As a business mentor, I often work with clients who left a company where they were top performers, believing they could run a business even better than their former employer. So, they struck out on their own, confident that their skills and reputation would set them up for success. But once they launched, they hit an unexpected roadblock; despite their expertise, they struggled to get prospects to buy. Sound familiar? The issue isn’t their ability or work ethic; it’s that they overlooked a crucial dynamic of sales known as the certainty scale.

As a business owner in the oil and gas investment space, I’ve had the privilege of educating investors in this asset class while also participating in several drilling programs myself. One particularly interesting aspect of the oil and gas industry is the frequency of sales pitches I receive from oil and gas exploration and production (E&P) companies. On any given week, I receive several cold calls from salespeople trying to convince me to invest in their drilling programs.

These pitches are often for high-ticket investments, with significant lead times before returns are realized, not to mention the high degree of failure inherent in oil and gas drilling ventures. Listening to these pitches has, over time, sharpened my ability to distinguish between those that resonate and those that fall flat. While my gut reaction often told me which pitch was better, I struggled to articulate the reasons why. That changed when I read Jordan Belfort’s The Way of the Wolf and was introduced to the “certainty scale.”

In his book, Belfort says that all sales are the same in that the prospect needs to feel relatively certain that if they buy, there is a good chance of success. You can think about certainty as a continuum from zero to ten. On one end of the certainty continuum is “not certain at all,” zero, and on the other, completely certain, ten. He added that the certainty continuum has three dimensions. They have to feel certain that:

1. The solution you are offering will solve the problem.
2. They can trust you as the salesperson.
3. Your company is reputable and can deliver the solution.

As a dyslexic who sees things spatially, the three dimensions of Belfort’s certainty scale formed the concept of a triangle in my mind. This triangle became a light bulb moment that illuminated the concept for me. Each side of the triangle represented a key dimension of persuasion: certainty in the product or service solving the problem, trust in the salesperson as an expert and reliable guide, and belief in the company’s ability to deliver on its promises. The area of the triangle symbolizes the total certainty the prospect feels, and to close the sale, the value needs to meet or exceed the prospect’s “action threshold.” The action threshold is the point at which a prospect feels certain enough to take action and commit to the purchase.

For example, an equilateral triangle with sides of 10 centimeters would have an area of 43.3 square centimeters. Let’s say that the prospect’s action threshold is 25 square centimeters. When all three sides of the triangle represent complete certainty as denoted by all 10s, the area we computed was 43.3 square centimeters, which far exceeds the required action threshold for our fictitious prospect at 25 square centimeters.

However, if just one side—the company, for example—was weaker, reduced to 5 while the other two sides remained at 10, the triangle’s area would shrink drastically to just 24.21 square centimeters, below the action threshold of 25. This highlights how a disproportionate weakness in one area significantly reduces total certainty, even if the other two dimensions remain strong.

On the other hand, if all three sides were slightly shorter but balanced at 8 centimeters each, the area would be 27.71 square centimeters, still above the action threshold. Interestingly, reducing each side by 2 centimeters (a total of 6 off a perfect score) still maintains enough certainty to close the sale. But when just one side is reduced by 5 centimeters—less than the 6 centimeters total reduction in the balanced scenario—the area is cut in half. This shows how critical it is to strive for balance and avoid disproportionate weaknesses in any one area. A single weak side destabilizes the triangle and prevents it from reaching the necessary area to support the prospect’s buying decision.

In my mind, the action threshold is like a target area the triangle must achieve. The stronger and more balanced the sides are, the larger the area becomes, and the closer the prospect is to feeling certain enough to take action. This visualization taught me that success in sales doesn’t come from perfection in one or two areas, but from ensuring that all three dimensions are consistently strong.

Often, when someone leaves an established company to start their own business, their new company lacks a track record. Their previous employer had a recognized brand and customer reviews that prospects could rely on to feel a level of certainty in the company. Even if the new business offers the same service—possibly with a better value proposition—and the owner has built trust with the prospect, the missing piece is often the company’s credibility. This uncertainty is a major reason why many startups struggle. The key takeaway? To succeed, you must strengthen all three sides of the certainty triangle. Let’s review what it takes to keep each side strong.

Building Certainty in Your Solution

One of the sides that makes up the certainty triangle is the prospect’s level of certainty as to the ability of your product or service to solve their problem. If this side of the triangle is weak, it doesn’t matter how strong the other two sides are. Trust in you as the salesperson and in your company’s ability to deliver won’t matter if the prospect doubts the product itself. So, how do we strengthen this side of the triangle and expand the area to reach the action threshold?

Identifying the Pain Points

It all starts with the problem. People buy solutions, not products or services. Your first job is to uncover what’s bothering your prospect and paint a clear picture of the pain they’re experiencing. For example, a small business owner drowning in bookkeeping errors or a commuter constantly repairing an unreliable car is already primed to seek relief. This is where you position your product or service as the solution: the intuitive accounting software that turns chaos into clarity or the dependable vehicle that turns frustration into freedom.

Here’s the key: the more specific you can get with the pain points, the sharper your positioning becomes. If you can show the prospect you understand their struggle better than anyone else, you’ve started extending that critical side of the solution triangle.

Showing How It Will Change Their Life

Once the pain is clear, it’s time to show the payoff. What does life look like after they use your product or service? This is where benefit-focused language comes in.

Instead of just saying, “This software will reduce errors,” say, “This will save you countless hours every week and allow you to focus on growing your business.” Instead of, “This car is reliable,” say, “Just imagine the peace of mind of never again having to worry about breaking down on your way to work.”

The key is to make them picture their future selves living a better, easier life—because of your offering. This is how you keep growing the product side of the triangle.

Providing Evidence and Sharing Stories

Let’s face it: anyone can claim their product or service will solve a problem. What sets you apart is the evidence you provide. Think social proof such as testimonials, case studies, and cold, hard data as the “Miracle-Gro” you add to the triangle’s side to increase the prospect’s certainty.

For instance, if you’re selling an app, show real user reviews about how it saved time and reduced stress. Share reliability stats or highlight warranty coverage if you’re selling a car. Better yet, tell relatable stories: “One of my clients was in the same situation as you, constantly stuck in traffic with their old car breaking down. They switched to this crossover SUV and told me it’s the best decision they’ve ever made.”

Stories build emotional connections, while data builds logical confidence. Together, they can grow the product or service side of the triangle faster than either could alone.

Creating Urgency/Scarcity

Even if the prospect believes in your product, they might hesitate. That’s where urgency and scarcity come in. Limited availability, time-sensitive discounts, or exclusive deals help motivate action.

For example, “This rebate ends Friday: act now to save $2,000” or “We only have a few open slots left for this tax season.” Urgency isn’t about pushing; it’s about reminding them that their pain will persist if they delay.

Factors That Affect a Solution’s Certainty

Let’s be real: price is always part of the equation. High-ticket items—like luxury cars or premium consulting services—demand more proof to justify the cost. For these, you need to work harder, such as providing detailed ROI breakdowns, warranties, or guarantees. Lower-priced offerings face less resistance but still require reassurance about quality or value. For these, customer reviews or short demos often suffice.

The more complex or innovative your product or service is, the greater the perceived risk. A reusable water bottle is low-risk and easy to understand. But a cutting-edge AI-driven marketing platform? That’s another story. Here, you’ll need product demos, free trials, and guarantees to help the prospect feel confident enough with your solution to move forward.

Finally, if your product or service is new, it may attract attention, but it may also arouse skepticism. A revolutionary new electric vehicle or AI tool might excite your prospect but requires extra validation through success stories, real-world applications, or FAQs.

To strengthen the product side of the triangle, your focus should always be on understanding the pain, showing the transformation, backing it up with proof, and creating urgency. Remember, the action threshold isn’t just about the product or service being “good enough”; it’s about building enough certainty to make it irresistible. And when you strengthen this side of the triangle, you’re one step closer to closing the deal.

Building Certainty in the Salesperson

The second side of the triangle is the prospect’s certainty in you as the salesperson. Even with a great product and a strong company backing it, the sale won’t happen if the prospect doesn’t trust you. The goal is to build their certainty in you as a capable guide so that they feel comfortable relying on your judgment and allow you to take control of the sales process while reassuring them that they’re in good hands.

So, how do we strengthen this side of the triangle and expand the area to reach the action threshold?

Sharpness: Demonstrating Mental Acuity

Being sharp means presenting yourself as intelligent, quick-thinking, and fully engaged. A sharp salesperson listens carefully, responds thoughtfully, and tailors their communication to the prospect’s specific needs.

For example, if a prospect mentions a competitor, acknowledge it and highlight why your solution is better: “That’s a great point. Compared to their offering, we provide X benefit, which I believe aligns more closely with your goals.” These kinds of tailored, insightful responses demonstrate that you’re not only knowledgeable but also attuned to their concerns. This sharpness builds trust, encouraging the prospect to see you as someone they can rely on to guide them.

Enthusiasm: Showing Genuine Passion

Enthusiasm is contagious and demonstrates that you genuinely care about solving the prospect’s problem. Your tone, energy, and body language should reflect excitement and belief in what you’re offering.

For example, when introducing your solution, don’t just share facts, share your passion: “I’m really excited about this because I’ve seen how transformative it can be for businesses like yours.” Enthusiasm reassures the prospect that you’re invested in their success, which makes it easier for them to trust your judgment and follow your lead.

Empathy: Understanding Their Needs

Empathy begins with active listening and a genuine understanding of their challenges. When you acknowledge their pain points, you demonstrate that you prioritize their needs over your pitch.

For instance, if a business owner expresses frustration with inefficient systems, respond with, “I completely understand how that could make running your business more stressful. Let’s explore how we can simplify things for you.” Empathy creates a connection, which allows the prospect to feel understood and more willing to defer to your expertise as a trusted guide.

Authority: Positioning Yourself as an Expert

Authority establishes trust by proving that you know what you’re doing. Share relevant credentials, industry knowledge, or success stories demonstrating your expertise.

For example, you might say: “I’ve worked with several clients in your industry who faced similar challenges, and we were able to streamline their operations by 40%. I’m confident we can achieve similar results for you.” By positioning yourself as an authority, you help the prospect feel comfortable relinquishing control of the decision-making process because they trust your expertise.

Consistency: Following Through on Promises

Trust isn’t built on words alone; it’s earned through action. If you promise to send a follow-up email or deliver a proposal by a certain time, follow through without fail.

For example, if you say, “I’ll send you a detailed proposal by Friday at noon,” ensure it arrives on Friday as promised. You reinforce their certainty that you are the real deal whenever you deliver on your word. This reliability reassures them that they’re working with someone who will guide them competently through the process.

Factors That Affect a Prospect’s Certainty in You

You position yourself as the ideal guide when you combine sharpness, enthusiasm, empathy, authority, and consistency. And here’s the key: once the prospect feels certain in your ability to lead, they’ll be more willing to let you take control of the sales process.

Think of it this way: if the prospect trusts that you understand their needs, are passionate about helping them, and have the expertise to deliver results, they’ll feel safe deferring to your judgment. This allows you to steer the conversation, overcome objections, and confidently guide them toward the best decision.

