Have you ever watched the television show This Old House? Imagine you're on it, working on a 75-year-old house with its original electrical wiring and plumbing. What would happen if you plugged in a full complement of modern electrical appliances? You'd blow your fuses, not to mention create the potential for an electrical fire to break out. And what would happen to your plumbing if you went from a well-water system to tapping into the higher pressure of city water? (Can you say rain gear?!)
Likewise, too much growth that makes increasing demands on old, outdated systems is what causes most growing businesses to fail. The systems that worked for a $500,000-a-year business are no longer sufficient to cope with a $5 million business, and not even close to being adequate for a $50 million business. At first, the additional sales will cause a few "leaks," but before long, your business will have burst pipes and water everywhere! That's why one of the key building blocks of a truly successful business is scalable solutions. (We call this type of business a Level Three Business. A Level One business is a start-up; a Level Two business is an owner reliant business that works only because the owner is there each day to make it work; a Level Three business is a systems driven business with a winning management team in place.)
Case Study: Morgan
Morgan was a young man in his late 20s when he started his mortgage brokerage company, Morgan Financial. He built a successful Level Two business for himself in Portland, Oregon. After a few years operating in one office, Morgan took the scary step of opening a second office. It turned out to be profitable, and for a time, he settled back enjoying the results of his two offices. If that were the end of Morgan's ambitions, the story would have ended like it does for most small-business owners... with Morgan settling back into his 30- to 40-year role of running his two-office mortgage business as a self-employed business owner.
And for years, that's the business he was satisfied with-two offices helping home buyers get mortgages. That was until he met a key mentor named Doug. About 10 years older than Morgan, Doug had built up several successful businesses. He provided the capital, confidence, and counsel that Morgan needed to scale his business to Level Three.
Over the next eight years, Morgan went from two offices with a handful of staff to more than 200 offices and 1,000 team members in 23 states doing $1 billion of loans annually. Morgan made the first leap from one to two offices by himself in four years. With the help of his mentor, he went from two to 200 offices-a one hundredfold increase-over the next eight years! How did Morgan explode his business from two to 200 offices in such a short time? He followed the Level Three Road Map and built a systems-reliant business with sound controls and a clear way of doing things that he and his team scaled rapidly.
Morgan and Doug ended up selling their company to a private equity firm and made millions because they actively understood and followed the Level Three Road Map (our name for the step-by-step, level-by-level progression through the lifecycle of your company from launch to exit.)
Now back to you and your business!
Scaling your business requires building it in such a way that your model and systems can be rolled out and replicated on a much bigger playing field. This also means when you're solving a business challenge, you look for solutions that can be scaled. For example, imagine you're an online retailer who sells physical products online. One choice for shipping customer orders is for you to hire your cousin Vinny to come over each day to your garage and box and ship out your orders.
Vinny is an extreme example of an "unscalable" solution. You could improve the situation by hiring a full-time person to set up and run a formal in-house shipping department. This solution would be slowed by your need to hire more people and secure more space as you grow. Plus, you'd have to invest in the technology and develop the systems to cost-effectively monitor your inventory and do your shipping.
A third-and scalable-solution would be to outsource your shipping to a professional fulfillment company that already has thousands of times the capacity and proven systems to reliably ship your orders.
Take another example. Imagine you're building a web platform to process orders from your traveling sales force. When evaluating which platform to purchase, a Level Three thinker would choose one that could handle the high transaction volume you eventually want to have, provided the cost for this greater capacity isn't too high. If the cost doesn't make financial sense, consider a smart alternative. Choose a platform that can be easily upgraded later as your sales volume increases and you have the excess cash flow to warrant the upgrade. You'd say "no" to any platform that couldn't handle your expected sales volume or be easily upgraded and expanded later.
7 Examples of Scalable Solutions
Scalable solutions are flexible. They remove barriers to growth and eradicate unnecessary constraints. Here are seven examples of scalable solutions that business owners we've worked with have used to profitably scale their companies:
1. Outsource inbound orders to a call center. You not only benefit from the flexible staffing of the call center, but you get instant access to the systems and technology that the call center has developed to handle hundreds or thousands of times the call volume you may initially have.
2. Create a new client "Quick Start" DVD or kit that introduces new clients to the steps they need to know working with your business. Then a live staff person isn't required to constantly repeat the information. This could be something you hand to a new client or post on your website and email the link to a new customer.
3. Build an online inventory control database that automatically ties your sales data into your inventory control, accounting, and purchasing systems.
4. Move from working with one client at a time to working with a group of clients. For example, you could offer webinars and teach online classes to hundreds of clients at the same time with no added time and few additional costs. (Bonus: Make recordings of those classes available for later download by thousands of additional clients.)
5. License a key piece of intellectual property to another company for a royalty.
6. Joint venture with a complementary company to provide your customers with a new product or service to purchase and enjoy. No fulfillment or customer service would be necessary on your part.
7. Create a hiring and new-team-member orientation system that allows you to staff up quickly as your business grows.
Take a moment and write down two concrete ideas that came to you as you read this article on scalable solutions and how you can apply them to grow your business.