Do you ever dream of owning a business that makes money even while you sleep or go on vacation? That’s a dream a lot of business owners have.
Unfortunately, it’s not as easy as just getting more clients. There are, in fact, four major issues you have to deal with before you can create a business that runs without you.
I’ll explain exactly what those four issues are and how you can handle those issues, but first let’s define the kind of business I’m talking about.
What is a scalable business?
Whenever you hear people talking about “scalable,” what they basically mean is a company that can grow without additional employees and, maybe, even without you.
How do you build a scalable business? Christian Mayaud says a scalable business must satisfy two things.
The first thing you need is a business in which the costs of making each dollar is going down. Any business will reach a size where it can no longer scale. How much your business can scale depends upon the market size and the market share you can get. These projections should be figured out in your business model.
Speaking of business models, as the founder of a startup, you begin with a product and a business model, which basically answers questions like:
- How do you build the product?
- Who is the customer?
- How are you going to distribute the product?
- How do you price the product?
- How do you position the product?
- How do you create demand?
- How do you fund the company?
Your job is to watch the market and see if your customers behave like you said they would. There’s a good chance they won’t, so you need to be prepared to adjust.
You’ll know you found the right product-market fit when customers start buying your product.
The second criterion is simpler. Your business shouldn’t depend upon you and a big team of managers to survive and grow. If it does, then it isn’t scalable. A truly scalable business should grow, no matter who is in charge.
Decide on your career goal
Before you can create a company that can run on its own, you need to decide what your goals are. Do you want to continue to do the work yourself, say, like a computer programmer or chef? Or do you want to own a business that you can work on?
The two are very different.
If you decide to continue to do the work yourself, then you will not have the time to build a business. You can hire partners to help the company bring in more revenue, but that revenue is split among the partners. That is not a business that can run without you. It’s really a collective of high-paid professionals.
A scalable business starts with you deciding to step away from a production role and into a management role. You take off your worker cap and put on your leader cap.
Narrow the service you offer
Once you’ve decided that you are going to grow a business that can run without you, your first major decision as a leader of this new company is to streamline what you do.
Let’ say you provide SEO services, and, for a typical client, you did everything from on-page optimization to building back links to PPC advertising. Well, if you want to create a scalable business, you need to decide which services you are going to focus on.
This may sound counter-intuitive, so let me explain.
A scalable business has a set of procedures that any competent person could follow. It’s easier to document and provide these procedures when what you offer is limited.
For example, let’s say you just focused on PPC advertising. You have to document a typical process with a typical client that defines what you do. In other words, you become the specialist in that one particular area. Of course, when you are making this decision to narrow what you do, you are taking into account what you do really well.
When thinking through this procedure, try using Jim Collins’ “Hedgehog Concept.” The Hedgehog Concept answers three very important questions:
- What am I really good at?
- What am I really passionate about?
- How will I make money?
As you can see, these questions force you to focus on the work that’s not only profitable, but the work that you are proficient and passionate about.
If you think about it, you are probably really good at a lot of things. But you may not be passionate about them. You might be good at balancing your books, but that doesn’t mean you should become an accountant. It’s not your passion.
You might also be really passionate and good at collecting stamps. Unfortunately, there is not much money in that. In the end, your scalable business has to focus on work that you are passionate about and proficient in so you can turn a profit.
Train junior talent
Now that you’ve got your services narrowed and the procedures documented, you can start hiring junior people.
If you’ve got a good procedure for what you offer, you don’t have to hire the best talent. You only have to hire competent and passionate people.
Yes, you have to manage these people, but think of yourself as a leader who sets a tone within the whole company. This tone, according to Thom Elicker, involves planning, predictability, control and culture.
- Planning – You have a flexible structure and guidelines within which people work. This includes a budget and product development plan.
- Predictability – This means you produce consistent and reliably good products and services and don’t change the rules on the employees.
- Control – Everybody understands the company goals, the product development process and the hiring procedures. It’s your job to make sure these goals are clear and understood by all.
- Culture – Each company is unique when it comes to culture. Some are strict, while others are more relaxed. You are responsible for the culture.
This tone colors the environment within which your junior talent works, so make sure it’s a healthy and sustainable one.
Work on closing deals
The whole point of freeing you up is so you can grow your business, whether it’s by finding new partners or new markets. Of course, this is also a part of the business that you can eventually train someone else to do. Until then, here’s a little cheat sheet on closing deals:
- Always learn how to qualify – Don’t waste your time on prospects that can’t use or can’t afford your product or service.
- Limit your “yeses” – Be careful that you don’t give away the farm when a customer makes a request. It’s easy to say “yes” to every request. However, some customers may never stop asking, and you’ll have unhappy customers and a much stressed out work force.
- Ask for something in return – Instead of simply promising a customer you’ll do something every time he or she asks, always ask for something in return. “Sure, we’ll give your weekly progress reports. Do you mind extending this to a six-month contract then?”
- Create urgency – A great way to close more deals is simply to put deadlines on requests. For example, point out to your potential customer that he needs to sign a contract before the end of the month; otherwise, you have to give away the one opening for the month to someone else.
- Explain why – When you ask for something in return or create urgency, you should explain why to your customer. If you don’t, that information gap will create suspicion.
Even though there are more ways to close deals, I’ve found that those five boost my close percentages greatly.
Once you’ve boosted your revenue, you can now look for a good successor.
Hire your successor
At this point, you are now prepared to do one of the most important aspects of a scalable business: hire someone to take your place.
You should have a plan that defines who your successor should be and how long the transition will take place. That plan should answer the following questions:
- When do you want this to happen? In one year? Two? Three?
- Who will be your successor? Will you hire someone from outside or inside? If you can’t develop talent from within, you’ll have to look outside.
- What are the leadership competencies that are important to this position? Strategic thinking, risk taking or talent management?
- What are the technical competencies that are important to this position? These will be specific to your industry.
It’s always helpful if you have a board or advisory panel that can help you make the transition. Whether it’s a coach, mentor or a CEO who’s gone through the same transition before, it’s helpful to have outside help.
Naturally there are some mistakes you’ll want to avoid. For instance:
- Do not neglect the plan – Putting off the plan until you are in trouble will likely make the transition and the decisions necessary to make that transition difficult.
- Don’t be rushed – On the other hand, don’t feel pressured to maintain a schedule if circumstances make the transition tough. The plan is a flexible guideline and not a rigid law.
- Don’t hire out of loyalty – Make sure your successor is someone you truly believe is capable of taking your place. Hiring someone out of a sense of obligation could destroy everything you built.
- Don’t micromanage – Once you hire your successor, back away and let that person do his or her job.
Creating a business that can run on its own is very rewarding, especially when you reach that point where you can step away for three months and not have to worry whether you will have a business when you get back.
I wish I could tell you that it happens overnight or that it happens in three years, but each business and industry is different, and the size of your company matters too. Just be patient and enjoy the ride.
What ways have you found that can help business owners create a company that runs on its own?