However, to truly control the sales process, you need to balance empathy, enthusiasm, and authority. Too much empathy without authority might make you seem unqualified, while authority without empathy or enthusiasm could make you seem pushy or disconnected.

When these elements are in balance, you not only strengthen the salesperson’s side of the triangle but also ensure the prospect feels secure enough to follow your lead.

Building the prospect’s certainty in you as a salesperson is not just about trust; it’s about positioning yourself as the guide they can rely on. When they believe in your sharpness, passion, empathy, and expertise, they’ll feel comfortable deferring to your judgment. This is how you take control of the sales process and move one step closer to reaching the action threshold.

Building Certainty in the Company

The third side of the triangle represents the prospect’s certainty in your company to deliver. Even if the product is excellent and the salesperson is trustworthy, the triangle won’t grow large enough to reach the action threshold if the prospect doubts the organization behind it. As I shared earlier, this is why many new businesses fail to gain traction. So, how do we strengthen this side of the triangle and expand the area to reach the action threshold?

Leverage Testimonials and Case Studies

Think of testimonials and success stories as the building blocks that expand the company side of the triangle. Real examples of satisfied customers show that your organization delivers consistent results.

For instance, if your company offers marketing services, share a case study about a client whose sales increased by 50% after implementing your strategies. Or, if you’re in tech, showcase a client who cut their operational costs by 30% using your software. These stories help prospects visualize your company’s ability to solve problems like theirs.

Demonstrate Longevity and Stability

A company with a strong history is easier to trust. If your organization has years of experience, highlight that longevity and share milestones that demonstrate stability. For example: “We’ve been helping businesses like yours for over a decade, with more than 5,000 successful projects completed.”

If you’re a newer company, focus on the strength of your team, innovative solutions, and your vision for growth. For example: “While we’re a newer company, our leadership team has over 20 years of combined experience, and we’re dedicated to setting a new standard in this industry.” Transparency about your goals and strategies can reassure prospects that your company is solid and capable, adding weight to this side of the triangle.

Showcase Accreditations and Partnerships

Accreditations, certifications, and partnerships strengthen the prospect’s certainty that your company can deliver. A tech company certified by a recognized standards organization or a service provider partnered with a leading brand instantly builds credibility.

For example, if your company is ISO-certified, mention how it ensures quality and reliability. Or, if you’ve partnered with a respected industry leader, emphasize how that partnership validates your expertise and capabilities. These affiliations show that your company meets high standards, giving the prospect tangible reasons to trust you.

Word of Mouth and Reputation

Word of mouth is one of the most powerful tools for growing the company side of the triangle. Positive reviews, customer referrals, and endorsements from reputable sources act as proof points that your organization delivers on its promises.

Encourage satisfied customers to share their experiences through testimonials, online reviews, or referrals. For example, a glowing review on a trusted platform such as Google or Yelp or a recommendation from an industry influencer can significantly bolster a prospect’s certainty in your company. The more third-party validation you can provide, the more secure this side of the triangle becomes.

Transparency and Support

Transparency is the cornerstone of trust. Prospects want to know that your company operates with integrity and will stand by its commitments.

Be clear about your processes, policies, and customer support. For example, offering detailed service agreements, clear guarantees, or accessible support channels shows accountability. Statements such as “We offer a 100% satisfaction guarantee” or “Our customer support team is available 24/7 to help with any questions” provide reassurance that your company will be there for them every step of the way.

Whether through testimonials, accreditations, a strong reputation, or transparency, the goal is to make the company side of the triangle as strong as possible. When prospects believe in your company’s ability to deliver, they’ll feel confident that the organization supporting the product and salesperson is just as reliable.

Conclusion: Strengthening the Triangle to Close the Sale

In the high-stakes world of oil and gas investments—or any industry where trust and certainty are paramount—success hinges on your ability to strengthen all three sides of the triangle: certainty in the product, certainty in the salesperson’s ability as a guide, and certainty in the company’s ability to deliver. If even one side is disproportionately weak, the total confidence won’t surpass the action threshold, and the prospect won’t move forward.

The key takeaway is balance. A stellar product won’t close the deal if the prospect doesn’t trust you as a guide. Likewise, even the most trustworthy salesperson can’t sell for a company that seems incapable of delivering on its promises. But when all three sides of the triangle are strong and balanced, the total certainty grows, tipping the scales and guiding the prospect to a “yes.”

This framework has reshaped the way I approach not only the evaluation of pitches but also their crafting. By visualizing the triangle and focusing on building certainty in each dimension, you can create a compelling, trust-driven sales process that consistently meets and exceeds the prospect’s action threshold. Whether you’re presenting a high-ticket investment opportunity or a more modest offering, the principles remain the same: strengthen every side of the triangle, and you’ll build a foundation strong enough to close the deal.

How are you creating certainty in your prospect in your solution, as their guide, and that your company will deliver? 

The post The Three Certainties That Make or Break Any Sale first appeared on SteveBizBlog.

For years, I’ve been using a method to explore and understand new business-related topics in the ever-evolving world of small businesses. It wasn’t until recently that I discovered this approach had a name: the Feynman Technique. Whenever I encountered an interesting principle in a business book or article, one that I felt could deepen my knowledge and improve my ability to advise my small business clients, I would write a blog post about it. Writing wasn’t just a way of sharing information; it was a deliberate exercise in thinking through an idea so thoroughly that I could explain it with total clarity.

The act of writing or teaching forces your brain to organize and articulate what you know. In doing so, it exposes any weak points in your understanding. As I wrote about a new topic or a topic that was not well covered, I would often stumble over a detail or contradict myself, realizing that my grasp of the concept wasn’t as solid as I thought. These moments of uncertainty were invaluable; they drove me to go deeper, seek additional sources, and refine my understanding until I could confidently explain the topic in the simplest terms. Each time I went through this process, I didn’t just improve my ability to communicate; I transformed my own comprehension and ability to recall that information when I needed it most, such as during a mentoring session.

The Feynman Technique, named after the brilliant physicist Richard Feynman, is deceptively simple: if you can’t explain something clearly, you don’t truly understand it. By breaking down a concept into its simplest terms—imagine explaining it to someone with no prior knowledge—you force yourself to confront your own gaps in understanding. Maybe you get stuck on a key detail or rely on jargon without fully grasping its meaning. These are signs that you need to go back, dig deeper, and clarify your own thinking.

This technique isn’t just an academic exercise; it’s a practical, hands-on approach to mastering knowledge. Think about the last time you tried to explain your pricing model, your marketing strategy, or your cash flow to someone unfamiliar with your industry. Did your explanation flow effortlessly, or did you struggle to connect the dots? When you truly understand something, you don’t just memorize facts; you grasp the underlying logic, making it second nature to explain.

This approach has fundamentally shaped the way I advise my clients. Let’s take cash flow management as an example. Instead of using financial jargon, I often use a simple analogy: cash flow is like a bathtub, with water flowing in from the faucet (revenue) and running out through the drain (expenses). If more water drains than comes in, you have a cash flow problem. If this is the case, to resolve cash flow issues, you either need more water coming in or less water draining out. This analogy makes the concept immediately accessible, and that’s the power of the Feynman Technique in action.

What makes the Feynman Technique so powerful is that it applies to every industry and learning process. Scientists use it to test their understanding of theories. Teachers use it to make complex topics digestible for students. Business leaders use it to refine their strategies and communicate more effectively.

Bill Gates has famously applied this technique to his learning process. Despite not completing college, he built a tech empire by continuously refining his understanding of software, business strategy, and leadership through simple and direct explanations. Elon Musk has used a similar approach, breaking down engineering and business problems using first principles thinking to fully understand them before implementing solutions.

Educational studies reinforce the effectiveness of this technique. Researchers have found that medical students who practice explaining procedures in simple terms to hypothetical patients retain information more effectively and perform better in practical applications. In business, leaders who can articulate their company vision simply are often the most successful in aligning their teams and achieving their goals.

Imagine a business owner trying to explain their service model to a potential customer. At first, they may use industry jargon and an overly complicated explanation, only to see the customer become confused or disengaged. By applying the Feynman Technique, they take a step back, break it down into the simplest terms, and reframe their explanation in a way that’s instantly clear. Not only does this improve their pitch, but it also helps them identify inefficiencies in their messaging—or even in their business model—that they hadn’t previously noticed.

So, the next time you’re struggling to grasp a concept—whether it’s pricing strategy, leadership, or marketing—don’t just read about it. Write it down, teach it, or explain it out loud to someone in the simplest terms possible. If you get stuck, that’s your sign to dig deeper. Refine your explanation, eliminate unnecessary complexity, and keep working until you can communicate it effortlessly.

When you do, you’ll not only understand your business better, but you’ll also become a clearer, more confident communicator. That’s the transformative power of the Feynman Technique, and once you start using it, you’ll never look at learning the same way again.

Related Post: The Value of a Blog Even If No One Reads It

How can you use the Feynman Technique to better understand your business?

The post How to Learn or Explain Anything Using the Feynman Technique first appeared on SteveBizBlog.

As a small business mentor, I often encourage my clients to rethink their business and economic models using first principles thinking. This approach challenges conventional wisdom and helps uncover their blue ocean, an uncontested market space. By breaking problems down to their fundamental truths and reasoning from the ground up, businesses can identify unique opportunities that others overlook.

At the end of 2024, I applied first principles thinking to my own blog, leading to the development of a chatbot version that enhanced user engagement and accessibility. This experience reinforced my belief that businesses must constantly reassess their business and economic models and innovate beyond industry norms.

A Unique Perspective on Problem-Solving

As a neurodivergent person, I have often perceived problems differently from many of my peers. I first realized this in elementary school when a school psychologist asked me to draw a tree. Instead of the typical side view drawing, I drew a series of rings like a bullseye. When questioned about my drawing, I explained that when you cut down a tree, its entire life history is revealed in the rings.

Similarly, when asked to draw a car, I sketched a square inside a rectangle, representing a top-down view of the car showing the hood, roof, and trunk. However, I was told my interpretation was incorrect because trees and cars were supposed to be drawn from the side like everyone else. Though I couldn’t articulate it then, I was already applying first principles thinking without really knowing what I was doing, deconstructing objects to their fundamental elements and reconstructing them from a foundational understanding.

Why Businesses Should Use First Principles Thinking

First principles thinking is a problem-solving approach that involves deconstructing complex challenges into their most basic truths and reasoning upward to create innovative solutions. Some of history’s greatest minds have applied first principles thinking to make astonishing contributions to society:

• The Greek philosopher Aristotle laid the foundation for the scientific method.
• The astronomer Nicolaus Copernicus challenged the geocentric model, proving that planets orbit the sun.
• The inventor Nikola Tesla revolutionized electrical engineering with alternating current, induction motors, and radio technology.
• The theoretical physicist Albert Einstein reshaped physics with the theory of general relativity.
• The theoretical physicist Richard Feynman pioneered quantum computing and nanotechnology.
• The entrepreneur and industrial engineer Elon Musk has used first principles to disrupt industries, from online payments with PayPal to aerospace with SpaceX.

