring basic economic facts is a recipe for disaster. Another real-life example demonstrates this well.
I was once working with a young woman I’ll call Janice. Janice wanted to start a bakery in a small town that has a population of less than 1000 people. She wanted to go all-in, open a storefront on main street, and specialize exclusively in gourmet cupcakes. She had just returned from Denver, Colorado, where she saw a similar shop that was doing very well. She believed she could do the same. Her mother agreed. Both truly believed Janice could make it as a cupcake artist and baker.
Most parents and family members are great enablers. That wasn’t my job. I was there to walk Janice through the process of making a sound business decision. But I didn’t want to completely crush her dream before she began to see the underlying problems with her thinking. So, we first agreed to assume that not everyone likes cupcakes, and at best, only half of the town’s population would ever consider buying one (which was still overly optimistic). That meant her potential market was no more than 500 locals who might be motivated to drive to her shop and buy something on a regular basis. If she was able to convert six percent of the potential market into paying customers (six percent is the average market penetration for a successful consumer product), at most, she’d have thirty people walking through her door to buy a cupcake, most likely on an intermittent basis. Even if she charged a premium price, thirty customers would never be enough to even pay her rent.
There was absolutely no way the market would support Janice’s store. Demand for her product would simply be too small and selling online wasn’t an option. After considering the numbers, she realized that her business would probably fail within a matter of weeks and shelved the idea.
Janice behaved in a thoughtful way and began looking for an alternative business idea.[v] I’m not sure what Steve Jobs would have said to her but telling her to keep pursuing her crazy dream would have been the wrong answer. Maybe he would’ve just patted her on the back and told her to find something else she’s passionate about. That’s not that crazy, but it is averagist.
[i] Most of Steve Jobs’ best quotes were in his internal emails, keynote speeches, or graduation addresses.
[ii] The internet adds a component to the “potential market” calculation that causes all sorts of problems.
[iii] Gartner, John, The Hypomanic Edge, Simon & Schuster, 2005, p. 2
[iv] https://www.health.com/money/how-much-money-do-you-need-to-be-happy
[v] https://gocardless.com/en-us/guides/posts/market-penetration/#:~:text=The%20average%20rate%20of%20market,between%2010%25%20and%2040%25.
