Should You Scale Your Business? Read This Before You Do…
Article by SETH GODIN – my notes and resources included below:
Why add new products, hire new people, increase distribution?
Is it to please the shareholders?
Or your customers?
Investment costs money and it wants a return. But your customers don’t care about that.
Use capital wisely, because sooner or later, you work for it, not the people you set out to serve or the market you sought to change.
This was sent over to me from my friend, Matt Smith, who has been the CEO of Stansberry and Associates. Which does multiple hundreds of millions a year.
There are times in companies where scaling makes sense, but while scaling, why are you doing it? How does that impact your cash flow (i.e. capital)?
I’m envious of companies like “Basecamp” (https://basecamp.com/story) who were profitable from the beginning while creating a continuity business that locks customers into a service that they need and love. (As I wrote the last sentence, I thought to myself, I wonder how many of my readers will take what is awesome about that business…and flip it into a question: “How do I create a business that is profitable from the inception, has continuity built into it, has customers happily pay to use the product/service as a utility in their life? That once integrated is pretty impossible to unplug?”)
It’s also what makes consulting, info, and coaching businesses appear to be an easier path to go in many ways. Since I run both types of businesses, I still contend that having a business that sells a great product, where people happily pay, and can be run by others is a great asset. (Most coaches are working their asses off trying to get people into their mastermind or coaching club. If they don’t add people in, they don’t make money. Whereas for me, I spend most of my time talking guys out of joining my mastermind in order make sure they are ready to kick ass..which in turn gets them more appreciative of my generosity… and they end up joining. I can do this very casually, because I have a cash flow machine that runs daily whether I’m there or not. Just sayin’.)
Back to the idea of “SCALING” or not. The key is to squeeze capital to work FOR YOU. While on the stage, at Tanner Larson & Los Silva’s Build Grow Scale event, Imran Rahman made a comment that stuck with me, “I look at money as my soldiers that have a job.” Paraphrasing he continued…and that job is to go out and return with more sooner rather than later while you are growing your business.
In an effort to “Scale” a few years ago, I built a business for everyone else besides me. “Growth” is an idea that gets imposed on us without a true definition with guidelines. Good Profits is really waht you are after. Charles Koch, just came out with a book http://www.goodprofitbook.com/
Any good marketer can create a company that can make a “first sale”…and possibly a first profitable sale. However, if you try to scale a business that appears profitable on the first sale…without ensuring “good profit”, then you will end up in an arbitrage race as you add layers of complexity, cost, and your small leaks will become enormous Tsunami’s of cash sucking vampires.
Since I self fund all my own ventures, decisions about capital are vital on multiple levels (personal and professional). As entrepreneurs, you are always trading your resources: your time, your wisdom, salaries for talent, and capital to fund your marketing, research, product cost, etc… the big question today is: How are you using your little soldiers today? Are they bringing you more than you are sending out? Is your business better off staying smaller and servicing your existing customer to ensure GREAT PROFIT…then if a distribution channel delivers highly profitable customer acquisition opportunities, can you scale strategically, intelligently, with great cash flow?
More Resources On Starts Ups and Scaling:
Vince Fisher: Scale with Purpose: My Interview With Vince Fisher discusses both of our experiences going from zero to multiple 10’s of millions. He shares how at one point they did over 100,000,000 yet didn’t know where any of the profit was coming from.
Roland Frasier: How to start and scale your business through relationships! Roland is a good friend of mine and very smart businessman. You’ll enjoy this video interview as we touch on a lot of topics from money mindset, strategic relationships, and scaling.
Hard Things About Hard Things by Ben Horowitz
Ed note: Excellent book, that every CEO must read and anyone even closely interested in starting a business. Excellent chapters about scaling, when to sell your business (if you should), and how to handle bad news.
“Zero To One!” by Peter Thiel (One of the co-founders of Paypal)
Ed note: One of my biggest takeaways in this book was that PayPal focused on a small market of only 20,000, before they even considered growing beyond that. Also, read this article to see what they did to finally get customers and why their growth was crazy: Insane Paypal Story
Rework! by Jason Fried and David Heinemeier Hansson Founders of Basecamp
Ed Note: Get this book. Man- these guys throw out a TON of conventional thinking and will have you questioning a lot of main stream business concepts.