Scalability of your business

[genuineoptimist]

What takes to scale-up a business?
What is the maximum possible revenue and profits that scaling can bring?

For instance a software for a mobile phone can have a target market of all handsets in the world, which gives the business owner a great potential scalability.

However a restauranteur will be forced to franchise out if he wants to open in a hundred places and then he will focus mostly (& maybe only) on branding as in KFC or McDonalds, forcing him out of his core business to something else. In a way, scalability doesn't exist in such businesses.

So the potential scalability & the effort it takes is also a consideration before starting up. Please correct me if I'm wrong.

 

[garyk]

You should read the e-myth by Michael Gerber, which constantly refers to McD's as an example. The key is that you need to implement systems and roles in the business so it can run (almost) autonomously. Many businesses are built around the skills of an individual so that the business is that individual and is reliant on the skills and knowledge of that individual.

Gary

 

[Ashley_Price]

Very true, Gary.

I was at a business seminar a few weeks back and one of the points that the presenter said was you can tell whether you are "self-employed" or a "business owner". If you are a business owner, you could go away for three months and your business will continue to run happily without you.

I think that's what most people aim for when they go self employed.

 

[genuineoptimist]

You should read the e-myth by Michael Gerber, which constantly refers to McD's as an example. The key is that you need to implement systems and roles in the business so it can run (almost) autonomously. Many businesses are built around the skills of an individual so that the business is that individual and is reliant on the skills and knowledge of that individual.

Gary

This is not the issue that I wanted to discuss, however the point you bring-in is also significant.

Since the entrepreneur is a start-up specialist and his skills are around this area, when the business can run on its own won't the entrepreneur lose interest in it & move on to start something else? A serial entrepreneur, maybe? A CEO can then be brought in to manage affairs. Or if its a small-business a general manager is sufficient enough.

If I just want to own an autonomously running business, I can just buy such a business and remain an investor as Buffet does. Passive investor, active investor, owner-manager, non-owning CEO are all roles at different points in the ownership-management spectrum.

But what I intended to discuss was about the scalability of the business once we have the initial profits. Some businesses can easily be scaled-up once we have it running (software products) while others can't be (speciality restaurant, a surgical hospical etc). I wanted to see if this is right?

 

[genuineoptimist]

I think that's what most people aim for when they go self employed.

If I don't want to be involved in day-to-day running of a business, I can buy a self-running business and achieve the aim in day-1, isn't it?

Being self-employed doesn't have an aim, it is the process of self-employment that matters. As someone said, It is good to have an end to a journey, but it is the journey that matters in the end.

To prolong the journey as much as possible is what matters. A scalable & sustainable business that can keep me self-employed for most my career is what I'm interested to get into. A business that can run itself will cease to challenge anymore.

 

[Ashley_Price]

Sorry, I was in a rush and didn't finish explaining myself.

As the business owner you should not be involved in the day-to-day business, your role is to plot the direction you want the business to move towards - not be down in the engine room greasing the pistons.

So, to take my business, if I am sat here typing, answering the phones, doing the admin, etc., when do I spend time on growing the business?

Like the old saying goes "You should work on your business, not for your business".

 

[genuineoptimist]

Like the old saying goes "You should work on your business, not for your business".

Exactly. You can work on your business only if there is a potential for it to grow in scale or scope. And not all small businesses give that potential growth opportunity to the business owner.

Being an entrepreneur I have to strike down a few businesses opportunities as not having expansion potential even if immediate money making is possible. Kind of foregoing short-term benefits for a longer-term goal. I categorized restaurants and other real-estate plays into this category.

All I want to know is - Am I right in saying that real-estate oriented retail outlets don't have expansion potential. Well, franchising is there.. but I am not a great fan of that model.

 

[CKG]

Am I right in saying that real-estate oriented retail outlets don't have expansion potential./QUOTE]

Well you could always buy another real estate orientated retail outlet modeled on your other one in another zip code and hey presto, you've scaled your business. Keep doing this and soon you'll have a big scaled up business.

Or have I miss understood your question?

 

[genuineoptimist]

@CKG - I don't think that can be called scaling-up.

Scaling up is acquiring a whole lot of new customers by using existing investments in people, processes & infrastructure or with minimal additional investments. By increasing utilization of resources till it is maximized. If its already at maximum capacity, then incrementally invest in bottleneck resources.

Buying a second shop doubles the investment and doubles the revenues. It is not scaling up. Or is it? :|

 

[garyk]

Well depends on the industry I guess as sometimes the quickest way to grow the business is to acquire a competitive business and roll it into your own. As an example this happens alot in the telecoms industry as it suffers from what I call 'inertia', people will stay with their current provider as they cant be bothered to move so rather than spend thousands on an agressive marketing campaign it is to acquire another business with an existing base of 100s or even 1000s of customers.

