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In the summer of 2023, I drew a line in the sand on the issue of scalability. I was in the process of writing my book, Balance: How to Build a Scalable Business With Less Stress and More Profit, when I realized I could no longer support the old-school rental model in good faith.

It was time for a manifesto.

The article that follows laid out my vision for the Live Events industry from a tactical standpoint. How do you operate a scalable business in a seasonal industry? What does that business look like?

The more time I work with my clients on navigating this journey from Rental to Services, the more convinced I am that this is the right path. However, that doesn’t mean we can’t make it better!

So much has happened so quickly that I thought I should revisit this article and see how it’s holding up. No surprise, it needed some updating.

One thing in particular that’s changed between my original platform piece and today is the business spheres. Sales, Planning, and Procurement have evolved to Selling, Planning, Administration, and Execution.

Let this be a reminder that we can never settle for our best ideas. We have to keep searching for better ones.

Pay attention: The changes here might seem minor, but the implications are significant.

A Look Back

In 2020, forward-looking Live Event companies pivoted their business models to include virtual events and, in the process, discovered how profitable low-overhead, outcome-based selling could be. But many folks thought this was just a temporary solution.

In late 2020, I started looking into whether this strange phenomenon of higher profit for less work and less stress could be repeated when in-person events came back.

The initial modeling was easy:

1. Extreme outsourcing is the practice of buying all direct costs only when needed.
2. Extreme insourcing is the practice of keeping all direct costs in-house.

The former requires that you have a ready supply chain, deep knowledge of costs, and control over your scope of work. The latter requires that you have a steady stream of revenue that matches your inside resources.

What happens when revenue drops to zero?

The outsourcing model keeps looking for work, while the steady drip of overhead costs uses up available cash and credit. Since the operator knows what their costs will be, they don’t take work that won’t be profitable. They can still be picky about which customers they choose to do business with.

The insourcing model keeps looking for work, but has lots of overhead expense and unused direct expense that expects to be paid every week. The demand for cash flow drives margins down, which also attracts the worst kind of customers.

What happens when demand is high, as we saw in 2022?

The outsourcing model takes the work it can service profitably. It must turn down revenue when the supply chain becomes too constrained.

The insourcing model gladly takes available work. Hopefully, it will turn away customers when the supply chain tightens. However, since the focus is on revenue, insource companies tend to take on more work than they can support, which leads to reactive buying.

Side note: This had devastating effects on old-school companies during the supply chain shortage.

From a pure finance perspective, the outsource model wins over insource, but insource models believe that insourcing is why their customers buy from them. In other words, it’s a strategic choice.

Insource companies tout their well-trained staff, reliable equipment, and flexible pricing. A large subset of buyers believe insource companies are more responsive, more dependable, and demonstrate better value compared to pure outsource suppliers.

In my assessment, insource companies tend to attract price shoppers, who know they won’t get turned away. Outsource models tend to attract quality buyers who will pay a bit more for personalized solutions.

Branding, marketing, and confidence weigh heavily in the Live Event world, regardless of your model.

In the end, the choice between being an insource or an outsource company comes down to what customers you’re trying to serve. For many insource owners, the pride of owning equipment and having technical experts at their disposal drives their decision. For others, the fear of unused overhead makes outsourcing more attractive.

To be fair, the extreme, pure models are very rare. Still, it’s important to understand how the extremes would function in order to appreciate the inherent benefits of each model. Both models gravitate toward a more balanced approach in practice, which is where we find scalability.

In other words, this isn’t a zero-sum game. You don’t need to be 100% insource or outsource. There is a right amount of balance that makes strategic and financial sense for your business goals.

The Search for a Scalable Balance

By early 2021, it was pretty clear that a more aggressive outsourcing model would exceed expectations.

Low overhead kept companies in business during the volatile demand cycles of the prolonged pandemic. However, as vaccines became widely available throughout 2021, pent-up demand for in-person events peaked. In March 2022, the floodgates opened and EVERYONE wanted an in-person event NOW.

What’s an owner to do?

Up to this time, there hadn’t been enough steady demand to justify bringing back a full technical team. Likewise, new equipment purchases had been on hold. Ramping up quickly wasn’t going to be easy. And then… it got worse.

Out in the free market, unemployment (in the U.S.) reached an all-time low. The freelance technician pool was much smaller than pre-pandemic. Manufacturing supply chains were just starting to ramp back up, but logistics were hampered by a truck driver shortage and a lack of rental trucks. No raw goods, no finished products, and no trucks to deliver them anyway.

The perfect storm of demand for live events ran smack into the middle of a supply chain crisis.

The Live Event production world was suddenly split into two camps: those who turned down work before they were overwhelmed and those who didn’t. Unsurprisingly, these camps also represented the outsource and insource models.

What outsource owners learned during the pandemic and supply chain crisis was that your costs should dictate your prices. As costs rise, so should your prices. As risk increases, additional margin should be added to compensate the risk-takers.

At the same time, it’s important to develop a reliable supply chain. Cultivate scarce freelance talent, develop a wide selection of rental equipment resources, and keep a finger on the pulse of those costs.

Outsource owners were already primed to turn down work. Insource advocates were caught flat-footed.

The idea that you could always “take one more job” had now become dangerous, especially when one more job presented itself every hour.

Any prices left over from 2019 were suddenly below current cost. If you didn’t monitor your supply chain, some of your jobs could lose money. Addressing the root problems of out-of-date pricing and a shortage of suppliers could have been solved in a matter of weeks, but many companies were shipping out every last person to fill out their show rosters.

Famine would follow this feast.

