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There’s much talk these days about the need to scale a business; in fact I recently did a podcast show dedicated to the topic.
So, let’s start with some basics. What do we mean when we say we want to ‘scale’ our business? In the simplest sense, scaling a business seeks to grow revenue faster than cost. If revenue increases at 10% over time and cost increases at 5%, we can say we’ve successfully scaled our business. If revenue growth = cost growth or if revenue grows at a slower rate than costs, we’ve been unsuccessful and our business has NOT been scaled.
Successfully scaling a business results when top line revenue growth is disproportionate to cost growth.
I think there is some misunderstanding around the subject because I hear people talk only about the cost side of the equation.
They focus on cost infrastructure only, and driving the supply costs down to scale their business without considering the revenue component of the equation.
This approach has serious consequences:
- It could fail at scaling because cost growth could still exceed revenue growth even though costs have been reduced under a different infrastructure plan. Overall costs may have been reduced by 25% but they are expected to continue to grow at 5% in the face of a revenue growth of 4% — the business has not been scaled.
- The second potential issue is that by unhooking cost from revenue driver, you could actually be building infrastructure that is disconnected to a degree from sales, furthering impairing the ability to grow revenue.
A scaling strategy should START WITH REVENUE, to look for the optimum ways to grow in a way that is sustainable over time. Cost options—including supply infrastructure—should then follow to determine the lowest cost growth option to deliver revenue goals.
Remember: both cost objectives must be satisfied: low overall cost structure AND cost growth rates less than revenue growth.
These are some revenue strategies that helped me scale a business to A BILLION.
#1. Business strategy — The ability to scale starts with the right business strategy and my Strategic Game Plan—SGP—practice that delivers the right strategy built to EXECUTE.
Scaling requires a focused game plan that enables flawless execution.
#2. Business processes — Process follows strategy. Create/align internal business processes to serve the SGP explicitly and be targeted to its strategic priorities.
Your business process elements must work harmoniously together in order to generate the kind of revenue needed to scale your business.
#3. Team — Structure follows process. The right organization structure is required to effectively use the business processes established to execute the SGP and to allocate resources for maximum strategic return.
For maximum impact on revenues, insource customer facing functions; if you must outsource anything, outsource back end functions.
#4. Customer loyalty — Existing customers will give you more revenue at lower incremental cost than trying to acquire new customers.
And referrals come to you at close-to-zero cost of sales.
I’ve spoken at length about how you can build a loyal base of fans, but here are a few snippets:
- Create your Customer Service Strategy with CORE vs DAZZLE elements.
- Build a Recovery Culture so when mistakes happen, loyalty is strengthened not destroyed.
- Offer special deals for existing customers to reward their loyalty. Resist the temptation to use discounted promotions to attract new customers.
- Add ‘Customer Managers’ to your organization to ensure to focus on ‘The Loyal Ones’ rather than having simply a product focus.
#5. Sales relationship building — Morph your sales force to concentrate more on building long term customer relationships and less on flogging products.
This will not only reduce churn in your customer base, it will also enable premium priced solution sales due to the high trust factor and the more intimate understanding sales has of the customer’s operations.
Strong long term relationships breed more revenue at less cost.
#6. Premium pricing — Package your products and services into holistic solutions that can be provided at premium prices. Avoid the bundling mentality of bundling products together and offering the bundle at discounted prices.
Target your packaging efforts at customer segments that have a strong ’CRAVE Factor’,driven to buy on what they desire and want rather than on what they need.
CRAVE segments have lower price sensitivity and fewer competitors hence the revenue potential and lower costs is huge.
#7. Process Leadership — Assign leaders cross-organization process ownership as a way of increasing effectiveness—lower costs—of cross functional delivery systems.
For example, the marketing executive could be the owner of the product and service fulfillment process and would be accountable to deliver more output at lower cost.
The problem in organizations today is that no single executive owns a cross functional process because of the silo structure where everyone has their own piece of the action and no one owns the whole process.
To increase the revenue leverage of cost inputs we need process ownership at the highest level.
#8. Recruitment — Recruit the right people to build long term customer relationships and more customer loyalty.
As the priority, hire people who ‘love’ humans. Give customer facing—demand—units in the organization the priority.
#9. A ‘clean’ inside — Effective execution—hence more revenue and less cost—occurs not only when internal systems and processes run smoothly as referred to earlier, but also when the organization is focussing on the things that NEED to be done.
Often, legacy activity lingers throughout the organization, consuming cost and offering little on the revenue line.
Leaders must stop doing the stuff that is no longer a strategic priority. They must CUT the CRAP and eradicate the GRUNGE that gets in the way of flawless execution .
A new form of innovation must be introduced—‘DELETE’ Innovation—to eliminate unproductive activity and assets in order to release more unit revenue and less unit cost.
#10. Dumb Rules — A version of #9, this initiative is required to eliminate the rules, processes and policies that make no sense to customers and threaten their loyalty.
What is needed is a cultural mindset that seeks to ENABLE the customer to do business with you on their terms rather than one which falls victim to internal control.
A healthy balance—however skewed to what the customer expects—is needed with a customer control outcome not a company control one.
#11. Line of sight leadership — To achieve precision in strategy EXECUTION, everyone needs to understand their precise role, because if they don’t, dysfunction results and scaling suffers because costs outrun revenue generation.
To avoid this situation, leaders must provide line of sight from what employees to to what the strategy of the organization expects.
Line of sight leaders translate the strategy into what it means to marketing, sales, customer service, and every other function in the organization to get their teams marching in unison.
When this happens, maximum output for minimal input results and SCALE is achieved.
Related: Why Customer Learning Is a Better Tool Than Market Research