First principles thinking enables businesses to challenge assumptions to unlock innovation and develop more effective solutions.

The Problem With Assumptions

Unexamined assumptions can significantly hinder progress by limiting perspectives and restricting innovation.

Consider the nine-dot puzzle. Most people assume they must stay within an imaginary box when connecting the dots, even though the problem never explicitly imposes this constraint. This mental limitation prevents them from seeing the true solution, which requires thinking beyond perceived boundaries.

Similarly, businesses often impose unnecessary constraints on their decision-making, preventing breakthrough ideas from emerging.

The Role of Biases on Assumptions

Cognitive biases influence decision-making, often leading businesses to accept flawed assumptions without questioning them. Some of the most common biases that hinder innovation include:

• Confirmation Bias: The tendency to seek out and interpret information in a way that confirms pre-existing beliefs while ignoring contradictory evidence. This can prevent businesses from considering alternative solutions.
• Overconfidence Bias: When individuals overestimate their knowledge or abilities, they may resist questioning their assumptions, leading to poor strategic decisions.
• Self-Serving Bias: People often attribute successes to their own actions while blaming failures on external factors. This bias can prevent businesses from objectively analyzing past mistakes and making necessary improvements.
• Wishful Thinking: The tendency to believe something is true because we want it to be, rather than based on objective analysis. This can cause businesses to overlook risks and make unrealistic plans.

By recognizing and actively countering these biases, businesses can better apply first principles thinking, ensuring that decisions are made, based on fundamental truths rather than flawed assumptions.

Breaking Down First Principles Thinking

To overcome the limitations of assumptions, businesses can use first principles thinking, which involves three key steps:

1. Identifying Assumptions: Recognize and define all the current assumptions related to a problem. Making a list of these assumptions helps bring them to the surface.
2. Breaking Down Problems: Deconstruct the problem into its fundamental principles or truths. Understanding the core aspects of an issue allows for more effective problem solving.
3. Creating New Solutions: Use the fundamental truths identified to develop new, innovative solutions without being constrained by traditional ways of thinking.

Examples of First Principles Thinking in Action

Several groundbreaking innovations have stemmed from first principles thinking, where established assumptions were deconstructed to uncover new opportunities:

• SpaceX Reusable Rockets: Traditionally, rockets were single-use only, making space travel extremely costly. SpaceX applied first principles thinking by breaking down the cost structure of rockets. Instead of accepting the assumption that rockets had to be discarded after one use, they identified that the fundamental materials making up a rocket—aluminum, titanium, copper, and carbon fiber—were not inherently expensive. The high costs stemmed from the manufacturing and one-time use model. By engineering rockets to be reusable, SpaceX drastically cut costs and made space exploration more accessible.
• Electric Vehicles and Charging Infrastructure: The assumption that gasoline-powered vehicles were the only viable option for transportation was deeply ingrained in the auto industry. Tesla challenged this assumption by deconstructing the internal combustion engine to its fundamental function: providing propulsion. Instead of relying on gasoline, Tesla focused on energy storage and efficiency, developing battery technology that could power vehicles without fossil fuels. By simultaneously building a widespread charging network, Tesla further reduced the dependence on gasoline stations, transforming the auto industry.
• Subscription-Based Software: The software industry traditionally operated under a one-time purchase model, assuming users preferred buying permanent licenses. Companies like Adobe questioned this assumption by analyzing the fundamental needs of software users: continuous updates, support, and accessibility. They shifted to a subscription model, providing ongoing software improvements and cloud-based access, making software more affordable while increasing long-term customer engagement and revenue.
• Cloud Computing Services: The traditional belief in IT infrastructure was that businesses needed to own and maintain their own physical servers. Companies like Amazon Web Services (AWS) challenged this notion by breaking down the functions of computing: processing power, storage, and networking. They realized that businesses didn’t need to own servers but only required access to computing resources. By offering scalable, on-demand cloud solutions, AWS transformed IT operations, reducing costs and increasing flexibility for businesses worldwide.
• Uber and the Taxi Industry: Traditionally, taxi services operated under the assumption that companies needed to own and maintain a fleet of vehicles to provide transportation services. Uber challenged this belief by breaking down the core function of a taxi service: connecting riders with drivers. They realized that the most fundamental need was transportation, not vehicle ownership. By leveraging smartphone technology and a platform-based model, Uber enabled independent drivers to use their own vehicles, eliminating the need for a central fleet. This drastically reduced costs, increased availability, and disrupted the entire transportation industry.
• Airbnb and the Hospitality Sector: The hospitality industry traditionally operated on the assumption that providing lodging required owning or leasing physical properties. Airbnb deconstructed this assumption by analyzing the core function of hospitality: providing a place for travelers to stay. Instead of investing in property acquisition, they built a peer-to-peer platform that allowed individuals to list their existing homes and apartments for short-term rentals. This approach drastically expanded lodging availability, lowered overhead costs, and introduced a flexible, scalable alternative to traditional hotels, transforming the hospitality industry.

The Importance of Questioning Everything

First principles thinking thrives on the ability to challenge deeply ingrained beliefs and assumptions. Many of the greatest breakthroughs in history have come from those who dared to ask, “Why?” and “What if?” rather than accepting the status quo. In business, failing to question assumptions can lead to stagnation, inefficiencies, and missed opportunities. The ability to critically analyze existing beliefs is what separates truly innovative companies from those that merely follow trends.

Successful entrepreneurs and business leaders constantly challenge the constraints that others accept without question. They recognize that just because an industry has always operated in a certain way does not mean it is the most effective or efficient way forward. By questioning everything, businesses can find new paths to innovation and avoid being trapped by legacy thinking.

Here are key areas where questioning assumptions can drive transformative change:

• Factual Assumptions: Are the “facts” we rely on actually true, or are they based on outdated or incomplete information? Many business practices are based on beliefs that were once valid but no longer hold up under modern scrutiny.
• Language Patterns: How does the way we phrase problems affect our thinking and limit our solutions? The language we use to describe a problem can unconsciously shape the way we approach solving it. Reframing the problem in new terms often reveals overlooked possibilities.
• Conventional Methods: Just because something has always been done a certain way doesn’t mean it’s the best approach. Many industries persist with outdated methods simply because no one has challenged them.
• Market Norms: Are industry standards and pricing models inherently necessary, or could they be completely redefined? Many companies disrupt markets by realizing that accepted norms are just unexamined habits.
• Technological Constraints: Are the limitations we perceive real, or are they simply the result of outdated systems and processes? Often, a challenge appears insurmountable only because no one has yet applied new technology to solve it.

By questioning everything, businesses become more resilient, adaptable, and capable of uncovering new opportunities that others miss.

Applying First Principles Thinking to Your Business

Below is a simple prompt that I share with clients who operate a clone business that replicates the business model, products, or services of an existing successful business but who want to apply first principles thinking to their business to challenge industry assumptions, innovate beyond conventional limits, and build a more efficient, scalable, and competitive business and economic model.

Final Thoughts

Using first principles thinking allows businesses to break free from conventional constraints by first identifying the core aspects of their industry, questioning fundamental assumptions, and uncovering inefficiencies. By analyzing the industry’s essential functions, deconstructing problems to their fundamental truths, and reimagining solutions from the ground up, companies can develop unique value propositions, uncover competitive advantages, and drive sustainable growth. Whether applied to product development, operations, or business strategy, this approach equips businesses with a powerful framework to rethink outdated models, embrace innovation, and thrive in an ever-evolving marketplace.

Are you ready to apply first principles thinking to your business?

The post Rethinking Business Models With First Principles Thinking first appeared on SteveBizBlog.

Over the past six months, many of my business advisory sessions have included discussions on how proposed government policies could impact my clients’ businesses. Before the 2024 election, I analyzed over two dozen policy proposals from both Democratic and Republican candidates. What I found is that while first-order effects dominate the headlines, truly understanding a policy’s impact requires digging deeper into its second-and third-order effects—often very different from the initial outcome.

This realization led me to create this series, originally hosted on my YouTube channel and SteveBizAcademy. Now, as the current administration takes action on many of these policies, I’ve compiled a pillar post here. This resource will help you explore the broader ripple effects of various policies to strategically position your business for long-term success as the second- and third-order effects take hold.

Effect of Tax Reform on Small Businesses

Thoughtful consideration of tax reform policies and their potential impacts on small businesses is essential.

Minimum Wage Increases and Small Businesses

Minimum wage increases can improve the lives of low-wage workers, but they also set off a complex chain of events throughout the economy.

Healthcare Mandates on Small Businesses

While they provide essential benefits to workers, they also place new burdens on small businesses.

Paid Family and Medical Leave and Small Businesses

Paid Family and Medical Leave has wide-ranging implications for small businesses. While the policy supports employees, its impact on small businesses can be substantial.

Regulatory Relief and Small Businesses

Regulatory relief offers immediate benefits to small businesses, providing them with the flexibility to innovate and grow. However, it’s crucial to maintain a balance that protects public interests while fostering a dynamic business environment.

Immigration Reform and Small Businesses

Immigration reform is a multifaceted issue with far-reaching implications, especially for small businesses. From immediate labor impacts to long-term community dynamics, the ripple effects of this policy can profoundly shape the landscape for small business owners.

Access to Capital and Small Businesses

Explore the ripple effects of expanded access to capital for small businesses, examining the immediate, broader, and long-term impacts on growth, competition, and community dynamics.

Workforce Development and Small Businesses

Discover the ripple effects of workforce development policies on small businesses, exploring the first, second, and third-order impacts on primary and secondary employers in the local economy.

Trade Policy and Small Businesses

Explore how U.S. trade policies impact small businesses, highlighting both the benefits for regions with protected industries and the challenges faced by regions that rely on global supply chains.

Environmental Regulations and Small Businesses

Explore the Intricate Impacts of Environmental Regulations on Small Businesses, Addressing the Direct Costs, Supply Chain Impacts, and Broader Environmental Consequences.

Antitrust Enforcement and Small Businesses

Reduced Antitrust Enforcement Can Lead to Market Dominance by Large Corporations, Stifling Smaller Competitors. In Contrast, Strong Enforcement Maintains a Competitive Field, Allowing Small Businesses to Innovate and Thrive.

Intellectual Property Protection and Small Businesses

Intellectual Property Protection Plays a Crucial Role for Small Businesses but Often Comes With Significant Costs, Impacting Their Ability to Innovate and Compete in the Market.

Cybersecurity Standards and Small Businesses

Understand the Impact of Cybersecurity Standards on Small Businesses, Highlighting Compliance Challenges and the Need for Robust Security Measures.

Gig Economy Regulations and Small Businesses

Discover the Broad Impacts of Gig Economy Regulations on Small Businesses, Detailing the Potential Shifts in Costs, Operational Models, and the Fundamental Dynamics of Freelance Work.

Labor Law Reform and Small Businesses

Explore the multifaceted impacts of Labor Law Reform on small businesses, analyzing the immediate, operational, and long-term consequences of policy changes across various industries.

