Business Systems vs. Sweat Equity

Welcome to the Dave vs. Startups.

When your business starts growing really quickly, you hit this brutal reality check about scalability.

You can "sweat equity it for a bit", put in more hours, let your life suck outside of work a little more.

But you can maybe get through it if it's short-term.

The key is understanding this is just a bridge to get you to the next level of systems.

Here's how I learned to navigate the transition from grinding through growth to building systems that actually scale:

I remember these growth peaks from my AppArmor days.

Picture a chart where you're going up and up.

You're getting busy, then you build a system, and suddenly you're less busy.

Then you hit another level because of something else, introduce a new system, hit a new plateau again.

The goal is always AED:

Automate, Eliminate, or Delegate

That's generally the approach when your business is growing really quickly.

But here's what most founders miss…

You can't always implement systems while you're drowning in the day-to-day operations.

This was a huge problem at AppArmor.

I could see bottlenecks in our deployment process, development process, sales process, you name it.

But at the same time, orders were coming in, things were happening, and you can't easily move to working on the business when you're stuck in it.

The prioritization of building systems versus executing daily operations is really, really hard.

I think this is something that founders or senior leadership need to both plan for and execute.

It's not something you need the people in the trenches to figure out.

Think of it like developing the first tank to make trenches useless.

You need people above the day-to-day warfare who are trying to find a way out of the quagmire.

You need to see the problems and build the systems to scale around them.

But here's the reality…

That sweat equity phase is necessary sometimes.

You have to get uncomfortable and push through periods where your workload is unsustainable to reach the next plateau where systems can take over.

The magic happens when you get a system that takes you back down to a reasonable average per-person workload.

The delta between where you were grinding and where the system brings you?

That's profit, effectively.

I was always obsessed with profit per employee as a metric.

At our peak, we had about $7 million ARR with 16 people and 60% profit margins.

That kind of efficiency comes from sucking at first… but then systematically building your way out of the sweat equity trap.

The key insight:

Sweat equity isn't sustainable long-term, but it's often necessary short term to bridge the gap between where you are and where your systems can take you.

The founders who win are the ones who use that grinding phase strategically to build themselves out of it.

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They didn't pivot at $150M in revenue, and it cost the founder his company. How do you know when to push, pivot, or pull the plug? It's not easy. We tackle that in the latest episode of the pod. Tune into the Startup Different Podcast