Thanks for following along with my workshop study guide. I hope it is thought-provoking and getting you excited about the possibilities. We are just over one month away from Jumpstart where we will dive on to many of the key aspects of implementing Intentional Scalability.
Back to the lesson:
When I begin work with a new client, I try to understand what their day is really like. At first, I mostly hear about the highs and lows, the top of mind things: big wins, disappointing losses, unexpected problems.
Soon, we expose the underlying issues that tend to amplify otherwise normal events into highs and lows: lack of clear messaging, poorly defined roles, missing skill sets.
Eventually, we get to that individual’s real goals. What do they want from life? What do they need from their business? Why can’t those things happen sooner?
What do owners really want?
Chapter 7 — What’s the ROI of a Good Idea?
If you could fix one thing about your business that would pay for itself quickly, what would it be? Here are some ground rules: It has to solve a nagging problem. The cost would be recouped in less than one year. The budget is limitless. The expense includes whatever expertise you lack to do this yourself.
One of my clients changed all the lighting fixtures in their 40,000 sq. ft. warehouse to wonderfully bright, highly efficient LED. Their electric bill dropped by 22% and a state grant covered half the cost of fixtures and installation. The work environment is safer, and they no longer have to buy fluorescent tubes or lamps. No-brainer, right?
Warehouse lighting upgrades aren’t very exciting, but that lower overhead means the company generates profit sooner for years to come.
Why isn’t it this easy to generate higher profit from your core business?
Some business models make more sense than others. If your line of work is complicated and mistakes are potentially expensive, then razor-thin profit margins are probably not a good plan. Seasonal revenue also increases business risk tremendously, which affects 75% of our industry.
Scalability seems like common sense. Is this a good idea?
The ROI on a good idea is zero. You have to apply that idea to reap the benefits.
How Is Scalability Different?
Imagine an organization chart where every single role is needed every day.
100% of the team supports some or all of the processes to acquire revenue, plan the work, and procure the resources needed to deliver the end result. All direct labor (i.e., the delivery) is outsourced.
On the busiest day of the year, the entire full-time staff still focuses on acquiring new revenue, planning future jobs, and hiring the right people to execute those jobs. They’re not on show site just because you couldn’t find anyone else to do it (or because you thought that would save money).
This is the ideal version of scalability. Your version will look different. You may own some or all of the equipment you use, employ a few Producers and Project Managers, own your trucks and have a full-time driver or two, and even have full-time technicians.
What determines whether you’re scalable is how well you can control those costs when revenue fluctuates — not where they appear on your P&L.
To put it simply, processes and procedures need to change to adapt to the scalable profit model.
How Is This Better?
Scalability is both a mindset and a lifestyle.
You will worry less about revenue and cash flow:
The amount of revenue you need to break even each month becomes less than before. For most companies, your recurring business alone will meet your basic needs, allowing you to target ideal new customers. Plus, you will confidently state your payment terms and get them. Scalable sellers are braver.
Buyers won’t be able to push your buttons to scare you into dropping prices:
That bravery carries over into pricing. Customer slashes their budget? Fine, you can reduce the scope of work. Your value proposition doesn’t need to be “We over-deliver and take the hit for our customers’ lack of planning.” You have the time and patience to curate better customers.
Profit will become more important than revenue.
A $5 million company that makes 25% EBITDA is worth more than a $10 million competitor that only earns 12.5% EBITDA when you consider the selling multiples of a high-profit company versus a low-profit one. But it’s bigger than that. A highly profitable $5 million company can handle more revenue with very modest increases in overhead expense. Low-profit companies have to add overhead in step with revenue, and usually their direct costs increase at the same time.
The pressure to grow revenue is strong, but it’s also unnecessary. Improve revenue, then add more of the right revenue.
This Sounds Painful
I won’t lie to you. There are people and resources in your current business model that should be outsourced.
When the pandemic hit, you were faced with laying off or at least furloughing most of your employees. (I still have flashbacks.) As a result, most of my followers have been cautious about rehiring and diligent about outsourcing and otherwise controlling monthly expenses.
You’ve already done most of the painful steps. You’ve retained or rehired the best of your team. Now, the challenge is to use them correctly:
Acquire business, plan jobs, and hire resources for those jobs.
This is what I’ve been helping my clients do since mid-2020. Preserve the scalable model you were forced to adopt and learn how to leverage it. You can grow as fast as your ability to find new customers. Your capacity is as great as your skill at procuring good subcontractors. There is no limit to how much profit you can make.
This Is a Good Idea:
Come to Jumpstart. Meet some new folks. Hear some fresh ideas. Ask questions. Share some laughs. Get out of the office and out of your routine. I’d love to meet you in person.
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