Scalability: Traction from a slippery beast

Posted by: 0 in Untagged on 20 August 2008

People often selling a product or service find it hard work. So here is some really good strategic advice – accept you may have a non-scalable business. BRENDAN LEWIS

By Brendan Lewis

A number of years ago I had a business that offered IT professional services. We defined professional services as high level IT project skills such as designing networks and commissioning web server farms.

Edion ran hard and fast from the beginning, clocking up over $1 million in sales in year one, and around $3 million in year two. However our sales plateaued and I simply couldn't solve the problem.

After much deep thought and discussion with customers, I came to the conclusion that our customers weren't purchasing our service; instead they were purchasing our people.

My people had serious reputations and that's what was being chased by my customers; who would rather wait until a consultant became available (in one case up to six months) rather than use someone else.

I didn't know how to solve this problem of scalability, it seemed to be inherent in the business. And that was my clue.

On discussing the issue with a psychologist friend of mine, he suggested something that has stayed with me ever since. Maybe Edion wasn't meant to be expandable; maybe I should just extract maximum cash from it and invest those funds into something else.

I have realised since that I wasn't an orphan with this problem, in fact I often run into people that are selling a product or service and finding it hard work. They seem to have three main problems:

One unit of effort returns one unit of reward, and when they stop selling they stop getting paid.
They find it nigh on impossible to get good people to increase the scale of the business.
They find that they, as the founder, are responsible for 90% of sales.

If this sounds like you, then this strategy advice could come in handy.

A. Stop fighting it and accept the fact that you have a non-scalable business; it’s not the end of the world though, rather the beginning of an exciting new phase.
B. Stop trying to grow this business because it's a waste of your intelligence and energy. With the time and energy you just freed up, you can focus on maximising profit from this non-scalable business. For instance stop investing in systems for growth and in fact pare it back to a bare minimum, and get rid of those ineffective salespeople.
C. Use the free cash flow now generated to invest in building products in a new business. One what's complementary to the existing business but scalable.

What makes for a scalable business is a different discussion, however it’s not that hard to figure out. Have a look around at any business that has made an idiot wealthy and you will spot most of the attributes of a scalable business (such as mobile phones, fast food, ISPs, petrol).

Brendan Lewis is a serial technology entrepreneur having founded : Ideas Lighting, Carradale Media, Edion, Verve IT, The Churchill Club, Flinders Pacific and L2i Technology Advisory. He has set up businesses for others in Romania, Indonesia and Vietnam. Qualified in IT and Accounting, he has also spent time running an Advertising agency and as a Cavalry Officer with the Australian Army Reserve.

To read more Brendan Lewis blogs, click here.