Business Licensing Reform and Small Businesses

Explore how changes in business licensing requirements can either drive competition and innovation or necessitate significant investments, shaping the landscape of small businesses.

Zoning and Land Use Policies and Small Businesses

Explore the complex interplay of zoning and land use policies, examining their benefits and challenges, and the delicate balance policymakers must strike to serve the greater good while addressing local concerns.

Net Neutrality and Small Businesses

Explore the Nuanced Impacts of Net Neutrality on Small Businesses, Examining Its Immediate Benefits and Potential Challenges in Fostering a Competitive and Innovative Market Environment.

Tax Incentives and Small Businesses

While Tax Incentives Offer Immediate Benefits, They Can Also Lead to Unintended Economic Distortions. Their Broader Impacts Should Be Carefully Considered, Suggesting a Judicious Use of Such Policies.

Federal Contracting Opportunities and Small Businesses

Explore the first, second, and third-order effects of federal contracting opportunities on small businesses, including immediate growth, compliance challenges, and long-term financial risks.

Energy Policy and Small Businesses

Explore the ripple effects of energy policy on small businesses, from rising costs and environmental impacts to global consequences and economic challenges. Understand how government choices influence both local operations and worldwide sustainability.

Raising Taxes on the Rich and Small Businesses.

Explore the nuanced effects of raising taxes on the rich, including its impact on small business owners and the broader economy, while challenging common perceptions about wealth distribution and tax fairness.

Rural Development Programs and Small Businesses

Explore the ripple effects of rural development programs and subsidies, examining how government intervention distorts market dynamics and impacts small businesses in both the short and long term.

Digital Privacy Regulations and Small Businesses.

Explore the ripple effects of Digital Privacy Regulations on small businesses, including compliance costs, the end of cookies, and the growing dominance of big tech in digital advertising.

Anti-Price Gouging Policies and Small Businesses.

Explore the nuanced impacts of anti-price gouging policies on small businesses in this episode of The Ripple Effect, where we dissect the layered consequences of dynamic pricing regulations during crises.

Raising the Tax Credit to Start a Business and Small Businesses

Learn how a proposed $50,000 tax credit for startup expenses could encourage overspending, create cashflow risks, and lead to long-term debt obligations for small business owners.

Child Tax Credit and Small Businesses.

Explore the unintended consequences of the Child Tax Credit, including how increased financial relief for families may lead to higher child care costs and limit the policy’s effectiveness.

Tariffs and Small Businesses

Explore the layered impact of tariffs on small businesses, from immediate price changes to long-term effects on market competition and domestic production stability.

The Final Chapter.

Explore the unintended consequences of the Cobra Effect, revealing how well-meaning policies can create ripple effects that destabilize entire industries.

The post Government Policy and Small Business first appeared on SteveBizBlog.

Recently, I found myself in a familiar conversation about taxes. A friend, who works on a federally funded project, was venting about the amount of taxes he paid each year and the unfairness of the tax system. He knew I was a business owner and, from previous discussions, was aware that I had built and sold several multi-million-dollar businesses. He also knew that I paid significantly less income taxes than he did. Frustrated by what he perceived as inequities in the tax system, he said, “We wouldn’t have all these government funding issues if rich people like you would just pay your fair share.”

While I understood his frustration, I also realized his understanding was based on a gross misunderstanding of the tax code. The term “rich” is often used, whereas it would be more accurate, in the context of income tax, to speak of “high-income earners.” By definition, the rich and the high-income earners are vastly different.

Our discussion quickly turned into a discussion about the differences between wealth and income, how our tax system really works, and how business ownership provides an entirely different framework for wealth accumulation and tax reduction.

Wealth vs. Income

The first thing I explained was the distinction between wealth and income. Wealth, or net worth, refers to the total value of assets – such as real estate, stocks, or businesses – minus liabilities like debts. Wealth represents accumulated resources and long-term financial stability and is what truly defines being “rich.” In contrast, income is the money earned over a specific period, such as wages, dividends, or capital gains, and is often a means to build wealth rather than a measure of being rich.

Here’s the key distinction: The U.S. tax system primarily taxes income, not wealth. For example, if someone holds $100 million in stocks, the value of these stocks is not taxed unless they are sold. At that point, the resulting profit (or gain) is taxed as capital gains at rates of 0%, 15%, or 20%, depending on their income level. These rates are often significantly lower than the tax rates applied to ordinary income, such as wages.

For example:

• A billionaire might live comfortably without ever selling their assets, borrowing against them instead of realizing taxable income.
• Conversely, a high-income earner like a doctor or lawyer, who may make $500,000 a year, pays a large percentage of their income in taxes because wages are taxed at ordinary income rates.

How the Progressive Tax Code Works

During our conversation, I suggested to my friend that he might want to consider starting a side hustle to help reduce his overall tax liability. He looked puzzled and said, “Why would I do that? Wouldn’t this extra income push me into a higher tax bracket and make me pay even more in taxes?”

His question highlighted a common misconception, so I explained. “That’s not how our tax system works,” I began. “Even if the additional income from a side hustle places you in a higher tax bracket, only the portion of your income that exceeds the threshold for that bracket is taxed at the higher rate. The rest of your income is still taxed at the lower rates for each bracket.”

Grabbing a pen and paper, I continued, “Let’s break it down. Say you earn $100,000 from your job and an additional $10,000 from a side hustle, giving you a total income of $110,000. Here’s how it works using the 2023 tax brackets for a single taxpayer:

• You’d pay 10% on the first $11,000, which is $1,100.
• Then, you’d pay 12% on the portion from $11,001 to $44,725, which is ($44,725 – $11,000 = $33,725 × 12%) = $4,047.
• Next, you’d pay 22% on the portion from $44,726 to $95,375, which is ($95,375 – $44,725 = $50,650 × 22%) = $11,143.
• Finally, you’d pay 24% on the portion above $95,375 (the remaining $14,625), which comes out to $14,625 × 24% = $3,510.

Your total tax would be $1,100 + $4,047 + $11,143 + $3,510 = $19,800. While your top marginal tax rate is 24%, your effective tax rate, the average percentage of your income paid in taxes, would be 18% ($19,800 ÷ $110,000).”

He seemed intrigued but still hesitant. “So, starting a side hustle wouldn’t just push all my income into the higher bracket?”

“Not at all,” I replied. “Only the income above $95,375 would be taxed at 24%, and even then, you can lower that taxable income with legitimate deductions. For instance, if you spend money on equipment, home office space, or travel for your side hustle, these expenses reduce the amount of income that’s subject to taxes.”

How Taxes Affect Wealth Accumulation

My friend posed another thoughtful question: “Why is the tax system structured so that employees pay more in taxes than the wealthy? Isn’t it supposed to treat everyone equally?”

This was my opportunity to explain a fundamental principle of the tax system: it is intentionally designed to collect more taxes from employees than from those with significant wealth to encourage investment in businesses or start new ones.

To address his question, I said, “Let’s take a closer look at how the tax system treats employees compared to business owners and investors and how these differences significantly impact the ability of the working class to accumulate wealth.”

I added, “Employees rely on wages, which, as we discussed, are taxed as ordinary income at progressively higher rates, up to 37% for high earners. On top of that, employees pay payroll taxes – 6.2% for Social Security and 1.45% for Medicare – on their income up to the Social Security wage base limit of $160,200. These taxes are deducted directly from their paychecks, further reducing their take-home pay. Employers match that 7.65%, but employees still feel the weight of these deductions, making it difficult to save and accumulate wealth.”

“In contrast,” I explained, “wealthier individuals, including business owners, often build their income through investments and business ownership rather than wages. Here’s the key difference:

• Unrealized gains – the increasing value of assets like stocks, real estate, or businesses – aren’t taxed at all until the assets are sold. This allows their wealth to grow untaxed for years or even decades.
• When they do sell, they pay long-term capital gains rates, which are much lower than ordinary income tax rates: 0%, 15%, or 20%, depending on their total income. This means that income from investments is taxed less heavily than income from wages.
• Business owners enjoy additional advantages. By reinvesting profits into their businesses – such as hiring employees, purchasing equipment, or expanding operations – they can claim deductions that significantly reduce their taxable income.
• Many wealthy individuals avoid selling assets entirely. Instead, they borrow against their growing wealth, using loans to fund their lifestyles without creating taxable income.”

I added, “This creates a stark contrast: employees are heavily taxed as they earn, with limited opportunities to offset these taxes, preventing them from saving and accumulating wealth. On the other hand, business owners and investors benefit from the tax code’s preferential treatment, which encourages deploying wealth into businesses or investments. These policies are designed to compensate for the inherent risks of entrepreneurship and investment while also driving job creation and economic growth.”

Related Post: 6 Reasons Why You Need to Have a Side Hustle

The Business Owner Advantage

My friend, now aware that the tax code is intentionally designed to encourage investment and entrepreneurship, began to connect the dots. “I get how investors pay less in taxes,” he said, “but I’m curious, how does business ownership fit into this? Are there really that many ways a business owner can reduce their taxable income?”

This was my opportunity to explain that business owners operate under an entirely different set of rules, offering significant tax advantages that not only reduce their tax burden but also help them accumulate wealth. “Here’s how owning a business creates these opportunities:

1. Deductions: Business owners can deduct expenses like office rent, utilities, equipment, and even part of their home if it’s used for work. These deductions lower taxable income, sometimes dramatically.
2. Tax-Advantaged Retirement Plans: By contributing to a SEP IRA or Solo 401(k), a business owner can reduce their taxable income while saving for retirement.
3. Lower Tax Rates on Capital Gains: Many wealthy individuals invest in assets like stocks, real estate, or businesses, where gains are taxed at lower capital gains as we discussed earlier instead of paying ordinary income rates. This applies to the sale of businesses as well, allowing owners to benefit from these lower rates when they eventually cash out.
4. Pass-Through Income: If the business is an LLC or S Corp, profits ‘pass through’ to the owner’s personal tax return, avoiding corporate taxes. Plus, they might meet the requirements for the Qualified Business Income Deduction, which allows up to a 20% reduction.
5. Deferring Income: Business owners can delay invoicing to defer income into the next tax year, reducing their immediate tax burden.
6. Family Employment: Hiring family members can shift income to lower tax brackets, reducing the overall tax bill.
7. Wealth Growth Through Debt: Instead of selling assets and triggering taxable gains, wealthy individuals often borrow against their assets to fund their lifestyles. Loan proceeds aren’t taxable income.”

Connecting the Dots: The Truth About Tax Policy

As we wrapped up our conversation, my friend reflected on what he had learned with a new understanding. “Wow,” he said, “the whole idea of “taxing the rich” and the claim that “the rich need to pay their fair share” really seem like misleading rhetoric. Most people assume those phrases target ultra-wealthy billionaires, but in reality, they’re designed to confuse the public while justifying higher income taxes for working-class individuals. These increases don’t really affect billionaires, who make their money in ways that are taxed minimally or not at all. Instead, they hit high-income earners such as doctors, lawyers, engineers, and other middle-class professionals who are still building their wealth. It’s not about taxing the rich, it’s about raising taxes on the working middle class.”