This wasn’t a win for outsource modeling and a loss for insource styles. Rather, it was recognition that supply chain management is key to running a scalable business no matter what balance level you choose. Understanding availability, costs, and margins also taught us that you should probably turn down work when it’s no longer economically viable.

The surge in demand coupled with the unprecedented supply chain crisis was a wake-up call for owners everywhere to pay attention to the entire market and adjust their business model accordingly.

You can’t sell and plan the next show if you’re on show site today.

Outsource models are inherently more scalable than insource, but companies built on rental assets and full-time technical teams offer an important alternative value proposition to their customers. Both models can be scalable, but how they scale is different.

The solution is to seek the ideal balance for your business.

What Is Scalability, Really?

What is scalability? How does it help us find the right balance?

Scalability is the business model in which overhead expenses aren’t designed to subsidize or replace direct costs. We outsource as many direct costs as we can, and the remaining inside direct costs are used ON DEMAND.

A recurring direct cost without corresponding revenue is a failure in scalability.

The goal is to have no unused (i.e., unpaid for) inside direct costs while, at the same time, not cutting margins to keep those direct assets working.

Note: If you have to pad show crew schedules with shop work, you’re grossly overstaffed.

Some have misinterpreted the concept of scalability to mean extreme outsourcing, but a clearer understanding of the concept advocates for balance. You might lean a bit to insourcing or to outsourcing, but staying in balance means adding and subtracting resources and adjusting processes nimbly.

In a scalable model, as revenue grows, profit as a percentage of revenue also grows. Some call this a low-overhead model, and it is, but scalability isn’t cheap. We don’t cut corners. By making sure each employee is operating at their highest and best use, each process is managed by an expert.

Scalability is extremely efficient. Your head count is lower, but the need for experts is higher. The full-time team is focused on revenue acquisition, planning future projects, and supply chain management to support the projects. Those resources are always focused on the future.

Additional direct labor on the full-time staff mandates steady demand and 100% utilization. These employees are focused on the now.

The steadier your demand, the more viable additional insourcing becomes.

A truly scalable company needs half the employees to manage the same amount of revenue, but those employees need to be twice as good at their jobs.

What Does Balance Look Like?

The people look much the same. The processes they follow are different. Job descriptions and roles are more focused.

Balanced companies avoid the short-term trade-off of allowing a production coordinator to leave their post for a show position… to “save money.”

If there’s nothing left to plan, you have a selling problem!

Many business owners hear about the scalable model and recognize it from their first year of business, which was actually pretty scalable. As the company grew, those results didn’t seem sustainable, so they added people. Then more people.

If we’re too quick to grow the team, we often lose sight of what the core process of the business should be. In the effort to support new job descriptions, we forget to share talented employees across multiple processes, which creates huge bottlenecks in communication, planning, and knowledge sharing.

Scalability is a different process that requires a different organizational structure.

Consider selling, planning, and administration as the three primary spheres of business process. In our industry they serve an internal customer: execution. More on that in a moment.

These three functional spheres replace the traditional sales, operations, project management, and finance silos we’re familiar with. The goal is always to do a good show, but each sphere makes a significant contribution in tandem with the other spheres.

Collaboration is key.

The selling sphere fills the forecast with valuable projects by delivering properly quoted and confirmed orders. This requires effective marketing, business development, technical design, creative design, estimating, proposal development, and account management.

The planning sphere delivers a properly vetted and planned order ​​to the field project manager. But first, planning needs to source all the equipment, supplies, services, and talent it takes to do the job.

They do this with the help from centralized purchasing, which manages the supply chain, recruits new suppliers, and makes sure you’re working from the latest costs. Professional procurement can outsource ANYTHING if you can accurately describe it for them.

The output of planning is a well-documented plan (show book), the right crew, and the perfect equipment prep. In traditional models, project manager roles include many redundant processes and tasks. Planning absorbs all these tasks, centralizes services for quality and consistency (not to mention cost-effectiveness), and communicates the plan to the execution team, which might include the show’s “project manager.”

These spheres are naturally collaborative, unlike the silos many event production companies experience. No one’s job ends, and there are no handoffs.

However, it takes more than show people to run a company. Administration keeps the machine working. Selling handles revenue (highly profitable, I might add). Planning manages costs of goods sold (where the real money is made). Administration manages everything else.

We don’t neglect Execution. Whether that team is staff, freelance, or B2B subcontractors doesn’t matter. They need the same information, support, and authority to do their jobs.

Execution is the internal customer of Selling and Planning. Administration makes sure they get paid!

Sounds Great — What’s the Upside?

Scalability delivers on two big promises:

1) It’s much less stressful. Resources aren’t double- and triple-dipped, and you don’t need to overthink job cost or micromanage expenses. Your risk is inherently lower. Burnout is dramatically reduced.

2) It’s 5–10 times more profitable. Scalable models exchange slightly higher costs of goods sold (or direct costs) for lower overhead expense. You won’t need to sell on price, but scalable companies often do because they understand the inherent profitability in dynamic pricing.

This isn’t just theory. My clients have been implementing scalable choices since 2020, and the results have been phenomenal. Yes, the scalability model makes a lot more money, but what delights me the most is how much easier it is to operate.

Scalability redefines busy — actually, it makes busy obsolete.

You don’t need to feel busy all the time. You don’t need to chase revenue to make ends meet. All you have to do is commit to lower overhead and turn away unworthy work.

Instead of trying to bolster bad months with crummy revenue, set lower targets for busy months — which means you can keep your overhead in check.

If you want to learn more about scalability or have a deeper conversation with me on this topic, visit trstimson.com/scalability.