Why Should I Scale Up?

Jan 24, 2022

How to break free of the “Owner’s Trap”

One of the most common things entrepreneurs are looking for is freedom. We want freedom over our time, we want financial freedom, we want the ability to call our own shots – decide when we want to work, who we want to work with, where we want to work. You may have to scale your business. We believe the ULTIMATE in freedom for us business owners is having a sellable company. Once your business is set up to be sold (and whether you WANT to sell it is somewhat irrelevant), if you have a sellable company, it gives you the ultimate freedom:

  • You can scale it up because it is not dependent on you personally
  • You can choose to get out of the day-to-day running of your company
  • You can hire a president, and make yourself chairman of the company knowing that you are not knee-deep in the “doing” of your business – you’re a chairman using your business as an asset.
  • You can also pass down a sellable company to a management team, employees, or a family member because you know it actually runs without you personally.
  • And then obviously you can sell it.

So having a sellable company gives you the ultimate “poker hand” but unfortunately so many entrepreneurs today are running companies that are not sellable – They are stuck in the Owner’s Trap. Here is how you get stuck in the Owner’s Trap: it happens to business owners very early on because the owner often starts out doing the selling themselves. Typically, most owners are really savvy in their industry and they come to the table with a lot of energy. Because the owner comes to the table with lots of energy, their customers see that and they start to ask the owner to sell more and more products and services that fall outside of the original scope of what the owner decided to sell.

The problem is that employees are typically not as deep-set as subject matter experts as you are in your industry, so it makes it very difficult for your employees to deliver the products and services that you are selling. So ultimately, the owner is the only one that can really put their stamp of approval on the products and services, and then they are the ones that end up delivering the products and services. Your customers then start to say, “I’ll buy from you as the owner, but I know your employees just don’t have the same level of expertise that you personally do.”

So you get stuck in this Owner’s Trap:

  • Business slows when you’re not there
  • Customers are coming to you specifically when there is a problem
  • Your revenue hits a plateau where you can’t go beyond.

Not only does this detract from your overall quality of life, but it also really minimizes the value of your company. we know that statistically, the average of [value builder business owners] are getting 3.76x the pre-tax profit. Yet when we segment by the type of relationship the owner has with their customers, we see a very different picture. Owners that know each customer by name receive a 2.92x pre-tax profit. Compare that with an owner that rarely gets involved with solving a problem or delivering a product/service, the multiple received is 4.54x pre-tax profit – much higher multiples. so what we really want to get to is that your business is not personally dependent on you

How to Scale?

The philosophy here is making a paradigm shift in terms of how most businesses start out, which is selling lots of things to a few customers. Where we want to get to overtime is selling a few things to a lot of customers. This is a wholesale change in the way you think about your business.

Scalability Trifecta

The Scalability Trifecta is the products and services that you sell today that meet 3 criteria:

  • They have to be teachable to employees.
  • They have to be valuable, meaning they are not a commodity.
  • They are repeatable meaning customers purchase them on some sort of regular cadence

Here’s an example to scale business:

let’s imagine a photography business. Most photography businesses can get stuck in the Owner’s Trap – the business is very dependent on the owner personally. Now let’s imagine a photographer going through this exercise. On a whiteboard, they put all of the products and services that they sell. First is wedding photographs – and in this exercise, we will have them rate “wedding photographs” on the degree to which it meets the Scalability Trifecta – how teachable are wedding photos (7), how valuable (9), and how repeatable (0). Same with baseball teams, corporate events, and school photos. The service that the photographer scores highest in is school photography, and therefore has the best chance of scalability by focusing on this specific service.

scalability trifecta

Plot this on a graph:

growth potential

By understanding which of your products/services are most teachable, valuable, and repeatable, you can dramatically increase the ability for your business to scale up without you being involved personally.

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