He continued, “The truly rich – those with substantial net worths from businesses and investments – are largely untouched. They’re not relying on salaries. Their income comes from portfolios taxed at lower rates, and they take full advantage of deductions, credits, and strategic planning to minimize taxable income. They let unrealized gains grow untaxed and, when needed, borrow against their assets tax-free to maintain cash flow. It’s no wonder they keep getting wealthier.”

After a thoughtful pause, he added, “The average person doesn’t realize this distinction. When they hear ‘tax the rich,’ they think it’s about billionaires. But in practice, it’s middle-class professionals trying to climb the ladder who bear the burden. It’s really eye-opening.”

Finally, he smiled and said, “Thanks for walking me through all of this. I’d love to schedule some time to talk about how I can turn what I already know into a consulting business. It seems like the best way to start using the tax code to my advantage, just like the truly wealthy do.”

Conclusion

The public has been deceived by language crafted to elicit an emotional response. Phrases like “tax the rich” sound fair, but they obscure the reality: most “rich” people are not earning high wages but instead generating portfolio income and using sophisticated strategies to reduce their tax liabilities.

Meanwhile, the brunt of income tax hikes falls on high-income earners and professionals, those who are still working to accumulate wealth. The progressive nature of the tax code makes it increasingly difficult for employees to save and invest enough to reach true wealth.

Understanding these dynamics is crucial. Without it, the average person unknowingly supports policies that hurt their own ability to build wealth while leaving the truly rich unaffected. It’s a classic case of rhetoric outpacing reality.

Are you ready to use the tax code to your advantage and start a business?

The post The Truth About Taxing the Rich: The Misconceptions About Wealth, Income, and Tax Policy first appeared on SteveBizBlog.

Pricing can feel like walking a tightrope for small business owners. Raise your prices too high, and customers may go elsewhere. Lower them too much, and your margins might fail to sustain your business. This delicate balance is where price elasticity of demand (PED) becomes your compass. Understanding how customers respond to price changes can transform how you price your products or services, leading to smarter strategies and more profitable decisions.

Let’s dive into the price elasticity of demand, unpack its nuances, and explore a real-world example—my experience as an Invisible Fencing dealer—to see how pricing experiments can teach invaluable lessons.

What Is Price Elasticity of Demand?

Price elasticity of demand measures how sensitive customers are to price changes. In simple terms, it asks: If I raise or lower my prices, how will my customers react?

Elastic Demand

• Definition: Demand is considered elastic when a small change in price leads to a significant change in the quantity demanded.
• Key Characteristics: Customers are highly sensitive to price changes.
• Example: Luxury items, such as designer handbags or gourmet desserts. If prices rise, many customers will opt out or find substitutes.

Inelastic Demand

• Definition: Demand is considered inelastic when a price change has little to no impact on the quantity demanded.
• Key Characteristics: Customers are less sensitive to price changes.
• Example: Necessities, such as gasoline or life-saving medications. Even if prices rise, people will still buy these products because they’re essential and have few substitutes.

Here’s the formula for the math-minded:

• If PED > 1, demand is elastic, meaning customers are highly responsive to price changes.
• If PED < 1, demand is inelastic, meaning customers are less sensitive to price changes.
• If PED = 1, demand is unit elastic, where the percentage change in price equals the percentage change in demand.

Invisible Fencing: A Case Study in Price Elasticity

When I was an Invisible Fencing dealer, we sold a self-install kit for one dog, designed to cover a typical acre property, for $750. My direct costs to corporate were about $300, which covered the transmitter (installed in the garage), the dog’s receiver collar, and some additional margin for corporate’s national marketing campaigns, such as ads in Dog Fancy magazine. Additionally, I purchased the necessary wire locally for about $100, bringing my total direct costs to $400.

Corporate assured me that $750 was the “sweet spot,” which allowed for healthy profit margins while maintaining steady sales. However, I wasn’t entirely convinced. To test whether we could generate higher revenue, I decided to experiment with pricing for two months. Here’s what I discovered:

Lowering the Price: I reduced the price by $100 below the $750 recommended price for the first month, hoping to attract more customers. While I did sell a few more kits, the smaller gross profit margin per unit didn’t generate enough additional sales volume to compensate for the reduction in margin. For example:

• At $750, my gross profit per kit was $350.
• At a lower price, let’s say $650, my gross profit per kit dropped to $250.

Even though sales increased slightly, the total gross profit was lower because the increase in sales volume wasn’t sufficient to offset the reduced $100 profit per unit. This revealed that demand for the self-install kits was only moderately elastic—customers responded to the lower price, but not significantly enough to make the price reduction profitable.

Raising the Price: The following month, I increased the price by $100 above the $750 recommended price to test whether a higher gross profit per unit could offset a potential decline in sales volume. Unfortunately, the opposite occurred: demand decreased significantly, and the additional profit per kit wasn’t enough to compensate for the reduced number of units sold. This outcome demonstrated that demand for the self-install kits was price elastic at higher price points, meaning customers were highly sensitive to price increases.

Through these experiments, I learned that $750 was indeed the equilibrium price—the point at which revenue and profit margins were maximized.

Why Some Products Are More Elastic Than Others

Not all products behave the same way when prices change. The elasticity of demand depends on several factors:

Availability of Substitutes: The more alternatives customers have, the more elastic demand becomes. For example, with Invisible Fencing, if our prices increased, customers could choose options like a wood stockade or chain-link fence, narrowing the cost difference.

Necessity vs. Luxury: Products perceived as necessities—like gasoline or prescription medication—tend to have inelastic demand. Conversely, luxury items, like high-end tech gadgets or gourmet food, are more elastic because people can live without them.

Proportion of Income Spent: Price sensitivity increases when a product represents a significant portion of a customer’s budget. For my fencing kits, $750 was a substantial investment for most pet owners, making demand more elastic.

Time Frame: Elasticity can change over time. Initially, a price hike might not affect sales, but demand could become more elastic as customers find alternatives.

What My Experience Taught Me About Pricing

My pricing experiments with Invisible Fencing highlighted some key lessons about how businesses can apply price elasticity of demand:

Beware of Extreme Adjustments: Small price changes might reveal how sensitive your customers are without dramatically affecting revenue. In my case, the sharp drops in price and increases above $750 exaggerated the elasticity curve, making it harder to optimize profits. In hindsight, $50 price changes to test price elasticity of demand may have been more appropriate.

Value Perception Matters: Lowering the price of the kits didn’t just reduce margins—it also risked diminishing the product’s perceived value. Customers may associate higher prices with higher quality, especially for specialized products like Invisible Fencing.

Know Your Cost Structure: My fixed costs, of about $400, played a significant role in determining the profitability of each price point. However, since we were creating a new product category, I had to spend heavily on advertising just to get potential customers to understand what it was and why they needed it. Any price changes had to account for these expenses.

Segment Your Market: Elasticity isn’t uniform across all customers. Some might prioritize price, while others value quality or brand reputation. Offering tiered pricing or bundled packages can appeal to different customer segments without compromising overall profitability.

Applying Price Elasticity in Other Industries

Price elasticity isn’t just for Invisible Fencing—it applies to nearly every industry. Here are a few examples:

• Retail: Amazon constantly tests elasticity using dynamic pricing, adjusting prices in real-time to optimize revenue and stay competitive.
• Hospitality: Hotels and airlines charge premium rates during peak times when demand is inelastic and offer discounts during the off-season when demand becomes more elastic.
• Tech: Apple leverages inelastic demand when launching new products—fans are willing to pay top dollar for the latest iPhone, but demand becomes more elastic as the product ages and alternatives become available.

Strategies for Managing Price Elasticity in Your Business

If you’re a small business owner, here’s how you can leverage price elasticity to make smarter pricing decisions:

Test Incrementally: Instead of making large price adjustments, as I did, experiment with smaller changes to gauge customer reactions. For instance, try raising prices by 5% and tracking sales before making further adjustments.

Add Value Without Cutting Prices: Rather than lowering prices, consider bundling services, offering free perks, or highlighting premium features. This can make your product feel like a better deal without reducing margins.

Focus on Loyal Customers: Inelastic demand often comes from loyal customers who value your product’s uniqueness or quality. Investing in customer retention can make your revenue more resilient to price changes.

Monitor Competitors: If competitors drop prices, your customers may become more elastic and start seeking alternatives. Keep an eye on the market to stay ahead of pricing trends.

Final Thoughts

Understanding the price elasticity of demand allows you to predict how customers will react to price changes and adjust your strategies accordingly. My Invisible Fencing experiments taught me that price adjustments could have outsized impacts on both revenue and perception.

Before changing your prices, take a moment to assess how sensitive your customers might be to those changes. Finding the sweet spot where value, costs, and demand align can position your business for lasting profitability.

Are you ready to find your pricing sweet spot?

The post Mastering Price Elasticity of Demand: Lessons from Invisible Fencing and Beyond first appeared on SteveBizBlog.

Selling a business is a milestone many entrepreneurs aspire to reach. It signifies the culmination of years of hard work and risk-taking. But it’s a journey marked by both emotional and financial challenges. While the financial rewards often dominate discussions, the emotional complexities and post-sale decisions can be just as impactful. My journey through the sale of my employer-based business provides a window into navigating some of these challenges and making thoughtful choices about life after the deal.

Building a Legacy and Letting Go

The company I sold was more than just a business; it was the culmination of years of effort and dedication. What began as a way to sustain my livelihood after my employer faced hard times grew into a thriving and profitable enterprise. After years of success and steady growth, the business caught the attention of Interleaf, a publicly traded company, and became an attractive acquisition target. Selling to Interleaf was a significant milestone in my journey, but it was far from the end of the story.

As part of the deal, I was offered the role of Vice President of Operations for Interleaf’s services division, where I oversaw the integration of my business along with two other acquisitions. In addition to the cash I received at closing, my final compensation was tied to a one-year earn-out agreement, contingent on meeting ambitious revenue targets, which we exceeded. While I saw this as an opportunity to watch my “baby” thrive and grow with the backing of a publicly traded company, I also struggled with the loss of autonomy and the realization that I was now just a cog in a much larger machine.

The excitement of the transition was short-lived, as the challenges of adapting to a new corporate structure quickly emerged. About a year and a half later, Interleaf was acquired by another company, and the focus shifted away from the services side of the business that I managed. My division was seen as a liability compared to the product development and engineering assets, and I was directed to shut my division down. This change, coupled with the cash and stock my partner and I had received from the original sale, created an opportunity to reacquire our original business. Along with my former company, we also acquired another business that Interleaf had previously purchased, aiming to achieve greater customer and industry diversification for our new enterprise. These moves were not only strategic but also reflected my commitment to protecting the company’s employees, customers, and reputation.

The Final Farewell and Reinvention

Being back in the driver’s seat, fully in control of my company, was far more satisfying than working within a corporation. However, most of the proceeds from the original sale had been reinvested into the new business, leaving me without what I jokingly referred to as my “go-to-hell fund”, a financial cushion I had grown accustomed to after the first sale. Additionally, managing a business that spanned three states and time zones began to feel monotonous, and I realized I was craving a new challenge. After two more years, we decided to sell the business to an individual relocating from California to Colorado for a lifestyle change.

