Scaling without an asset
Every business has an underlying asset. I’m not talking about the things that reside on your balance sheet. They are usually the effect of sweating these assets.
What I’m talking about is an asset that has unique value to your business. As you will see, it may have a number of different sources. You may just have one, you may have many. Whatever it is, you need to know where the asset is in your business. Why? Because the more you amplify that asset(s) the more value you create for you, for your market and the planet.
Fundamentally, the asset is what creates a multiplier effect on enterprise value. Crudely, value = profit x mulitple. Knowing your asset and how to leverage it means someone else can come along with more resources, capability and experience and pay a handsome multiple to buy your asset and do even more with it than you can. Everyone wins.
So, where could it reside?
1. Consistent process/formula/method/standards
This creates consistency in the way you deliver value and the customer experience. Look at any successful business that has scaled beyond one store, one city or one region and you will see incredible consistency in the customer experience and solution. McDonalds is a familiar example. It doesn’t matter which one you go to in the world, the underlying experience is exactly the same (give or take a little local market customisation depending on which country you are in — The McDonalds in Asia have a more asian style cuisine, the McDonalds in France have a more French style cuisine and so on). How replicable are your methods, processes, standards and executed results for the customer?
2. Organised IP
Every business has underlying Intellectual Property running through it. It typically shows up as the ‘how you do what you do’. What separates average and great businesses is how they have organised and documented that IP. The more organised it becomes, the more value is created. This may include mapping your processes, formula’s, method’s, standards, conversations in a way that you can train other people in them, firstly within your own country, then within other countries and other languages. The shorter the adoption/learning curve by the team, the more organised your IP and the more valuable an asset you have created.
3. Delivery Infrastructure
How do you get your product from your hands into your customer’s hands? This is your delivery infrastructure. For some businesses this may be as simple as picking up a load of stock from the warehouse in a van and dropping it off at your customer’s premises, all the way through to a very intricate process with hundreds of steps. The more refined and consistent it is, the more asset value you have created in the business.
4. Team/Suppliers/Partners
No one ever makes it on their own, you always need an amazing team around you to bring it all together. This can include staff, core suppliers and partners. In Richard Branson’s autobiography he mentions the word ‘we’ 37 times in the first two pages. He mentions the words ‘I’ not once. The concept of being ‘self-made’ is a myth. When you have a core crack team around you who can work together to consistently achieve a specific result, then you’ve created a great asset in the business. Warren Buffet, one of the world’s wealthiest investors, always looks for a proven, capable management teams as one of his core investment tenets when investing in a new company. In fact, his own management style, like Branson’s, is very Laissez-faire, or ‘hands-off’ — find highly capable people and let them run the show.
5. Product Architecture
Have you got great products? Do you have more than one product or service? Do your products create an effortless flow of customer’s from one product to another? Have you made logical product extensions into new markets? Do your products maximise the inherent value in your customer base? All these things create asset value in the business.
6. Client List/User Base/Distribution
A client list or user base can be commercialised in a myriad of ways. But owning the eyeballs, the ears, the hearts and minds — now that’s the trick. This is why Facebook, Instagram, WhatsApp, Twitter or any of the new-world commercial behemoths could raise hundreds of millions of cash or sell for billions with very little revenue or profit. Take Facebook. Over 1B users — It doesn’t take a rocket scientist to see there is incredible value there. Well that’s the asset. Facebook own the eyeballs and a highly engaged user base — when you own an asset like that, you can work out how to commercialise them later. What commercialisation options are available when you set out to build that audience may pale in significance to what becomes available once you have the audience. Worrying about commercialising them too early is a fools mistake. Just work out how to own them first. That’s exactly what Mark Zuckerberg did.
7. Systems
Do you have systems for turning prospects into clients? Do you have post-purchase programs in place? Do you have systems for servicing clients? Do you have systems for dealing with internal issues in your business? All these systems again create consistency in the delivery model and business model. How effective and replicable they are is what enhances the asset value of the business.
8. Brand
A brand precedes you. A brand creates an emotional connection to an otherwise emotionless product or service. A brand helps people feel like they know you before they’ve met you. They feel like they know what to expect before they even enter your store or purchase one of your products. New product extensions require less education in the marketplace. People talk about you with their friends and those friends talk about you with their friends. Your message and your philosophies spread beyond just you. If Apple releases a new iPhone, I never question whether I want it. I just want it. Their brand is so strong in my eyes that I already know I want the iPhone 7 and iPhone 8 and iPhone 9. I practically feel like I am betraying them If I even considered another phone. As sad as that may be, that’s the power of a brand. It’s as clear that this, in its own right, creates massive asset value beyond the tangible items on the balance sheet.
The trouble is, I sometimes see small business owners in a hurry to scale before they’ve identified their true assets. So what are some of the triggers that signify its the right time to scale?
- You’ve got the model right in one store or location, delivering consistent, remarkable value to customers, over and over again. You’ve mapped out and trained others on exactly how you do this. This gives you the confidence to scale out to a couple more stores/locations.
- You’ve then got the model right in a couple of stores/locations, taking into account the complexities of moving from 1 store to 3 or 4 stores/locations. You’ve got clear processes in place, a competent team that have demonstrated the ability to work together to consistently deliver a remarkable result across all locations. You’ve raised the cash or have the war chest to then rapidly expand to 20 stores/locations.
- You’ve then got the model right in 20 stores/locations, taking into account the complexities from moving from a few stores to 20 stores/locations. Now there are bigger, more structural complexities to deal with. You’re no longer a startup or even a small business, you’re going to need a specialist and experienced team to manage the company. If you master this, then that gives you the confidence to move to 100 stores.
- You’ve then got the model right in 100 stores in multiple cities, regions and countries. Now there are some seriously big complexities involved — from taxation to Forex to legal to group legislative issues. If you haven’t already done so at 20 stores, you may want to think about an exit to another company who can carry your vision forward to the next level again (world domination, of course). Few entrepreneurs who found a business can take it from startup all the why through to this kind of size, it’s rarely why they got into their own business in the first place. Their strength lies in starting and growing businesses, not in managing enormous, multi-national corporations.
This kind of hypothesising is fun and inspiring, but the reality is most small businesses never make it beyond that first store/territory/product. If you decide you want more than just the average punter — concentrate on building your asset first. The rest follows much more easily once you’ve got that foundation in place…
