Do you want to grow your small business into a medium-sized business? Do you want to take your medium-sized business to a large business? Are you looking to go from $100,000 a year in revenue to $1 million? Maybe $1 million-$100 million?
Isaac Newton’s first law of motion states that, “An object at rest, stays at rest, and an object in motion stays in motion.”
However, in business, a company at rest will soon find itself in decline or reverse motion.
If your business settles for where it is today, several things happen. Without business growth, employees have no growth opportunities. Your competitors will catch you, match you, and surpass you. You will lose customers and clients to natural attrition.
A business must always grow, scale, and improve or it will slowly die.
Examples of this exist in history, like Blockbuster, Radio Shack, Chuck E. Cheese’s, Circuit City, just to name a few. These companies were set in their models and did not evolve with the times – although not all out of business, some face possible extinction.
Why “grow, scale, and improve?” Why not just talk about growth?
Growth, in a vacuum, will cause a business to struggle and fail when you are not scaling and improving at the same time. Thus, it is important to discuss all three at once.
Grow: Growth, essentially means to increase the net profit of your company. The more profit your company has, the more it can do. Most companies will focus on revenue over profit, but a well-rounded company will look at revenue and expenses with an emphasis on profit at the end of the day.
Increasing revenue basically means to make more money. There are many ways to do this. Below are six of the most popular ways.
- More Customers. Bring more customers into the company. Let us say you have 10 customers and each customer in your company is worth $500,000. This is typically calculated as Customer Lifetime Value (CLV). Thus, those 10 customers are worth $5 million. Increase to 20 customers and their total worth doubles (as long as nothing else changes).
- More If your business sells things as part of its revenue model, adding new products can increase revenue. New products can increase how much current customers pay and can attract new customers.
- More Services. Same with products, a company can create new services for existing customers and attract new
- Adjust Prices. One way to increase revenue without necessarily growing customers, is to increase your prices. When you increase prices, typically you lose some customers, but each customer’s lifetime value increases. So it can be a revenue Also, you can reduce prices, which will normally increase the number of customers, but also reduces each customer’s lifetime value.
- When you have multiple products and services that are related, you can bundle them into new offerings. This is like creating new products and services listed above, without adding new items to your company’s inventory.
- Recurring This is a way to look at your products and services in a recurring manner to get customers to buy more over time through repeat business.
It is important to note that each of the six items above has the potential of increasing the volume and complexity of your business. This is why it is important to consider scale and improve with growth.
As the volume and complexity increases, so will the expense. Many people think this is a one-for-one increase, but this often is not true. The expense associated with volume and complexity growth often outpaces profit growth and profit margin decreases.
Part of increasing profit means reducing expense and increasing profit margin. Or, as a minimum, keeping margin at the same percentage – controlling margin. Controlling and reducing expense is done through scaling and improvement.
Scale: Two months ago, I published a Forbes article called, How To Scale Your Business To Meet Growth Demands. So, I will not belabor this point here. However, I will briefly touch on the six ways to systematically scale your company. Scaling means to adjust the six operational elements of your company. It is a form of improvement but done through more organizational strategic means.
- If your company does not have a documented strategy, scale starts here. If you do, ensure it is still in line with how your company has grown. Your strategy forms the foundation of your organization’s culture, which must be maintained and cultivated with growth.
- Operating Model. A month ago, I published another important Forbes article on this It was called, A Sound Operating Model Is Key To Delivering Value With Your Business. The bottom line is that how your business operates to meet its strategy is very important to scalability.
- Organizational Structure. With an operating model in place, you must properly structure your company to deliver on the model or it will not be
- Operating If you think about your company as a machine, all machines have some sort of operating system. As you upgrade your strategy, operating model, and organizational structure, you must also determine if you need an operating system upgrade as well.
- Typically, scaling to meet growth will require some investment. You know what they say, “You have to spend money to make money.” Especially when you look at the next item, PPT, some kind of investment will always be required.
- PPT stands for People, Process, and Technology. All three of this framework must be examined and adjusted to scale to growth demands.
Growing without scaling to meet the growth will cause expenses to rise out of control. This will erode your company’s profit margin and negatively impact net income.
Often businesses fail to recognize this because they are not focused on it. It is not until it becomes a real issue that the problems are realized.
Improve: The most important thing to always focus on in business is improvement. Improvement occurs at the process level and basically does two things. It reduces expenses and improves service – often at the same time.
Typically, this is achieved through applying Lean and Six Sigma improvement methodologies.
Lean focuses more on improving the process itself to reduce expenses and increase customer value (or satisfaction).
Six Sigma is more focused on meeting customer or business expectations in a process. This is to ensure the process statistically delivers within the expectations most of the time.
Improvement is focused on reducing defects in your company’s processes, products, and services. Improvement also reduces time and level of effort in the processes themselves. Also, improvement can reduce risk, improve the experience, and increase satisfaction for the company.
If you want to go from a small business making $100,000 a year to a large business making $100 million a year, you need to grow, scale, and improve. Focusing only on growth will only cause your company to struggle and fail.