This time, the transition felt much more final. Although the agreement included a six-month consulting period to ensure a smooth handover, my services were deemed unnecessary after just a few months. The abrupt end hit me much harder than my first sale. Saying goodbye to the employees and the business I had nurtured for so many years felt like severing a deeply personal connection. For the first time, I truly experienced the profound emotional loss that often comes with selling a business.

However, sitting idle was never an option for me. As my wife often says, “I married you for better or worse, but not for lunch every day,” so after the sale of my second business, I redirected all my energy into several real estate development projects. This pivot kept me productive and provided an outlet to channel my emotions and energy into new challenges. Though the transition came with its own difficulties, it gave me a fresh perspective on starting anew. This shift not only offered a new sense of purpose but also helped fill the emotional void left by the sale.

Preparing for the Transition

When preparing to exit by selling your business, it is essential to navigate both the emotional and financial complexities of the process. Experts from merger and acquisition firms like MidStreet, who work closely with sellers, emphasize the importance of thorough planning before finalizing a sale. To ensure a smooth transition, consider the following strategies:

1. Anticipate the Emotional Impact: Recognize that selling your business is not just a financial transaction but a major life transition. Emotions such as grief, relief, and uncertainty are normal and should be acknowledged.
2. Define Life After the Sale: Having a clear vision for the next chapter can ease the transition. Whether it’s starting a new venture, pursuing hobbies, or traveling, a well-thought-out plan provides structure and purpose.
3. Seek Support: Surround yourself with advisors and peers who understand the nuances of life after selling a business. Their insights can help you prepare for and navigate the ups and downs of the process.
4. Reinvest Thoughtfully: Whether you aim to grow your wealth or launch a new business, diversify your investments and consult with financial advisors to ensure a balanced approach.
5. Focus on Legacy: For many entrepreneurs, ensuring the continuity of their business and protecting their employees and culture is as important as financial gain. Selecting the right buyer and structuring the deal accordingly can safeguard your legacy.

Dealing with Post-Sale Emotions

The emotional rollercoaster associated with selling a business is well-documented, yet often underestimated. Entrepreneurs spend years and even decades pouring their heart and soul into their companies, making them an extension of their identity. Selling can feel like losing a part of oneself, leading to feelings akin to grief. For some, these emotions are compounded by a loss of purpose, as the day-to-day demands and responsibilities that once defined their lives vanish overnight.

Post-sale challenges are not uncommon. According to Forbes, many entrepreneurs struggle to adapt to their new roles, particularly when staying on temporarily with the acquiring company. The loss of autonomy and the need to report to others can be disorienting.

After years of being the boss and having the final say on all business decisions, I found my tenure at Interleaf challenging. Reporting to others and losing control over my own destiny was a stark contrast to the autonomy I had grown accustomed to. During this time, I gained valuable insights about myself. As someone who is neurodivergent – a trait that had been an asset as a business owner and entrepreneur – I struggled with tolerating incompetence or uninformed decisions made by others. After the acquisition, it became clear that I didn’t thrive in environments where I lacked total autonomy. I realized that my happiness and fulfillment are deeply tied to having control over my own path.

Addressing Emotional Complexities

Selling a business is as much an emotional journey as it is a financial transaction. Entrepreneurs often describe their companies as extensions of themselves, making the sale feel like a loss of identity. After my second sale, the abrupt end to my involvement left me grappling with these emotions. However, reinvesting my time and capital into real estate provided a new sense of purpose.

Post-sale planning isn’t just about avoiding financial pitfalls; it’s about creating a roadmap for life after the transaction. Here are a few strategies to navigate the emotional challenges:

1. Define Your Next Chapter: A clear vision for post-sale life can ease the transition. This might include starting a new venture, volunteering, engaging in philanthropy, or pursuing long-held personal goals.
2. Seek Community and Support: Joining peer groups or professional organizations can provide a sense of belonging and shared purpose. Connecting with others who have experienced business exits can offer valuable insights and camaraderie. For me, joining organizations like SCORE and the Small Business Development Center provided this community and support.
3. Invest in Professional Guidance: Hiring a financial advisor, coach, or mentor can help you navigate the complexities of wealth management, personal reinvention, and emotional adjustment.
4. Embrace Reinvention: Selling a business is not the end; it’s a new beginning. Viewing this transition as an opportunity for growth and exploration can make the process more fulfilling.
5. Avoid Overwhelming Change: While it’s tempting to make significant life changes, such as relocating or buying new properties, too much change can be destabilizing. Take time to adapt before making major decisions. In my case, I still live in the same house and drive the same old 1993 Dodge truck that I had when I started my first employer-based business in 1994.

Redeploying Wealth Post-Sale

The sale of a business often results in a significant influx of capital, requiring careful planning to manage and redeploy the proceeds effectively. For me, real estate became a natural choice. I invested in several fix and flip properties to renovate, while also developing three waterfront lots and building a spec home in Virginia.

Real estate is just one of many options for redeploying wealth after a business sale. According to experts like Darrow Wealth Management, and allBusiness, planning for taxes and diversification is critical to managing risk and ensuring financial security. Here are several strategies to consider:

1. Financial Markets and Diversification: Investing in mutual funds, municipal bonds, money market accounts, or diversified portfolios can help spread risk while generating steady returns. A financial advisor can provide insights into balancing risk tolerance with income needs, ensuring that your assets align with your long-term goals.
2. Hedging Stock-Based Transactions: If a portion of your sale involves stock in the acquiring company, hedging strategies can protect against market downturns. This can include options contracts or other financial instruments that mitigate risk.
3. Real Estate Investments: Beyond flipping and speculative building, real estate offers opportunities like rental properties or participation in real estate investment trusts (REITs). For those looking to defer taxes, a 1031 exchange may be worth exploring.
4. Charitable Giving and Philanthropy: Direct charitable donations not only provide tax benefits but also allow you to support causes close to your heart. These contributions can create a lasting legacy while reducing taxable income.
5. Estate Planning: Establishing or updating wills, trusts, and beneficiary designations ensures your wealth is distributed according to your wishes. Irrevocable trusts offer asset protection, while revocable living trusts can streamline probate procedures.
6. Retirement Planning: Maximizing IRA contributions and developing a comprehensive retirement plan can secure your financial future. Simulations, like the Monte Carlo analyses that my financial advisor at Wells Fargo did for us, can help stress-test your strategy against market fluctuations.
7. Personal Development and Lifestyle Investments: Beyond traditional financial investments, consider allocating resources to personal growth. This could include traveling, pursuing education, or investing in hobbies and passions that provide purpose and fulfillment.

Moving Forward

Selling a business is a transformative event, reshaping both your financial landscape and personal identity. For me, the journey included moments of triumph, loss, and reinvention. By carefully redeploying the proceeds and embracing new challenges, I found a way to move forward without losing the entrepreneurial spirit that defined my career.

For others facing similar transitions, the key is preparation, both emotional and financial. By diversifying investments, planning for the future, and seeking support, you can navigate this significant life event with confidence and purpose. The sale of a business is not the end of the story; it’s the beginning of a new chapter rich in possibilities.

Are you prepared to handle the emotional and financial aspects of selling your business?

Related Course: Buying or Selling a Small Business

The post Navigating the Emotional and Financial Journey of Selling a Business first appeared on SteveBizBlog.

At the end of each year, I always take some time to reflect on the past year and consider the path ahead. Over the last few weeks of 2024, I did a lot of soul-searching about the future of SteveBizBlog and its role in the evolving digital landscape.

Over the past 11 years, SteveBizBlog has grown into a trusted resource for small business owners, featuring over 1,200 posts and more than 1,000,000 words of expert advice; the equivalent of 17 full-length business books. However, with search habits shifting away from traditional keyword-based searches to conversational AI, I realized the pressing need to evolve. Faced with the “adapt or die” reality of this changing landscape, I began considering what it would take to transform my extensive knowledge base into an intelligent, interactive assistant leveraging AI.

To be more specific, as I pondered the future of years of work, I recognized that the age of stand-alone blogs as a primary resource for small business research was fading. While I have implemented sophisticated search features on SteveBizBlog to keep pace with my content repository, which has grown over the years, it still fundamentally relies on traditional keyword-based search, like the way we all interact with search engines such as Google. However, the paradigm is shifting to a conversational interface with semantic understanding.

Personally, I’ve found myself using conversational AI tools like ChatGPT for answers far more often than traditional keyword-based search—and I’m sure I’m not alone. Websites that depend on keyword-based search rely heavily on Search Engine Optimization (SEO) to improve their organic reach and compete for a spot on the highly coveted first page of the Search Engine Results Page (SERP). However, with the exponential growth in the volume of web content, chasing web traffic through SEO increasingly feels like an outdated strategy, rooted in a model that can no longer keep up with this oversaturation of available information.

Given that keyword-based search would soon no longer the answer and that contextual conversational AI was the future, I began exploring ways to make my content more appealing to Large Language Models (LLMs) like ChatGPT, hoping it might cite my pages as sources to improve SteveBizBlog’s organic reach. However, as I thought more about optimizing my content for LLMs, a significant issue based on my experience with GPTs like ChatGPT and Copilot surfaced.

When using ChatGPT during interactive research sessions with my clients, I occasionally encountered hallucinations—instances where ChatGPT fabricated facts or cited sources that didn’t exist. This highlighted a clear need for a contextual conversational AI tool specifically tailored to the challenges small business owners face, built on vetted content, such as the 1,200+ posts on SteveBizBlog.

The big question, though, was this: how could a self-funded effort like SteveBizBlog make this transition to a highly specialized and trustworthy conversational AI?

To explore ways to leverage the content I had already developed, I turned to ChatGPT. I asked it to deconstruct my business model using first principles and reimagine it within the context of the rise of conversational AI—all while adhering to a very restricted budget, as SteveBizBlog is entirely self-funded.

After an in-depth discussion, ChatGPT and I developed a framework for a potential solution. I then evaluated this framework by applying a series of assessment criteria, including its novelty, feasibility, specificity, impact, and workability. The outcome was a detailed project proposal, complete with an action plan broken down into clear implementation steps.

To quickly develop a Minimal Viable Product (MVP) to test some of my lingering assumptions, I used a WordPress plugin called WP All Export to extract the content from my blog and save it as a spreadsheet. Using this dataset, I created a custom GPT using ChatGPT to gather feedback from my peers as part of a proof of concept.

After seeing the potential and possibilities of a conversational AI bot trained exclusively on my content, I decided to take the next step. I shared my project proposal on Upwork, seeking an expert in AI chat development to help transform my MVP into a Minimum Marketable Product (MMP). I included the detailed project proposal, complete with an action plan, and invited bids to bring the project to life.

Posting this job turned out to be a truly enlightening experience. Many of the responses I received highlighted gaps in my understanding of AI solutions. As I often remind my clients, “You don’t know what you don’t know,” and this project drove that point home more than ever.

