If you were completing that statement, what words would you use?
You don’t have a business if …
- If you’re a slave to it.
- If you’re the only one doing everything.
- If your revenues don’t exceed your expenses.
- If you’re constantly on the hunt for new customers.
- If you haven’t systemized it.
- If you can’t take a two-week vacation without checking in.
- Or …
Well, if I were answering that question, I’d say, “If it’s not scalable.”
In other words, if you or I have a business that doesn’t have a predictable process for attracting and retaining new customers at a price point that provides a sufficient margin to ensure profitability, then we really don’t have a business. We may have a lifestyle business or a hobby or a means for providing for our families, but we don’t have a real business that someone would gladly pay a lot of money (i.e. a multiple of earnings) to obtain.
This Is A Typical Small Business Problem
As Michael Gerber pointed out so clearly in, The E-Myth, most entrepreneurs aren’t entrepreneurs, they’re technicians with a skill set. So, the auto mechanic starts a car repair shop only to discover that now he’s no longer just an auto mechanic, he now has to do HR, marketing, accounting, etc.
Well, one of the typical consequences of coming into business like this is that the business is rarely dealt with as a business, but rather as an extension of the founder’s personality and passion. Customers often become customers because of friendships and connections. Most marketing efforts are one shot deals and when they are engaged in, they’re usually engaged in on a sporadic basis. And if there are any plans, they’re usually kept in the head of the owner/service provider.
Well, as you can guess, this is a massive problem. Think of it this way. If you were a Venture Capitalist, would you want to buy a “business” that operated this way? Would you want to buy a “business” that was dependent upon the owner? Or that had an unpredictable way to get new customers in the door (up one month, down the next)? Or, that didn’t have a clear plan with metrics in place, where accountabilities were established and followed up on?
Believe It Or Not, Math Is Not Your Enemy
What most small businesses and service providers forget is that business is a numbers game. If you don’t know what it costs to acquire a customer, you’re at a disadvantage. If you don’t know how to calculate the lifetime value of a customer, you’re at a disadvantage. If you’re not clear on your operating expenses or margins or variable costs per product/service, you’re at a disadvantage.
Why? Because you just don’t know if you can scale your business. For example, if you don’t know if it costs you $5 or $15 or $50 or $____ to acquire a new customer (or member or patron or client etc.), then you don’t know if you can keep investing more and more money to attract more customers.
Likewise, if you don’t know your margins/profit per service or product, then you don’t know if you can keep investing more and more money to attract more and more of those customers to your business.
Likewise, if you don’t know if it takes 10 or 15 or 20 leads to get three prospects to get one client, then you’re really flying blind.
Or if you don’t know that you have to send out X number of marketing pieces to get Y number of customers, then you really don’t have a business that can scale.
Maybe It’s Time to Operate Differently
Imagine what your life would be like if you had a scalable business. Imagine what your work week would look like. Imagine how much less stress you’d be carrying. And imagine what it would be like to have investors lining up at your door asking if you’d like to sell your business for a rather handsome profit.
Well, all of those things could be true if you make a decision today to start treating your business like a business—and not as an extension of you. If you decide that your new goal is to create a scalable business (whether you decide to sell or not is irrelevant), that will change everything about your business.
If that’s your goal, from now on, you’ll make math your friend, not your enemy. You’ll systemize everything. You’ll establish key metrics and measure them daily/weekly. You’ll remove yourself from more and more operations. You’ll know all the key numbers. And you’ll keep working on figuring out a predictable system for your business so that you can know with extreme confidence that if you spend X amount of money, you can generate Y number of customers who will pay Z amount per transaction (at a profitable margin).
Once you know that, you’ll have a scalable business—and you’ll be able to literally explode your business.
So, are you ready to make creating a scalable business your goal?
I hope so because if you don’t have a scalable business, you really don’t have a business.
To your accelerated success!
P.S. If you’d like a worksheet to calculate the Lifetime Value of a Customer, click here (and scroll down toward the bottom)
Note: In case you’re curious, I’m not downplaying people who want a hobby or a lifestyle business or a job. This post was written for the readers of this blog—owners, entrepreneurs and service providers who want to build bigger, better, faster and more profitable businesses (and/or organizations).