That said I think again systems are the key. Regardless of a franchise model or not, if you have a successful business in 1 location that you can systemise and document to the point of an operations manual then you have something you can duplicate and apply to locations 2, 3, 20 etc etc etc

 

[LindsayManning]

Hi there, this is an interesting post to read. Mainly because my company is now 4 years old and is becoming a struggle to keep up with expansion and scalability but it is the natural direction for us.

Out rough timeplan is:
- 10 years ago me and a Uni friend left permanent coder roles to become independent freelancers.
- 4 years ago we joined forces under a Limited company
- 3 years ago kept a lot of repeat work with existing companies while always taking on new work. We got to the stage where we realised we were permanently working very long hours trying to keep up with all the work coming in. We had to decide to start turning work down and stay as 2 freelancers under a limited umbrella or keep bagging up the business and see if we can expand to cope.
- This year doubled our team size to 4.

So now we are spending a lot more time on other things like meetings and getting work, invoicing, and writing proposals/quotes. It is quite mad how your roles have to change throughout the life cycle but I think we (me and the other co director) can both say now we spend only half our time as code monkeys (our degree subject and career path choice) and now spend more and more time as other roles in a growing company.
We do set monthly goals and try to keep our eye on the ball because it is easy to go with the flow and forget to steer your company in a direction you want to go in (like prototyping rather than copying etc).
It has been a great few years so far and I look forward to where we are going. We seem to be running a virtual office and cheap business very well so far. I agree with genuineoptimist that you might have to recognise a time when you need to bring in a CEO or even project leader / daily admin type person to allow you to get right back into doing what you love about the business.
It reminds me of an owner of a lorry company who leaves the office running to someone else because he loved the mechanical side of it so much. He was happiest with a spanner under a lorry rather than dealing with the scheduling, invoicing etc. You have to remember what makes you passionate about it and try and make sure you get your fair share of that work.

Umm I guess I am rambling now, but I wanted my point to be that by taking the decision to make your company scalable you quickly lose a lot of the roles and tasks that you might of originally loved about the old company. The moneys great though heheh. Plus hopefully we can get it to the stage that it ticks over how we want it to and it frees us up a little to try out new things.

Cheers for letting me put down my two penneths worth,

L

 

[lemonhemispheres]

It was good to read your honest and interesting post Lindsay. I'm a recently new business and am currently still perfecting my systems and processes, so I am very much in the engine room greasing the pistons at the moment! but it's my idea and my passion and I have to do this to get the motor running and looking fabulous so that it is an attractive prospect. Then I can start expanding appropriately. At the moment it's just me and I sub-contract various tasks. But the route to expansion is something that I'm thinking a lot about. There are many ways to do it, and many ways to do it wrong. I suppose it is like the process of starting-up in business where there seems to be so many roles and things that need doing that you can't see the wood for the trees when it comes to the day-to-day tasks, only the vision of where you want to be and that mental overview keeps things heading in the right way, and then there's a point where you get a sort of clarity and can feel things coming together.

My essay over now, but this is a really pertinent discussion for me at the moment and I can see that I am self-employed rather than a business owner. I'm working on turning that around.
Incidentally, on this topic I read a good book recently called 'Rich Dad, Poor Dad'
(just went to get it to give you the authors name but my borrower hasn't returned it - don't you just hate it when that happens!)
Anyway, it gives a good discussion of the difference between being an employee, owning a lifestyle business, working in a business, or working on a business.

 

[genuineoptimist]

I read a good book recently called 'Rich Dad, Poor Dad'
(just went to get it to give you the authors name but my borrower hasn't returned it

Why do people forget Google and Wikipedia? Robert Kiyosaki wrote Rich Dad Poor Dad. http://en.wikipedia.org/wiki/Rich_Dad,_Poor_Dad

 

[adventurelife]

There is no straight answer to this as it is different depending on the industry.

As you correctly point out software does scale up in the way that I think you are looking for in other businesses.

In my own small world I am using a mixture of scaling up and buying other similar businesses.

For example I have used the resources , human, equipment, knowledge etc to start other businesses in other locations doing the same thing.

However, to really scale up to the size that I want to I have to buy businesses in different location and although that is not true to the model I think you are looking for if does bring benefits of scale.

So I have a combination of 2 models to achieve the end game. In what I am trying to do it is the only way as just expanding buy the first route would take to long.

 

[BusinessIdeas]

@CKG - I don't think that can be called scaling-up.

Scaling up is acquiring a whole lot of new customers by using existing investments in people, processes & infrastructure or with minimal additional investments. By increasing utilization of resources till it is maximized. If its already at maximum capacity, then incrementally invest in bottleneck resources.

Buying a second shop doubles the investment and doubles the revenues. It is not scaling up. Or is it? :|

I think that opening multiple shops in the same retail sector would fit most peoples perception of what 'scaling up' means.