The technical details in many of the responses were beyond my expertise, prompting me to dive deeper into areas like structuring data with JSON, understanding how vector databases categorize, map, and index data for faster access, and exploring Retrieval-Augmented Generation (RAG) frameworks. But I’m getting ahead of myself.

What follows is a detailed account of how we transformed my MVP into an MMP, SteveBizBot. The mastermind behind this elegant solution was James Allen, a highly skilled professional I hired on Upwork. Remarkably, James created a proof of concept even before I brought him on board, which made his bid stand out above the rest and convinced me to do whatever it took to secure his expertise. Without his invaluable contributions, the deployment of SteveBizBot would not have been possible.

From Words to Data

The first step in the journey was to scrape the blog content from my WordPress website. Each post, including the metadata, including items such as the post’s title, except text, tags, categories, and URL, was parsed and organized into a JSON (JavaScript Object Notation) file—a structured, server-friendly format that made transferring and processing the data straightforward. With this data in hand and organized in the JSON file, the groundwork for building an AI-powered assistant was laid out.

Making Sense of It All

The next challenge was to transform this textual data into something that AI could understand. This involved converting the JSON file into vector representations using embedding models. This was done using a pre-trained OpenAI model. Think of vector embedding as assigning numerical values to words and phrases so that AI can analyze and identify various patterns. These vectors were then imported into Pinecone’s serverless vector database.

Why Pinecone? Pinecone offered us a flexible, pay-as-you-go pricing model based on usage, making it ideal for scaling as SteveBizBot gains more traction. With no upfront or fixed costs, I can keep expenses entirely variable, which is always a smart strategy when starting out, and the level of user adoption is still uncertain.

In addition to its cost efficiency, Pinecone excels at efficient indexing, creating a robust “memory” for SteveBizBot. Leveraging semantic connections in my data enables the bot to perform rapid and accurate searches, ensuring users receive relevant, contextual answers to their queries. This made Pinecone an excellent choice for building and maintaining high-performing AI-driven applications.

Building the Chatbot Brain

Since Pinecone does not provide hosting or application development, once the data was indexed and stored in Pinecone, we created an API in Pinecone so that Vercel, the tool we chose for creating the backend endpoints, could access the vector database on Pinecone.   

Finally, we wrapped it all in a chatbot framework using Python, OpenAI, and the GPT-4o-mini model. This is another way to keep the rollout costs manageable while delivering reliable performance.

Here’s how it works:

• A user submits a query.
• The query is processed through a framework called Retrieval-Augmented Generation (RAG). This ensures that the chatbot pulls its responses directly from the blog’s data, eliminating the risk of AI hallucinations, one of the goals of this project.
• The user’s query, combined with the data retrieved, is fed into ChatGPT, which crafts the response to the user using Natural Language.
• Each response to the user cites the blog post(s) used, giving users a clear source for more in-depth reading.
• Since the chat is retained in memory, the user can continue to interact with the bot by asking follow-up questions until all their immediate question are satisfied.

SteveBizBot’s Unique Value

What really sets SteveBizBot apart from just using a GPT that relies on a Large Language Model (LLM) is its source knowledge. Every piece of knowledge used to train SteveBizBot comes from my blog, which I personally researched and vetted. This guarantees users access to reliable, well-researched information, unlike generic chatbots that may pull from unvetted sources. Moreover, each response is linked to its original post, giving users a chance to dive deeper into the topics that matter to them.

Conclusion

Navigating a changing landscape requires adaptability and a willingness to embrace new approaches. Here are some key lessons you can take away from my journey:

• Regularly review your offerings: Ensure they remain relevant and aligned with the evolving needs of your audience or market.
• Leverage tools like ChatGPT: Use innovative technologies to reimagine the future and explore fresh opportunities.
• Start with a proof-of-concept MVP: Build a minimal viable product to gather early feedback and refine your ideas.
• Engage with experts: Seek out advice, remain open to constructive criticism, and conduct your own research to validate their input.
• Step outside your comfort zone: Embrace challenges to expand your knowledge and expertise.
• Document your experiences: Writing about your journey—whether in a blog post or procedure—helps solidify your learning and share insights with others.

By keeping these lessons in mind, you’ll be better equipped to adapt, innovate, and grow in a dynamic world.

What can you learn from my journey that you can apply to your business?

The post From Blog to Bot: The Journey of Building SteveBizBot first appeared on SteveBizBlog.

As a mentor to small business owners, one of the most common questions I hear is, “How can I make my website more SEO-friendly?” I’ve answered this question countless times, usually by discussing strategies like targeting keywords, improving backlinks, and optimizing metadata. For years, these practices worked well because they aligned with the algorithms used by search engines like Google. But lately, I’ve found myself revising my advice.

The rise of Generative AI tools—like OpenAI’s ChatGPT, Google’s Gemini, and Microsoft’s CoPilot—has turned the old rules on their head. Business owners who once depended on traditional SEO techniques now face a landscape where algorithms are no longer the gatekeepers. Conversations are.

Let me explain with an example.

From Search Queries to Conversations

Imagine someone is dealing with a slow-draining sink equipped with a garbage disposal. In the traditional search engine era, a user might type:

The search results would include a mix of sponsored links for local plumbers and other links the user must sift through to find a relevant answer to their question. Often, these links lead to plumbers far from the user’s location, rendering the company’s search engine optimization (SEO) efforts irrelevant to attracting this specific user.

Frustrated with having to read through perhaps a dozen landing pages, the user might refine their search to something like:

This would generate another list of ranked businesses, prioritized based on factors such as having a Google Business Profile, cumulative reviews, and strategic use of keywords like “best plumber in Monument CO.”

Now, imagine that same person using a conversational AI tool like ChatGPT. Instead of performing a simple search, conversational AI engages the user in a conversation to troubleshoot the issue. For example, the user who understands prompt engineering might start with:

The conversational AI doesn’t offer a long list of businesses for the user to comb through. Nor does it spit out just answers. Instead, it begins by asking the user relevant questions, such as:

This back-and-forth continues until the AI determines that the issue is likely a clog in the drain chamber and suggests calling a plumber familiar with your specific disposal model.

At this point, the user might ask:

Instead of providing a generic list of companies, the AI offers a tailored response, listing local plumbers along with their websites as well as a list of specific expertise in this disposal model and an explanation of why they might be a good choice.

Notice what’s happening here: interactions with conversational AI are highly contextual and personalized, focusing on direct answers rather than listing web pages. As more users shift from using traditional search engines to conversational AI tools, optimizing a landing page for keywords or owning a domain like “BestMonumentPlumber.com” may become less effective for visibility. Instead, conversational AI generates responses based on a combination of licensed data, human trainer input, and publicly available information. Unlike traditional search engines, these systems do not provide direct links to algorithm-selected landing pages or source materials from their training.

I have found that even if you request an AI chatbot to list its sources for verification purposes, the AI typically offers general guidance on where similar information might be found, such as academic journals, trusted news outlets, or official websites. While ChatGPT may sometimes provide links, these are often approximations that are not linked to the exact sources used during training. Furthermore, unlike Google, you cannot pay to be featured in AI-generated responses or to appear prominently on maps.

This shift—from static search queries to dynamic conversations—means businesses need to rethink how they create and present their content when it comes to marketing.

Why Traditional SEO is Losing Its Grip

For years, small businesses have lived and died by traditional SEO practices. Keywords, backlinks, and domain names were the currency of visibility. However, as AI chatbots gain popularity, many of these practices are losing relevance.

Exact match domain names—once the holy grail of SEO—are becoming obsolete. AI Chatbots don’t care whether your website is called “BestMonumentPlumber.com” or “SmithFamilyPlumbing.com.” They care whether you’ve provided clear, reliable, and helpful information.

And then there are the ranking hacks: hidden text, spammy backlinks, and other tricks that are used to game the system. AI chatbots don’t rely on these metrics. Instead, they focus on the quality of the information you provide.

Finally, let’s talk about the practice of keyword stuffing. In the past, businesses might cram their content with phrases like “best plumber in Monument” or include a list and full description of all the services they offer, never intended for humans to read, to rank higher on a Search Engine Results Page (SERP). But AI chatbots prioritize context over repetition. They’re looking for conversational language and meaningful answers, not robotic keyword density.

The Growing Momentum of Conversational AI

While the transition from traditional search engines to conversational AI as the primary tool for finding and interacting with businesses will not happen overnight, it is undeniably gaining momentum. As businesses increasingly explore AI-powered solutions, the shift is becoming more evident, and it’s critical for companies to start planning now.

A Personal Journey of Transformation

I know this firsthand because I have been on that journey myself. For years, I dedicated myself to writing a blog, producing content consistently, and optimizing it for SEO in the hope of driving traffic and growing my audience. I was laser-focused on keyword strategies, backlinks, and content creation, all in an attempt to outmaneuver the competitive landscape. Yet, despite my tireless efforts, traction remained elusive. No matter how much I poured into my blog, new resources like similar blogs and websites were being launched every day, increasing the competition. The sheer volume of options developing in my niche made me realize that I was stuck in an endless cycle of chasing traffic, expending tremendous energy just to maintain the status quo.

It was at this point that I began to reconsider my approach. I decided to step back and use first principles to re-examine my business. I took inventory of what I already had—my knowledge, experience, and the value I had been sharing through my blog—and questioned how I could leverage these assets in the context of a new paradigm: one dominated by conversational AI. I asked myself:

The answer, I realized, was clear: doing more of the same would not work. The traditional methods of SEO, relying on ranking higher in search engine results, were no longer enough to capture and retain customer attention in a rapidly evolving digital landscape, as few users were turning to traditional search for answers. What was required was a paradigm shift. Instead of simply chasing rankings, I needed to embrace the new rules of the game, rules shaped by conversational AI. And most businesses need to do this as well if they hope to cross the chasm from search to conversational AI.

As I began to understand the drivers of this shift, the future of my business started to come into focus. Leveraging knowledge and leaning into the AI-driven world became key to staying relevant. The new business model that emerged from my reflection and research wasn’t about fighting for visibility in a crowded search engine. It was about positioning myself as a knowledgeable and trusted authority, accessible through AI-powered tools that customers could engage with directly. This was the direction I had to move in.

Embracing Dynamic Conversations Over Static Content

For many small businesses, the transition to conversational AI solutions requires the same mindset shift I went through. The days of simply optimizing for SEO and hoping to stay ahead of the competition are numbered. In a world where AI chatbots are poised to become the main interaction point, businesses must pivot, or they will be left behind. Developing and optimizing AI-powered tools has become my top priority and deserves your attention, too.

What I realized is that the future business landscape won’t be shaped by static websites or endless blog posts created to appease SEO algorithms. Instead, it will revolve around dynamic conversations powered by AI chatbots. Businesses that harness the power of conversational AI will be able to engage customers in more meaningful ways, building stronger relationships and providing solutions at the exact moment they’re needed. Ultimately, customers will reward these businesses with their loyalty and trust.

The transition from traditional search to conversational AI requires businesses to rethink how they connect with customers. This shift isn’t just about adopting new tools; it’s about becoming more valuable to your audience and finding innovative ways to serve their needs.

Reflecting on my journey, here’s how you can begin taking actionable steps to implement and maximize the value of conversational AI for your business.

Start With What Your Customers Really Want

Where should you begin? Start by addressing your customers’ most frequently asked questions. Consider the issues they regularly bring up or the problems they’re trying to solve. If you’re unsure where to start, tools like ChatGPT can help you brainstorm and organize a comprehensive list of potential questions.

Once you’ve got your FAQs, put them front and center on your website. Not only does this make it easy for people to get answers quickly, but it also shows that you truly understand their needs. Plus, here is a bonus: FAQs are exactly the kind of content AI tools love to consume. They’re clear, direct, and packed with the kind of information AI can use to generate helpful responses.

To take it a step further, make your FAQs conversational instead of overly formal. Think of them as a friendly chat with your customers rather than a dry list of answers. This not only makes your content more engaging for visitors but also aligns with how conversational AI works, by mimicking natural, human-like interactions. It’s a small change that can make a big difference in how customers see your business.

Build Something Smarter: A Custom GPT

Now, imagine taking your FAQ game to the next level. What if you could create an AI chatbot that doesn’t just answer those questions but is trained on your content, such as your blogs, guides, and case studies, and uses that knowledge to provide detailed and accurate responses? That’s where a custom GPT comes in.

This is easier to pull off than you might think. Train your custom GPT with all the content you’ve already created, and then add it to your website. There are plenty of videos on YouTube that can walk you step by step through this process. Now, instead of just reading through FAQs and other sources, your customers can interact with an AI chatbot that gives them personalized, helpful responses. It’s like having an assistant available 24/7 to make their experience seamless.

Go Even Bigger: Share Your Expertise with the World

Once you’ve got a custom GPT working for your website, why stop there? Think about creating a portable chatbot version of it that other businesses or platforms can use. For example, if you’re an expert in a specific niche, your chatbot could live on other websites, helping their visitors while also showcasing your knowledge.

This doesn’t just expand your reach; it turns you into a go-to resource. People will start to associate your brand with the answers they need, even if they aren’t actively looking for you.

Make It Personal

One of the best parts about conversational AI is that it can make every interaction feel personal. Use it to recommend products, services, or solutions tailored to your customers’ needs. For example, if someone asks your chatbot about a specific issue, it can suggest one of your products or services that perfectly matches their situation.

This kind of personalization shows that you’re paying attention and that you really care about helping your customers. It’s not just about automating tasks; it’s about creating an experience that feels human, even when it’s powered by AI.

Keep Evolving

The world of conversational AI is constantly changing, and that’s a good thing. It means there’s always a chance to make your tools better and more useful. Keep an eye on new features, test what works best for your customers, and don’t be afraid to adjust your approach as you go.

Shifting from the search-first model, which focuses on SEO, to conversational AI might feel like a big leap, but it’s really just about focusing on what matters most: being valuable to your customers. Start by answering their questions, build tools that make their lives easier, and keep improving along the way. With a little effort and the right mindset, you’ll be ready to thrive in a world that’s all about connection and conversation.

How is your business marketing evolving in a world dominated by conversational AI?

The post How Conversational AI Is Changing the Rules of SEO first appeared on SteveBizBlog.

When I was first starting out in business, I dove headfirst into what I now know as category creation. My first foray into business was with Invisible Fencing as a franchise, a product that, at the time, was a completely new concept. Unlike traditional fences, Invisible Fencing uses technology to keep dogs safely contained without a physical barrier. The idea was innovative and exciting, and I thought it would make me rich, but as I quickly learned, breaking into an entirely new market category comes with unique challenges.

Looking back, my experience with Invisible Fencing was a crash course in category creation. It taught me hard but valuable lessons that I still carry with me today that I share with clients. Let me share those insights, along with what I’ve learned since, so you can decide if creating a new category is right for you.

What Is Category Creation?

Category creation means launching something so unique it doesn’t fit neatly into an existing market. Instead of competing with other products or services, you position yours as the first and best solution to a problem that most people didn’t even know they had. This was precisely the case with Invisible Fencing and that is why I was so excited about becoming one of their first dealers.

When we introduced the product, potential customers were unfamiliar with the idea of an “invisible” way to keep pets safe. They were used to traditional wood stockade or chain-link fences. To them, the concept of training a dog with a boundary they couldn’t see seemed too futuristic—if not downright impossible or a gimmick. The task of educating and persuading the southern Colorado market fell squarely on our shoulders.

Why It’s Tempting to Create a New Category

It’s easy to see why category creation is so alluring. If you succeed, you don’t just become a player in the market—you become the market. Think about how Kleenex is synonymous with tissues or how Uber is the face of ridesharing. With Invisible Fencing, we weren’t just selling a product; we were introducing a whole new way of thinking about pet safety. The potential for market dominance was a huge motivator for me at the time.

But the reality is that the path to success is far from straightforward. For every Tesla or Airbnb, there are countless companies that fail to gain traction. I’ve been on both sides of that equation, and I can tell you firsthand that category creation is not for the faint of heart.

The Challenges I Faced with Invisible Fencing

1. Educating the Market

One of the first and biggest challenges I encountered was educating potential customers. People had never seen anything like Invisible Fencing before, so their first reaction was skepticism. They didn’t understand how it worked, whether it was safe for their pets, or if it would even be effective. I remember talking to an insurance company that denied me a general liability insurance policy, saying that they thought that it had the potential to electrocute the dog.

I spent countless hours demonstrating the product at trade shows and during human interest news stories, explaining the technology, and, most importantly, convincing people that it wasn’t some sort of science fiction. This was a slow, uphill battle. Even today, educating the market remains one of the steepest challenges for anyone trying to create a new category.

2. Changing Consumer Behavior

Convincing people to adopt a new product is one thing; getting them to change their habits is another. For customers, switching to Invisible Fencing meant learning how to train their dogs in a new way, which was not complicated and only took about an hour over the course of several days. Many prospects were hesitant, preferring the familiarity of traditional fences.

This taught me a critical lesson: people are creatures of habit. Even when presented with a better solution, they often resist change. Successful category creation requires not just selling a product but also selling a new behavior.

3. High Costs

Educating the market and changing behaviors don’t come cheap—trust me. When I started my Invisible Fencing business, I quickly realized how much effort (and money) it would take to make people aware of our innovative product. Overall, my margins were quite small since most of it went into advertising because Invisible Fencing was a completely new category. I had to spend heavily on advertising just to get potential customers to understand what it was and why they needed it. This wasn’t a one-and-done effort either; it required consistent repetition to make our message stick in people’s minds.

This ties directly to the Rule of 7, a marketing principle that states a prospect needs to see or hear your message at least seven times before they’ll take action. With Invisible Fencing, we had to keep hammering home the benefits of the product—through direct mail, local newspaper ads, human interest news segments, and live demonstrations—so that potential customers could overcome their skepticism and finally take the leap.

Advertising, partnerships, and sometimes lobbying (if your category disrupts regulated industries) can quickly drain your resources. According to a study by CB Insights, one of the top reasons startups fail is running out of cash, and businesses attempting category creation are particularly vulnerable to this pitfall. Creating a new market is an expensive endeavor, and without a solid financial plan, even the most innovative ideas can fall flat.

4. Resistance from Incumbents

Whenever you create a new category, you’re bound to ruffle feathers. With Invisible Fencing, we faced resistance from traditional fence manufacturers, veterinarians, and even some pet trainers who were skeptical of our product and methods. I quickly learned that when you’re disrupting an established market, pushback is inevitable.

For modern examples, think of how ridesharing apps like Uber faced opposition from taxi companies or how Tesla disrupted the automotive industry and the oil industry. If you’re considering category creation, prepare to fight for your place in the market.

5. Uncertain Demand

When we first started selling Invisible Fencing, the big question was: would people even buy it? At the time, there was no proven market for the product. We had to take a leap of faith, investing in marketing and customer education without any guarantee of success.

This is a common risk in category creation. What if no one wants what you’re offering? Even today, businesses that pioneer new categories often struggle with this uncertainty.

Lessons from Invisible Fencing and Other Category Creators

Despite the challenges, some businesses manage to navigate the rocky terrain of category creation successfully. Reflecting on my experience with Invisible Fencing, here are some key lessons that apply to anyone considering this path:

1. Solve a Real Problem

One reason Invisible Fencing eventually gained traction is that it solved a real, pressing problem: how to keep pets safely contained without the cost, aesthetic, and upkeep downsides of a physical fence.

The same holds true for successful category creators like Uber, which addressed the inefficiencies of taxis, or Airbnb, which offered a cheaper, more personalized alternative to hotels. If your product doesn’t address a genuine need, it will struggle to gain traction.

2. Start Small, Then Scale

When Invisible Fencing was first launched, we focused on a niche market: dog owners who were early adopters and open to trying new solutions. This approach allowed us to build a loyal customer base and refine our messaging before encountering competition before our patent expired and we could scale up.

Tesla followed a similar strategy, starting with high-end sports cars before moving into the mass market. If you’re creating a new category, it’s often better to focus on a niche market first and expand later.

3. Build Trust Over Time

Trust is critical when you’re introducing something new. With Invisible Fencing, customer testimonials and word-of-mouth recommendations played a huge role in overcoming skepticism.

Building trust takes time, but it’s essential for category creation. Testimonials, reviews, and endorsements from recognized experts, such as veterinarians in our case, can go a long way in convincing hesitant customers.

Competing vs. Creating: Finding the Right Path

While the rewards of category creation can be immense, my experience with Invisible Fencing taught me that it’s not the right path for everyone. Competing in an existing category—what’s known as a “red ocean” strategy—can be less risky and more predictable.

For many businesses, differentiation within an existing category, known as a “blue ocean” strategy, is a more sustainable approach. Can you offer better customer service? Lower prices? A more convenient experience? Sometimes, improving on what already exists is more effective than creating something entirely new.

The Role of Timing in Category Creation

Timing is everything. Invisible Fencing succeeded in part because the market was ready for a solution like ours. The technology was advanced enough to work effectively, and pet owners were becoming more open to innovative solutions.

Timing has been critical for other category creators, too. Electric vehicles existed long before Tesla, but it wasn’t until advancements in battery technology, growing environmental awareness, and favorable regulations aligned that Tesla could thrive. According to the Harvard Business Review, category creators often benefit from what’s called “category maturity” when consumer awareness and demand hit critical mass.

Is Category Creation Right for You?

Reflecting on my journey with Invisible Fencing, I can say that category creation is one of the most challenging yet rewarding paths in business. It requires resilience, deep pockets, and a willingness to face skepticism and resistance head-on. But it’s not for everyone. If you’re not ready for the uphill battle, there’s no shame in competing within an existing category with a slightly different value proposition.

Ultimately, whether you choose to create or compete, the key is understanding your market, your customers, and your unique value proposition. My experience with Invisible Fencing taught me that success doesn’t come easy, but with the right strategy and perseverance, it’s possible to turn even the most ambitious ideas into reality.

Have you ever considered creating a new category?

The post The Challenges of Creating a New Category: Lessons from My Journey with Invisible Fencing first appeared on SteveBizBlog.