Scale Mechanics — Jack & The Beanstalk

BY JON WESTENBERG

There are two parts to scaling a business. Just two. There is understanding the mechanic behind every single scaled or not scaled business in the history of the internet, and there is executing that mechanic.

The mechanic looks like this:

For every increase in revenue, there must be a significant & exponentially lower increase in acquisition and support costs.

Okay. That’s pretty straightforward. At its simplest, at the absolute core of scaling, you have to ensure that the money you’ll make up-front from every user/client/company PLUS any forecast recurring revenue is going to grow while the cash that you’re blowing through to make that happen doesn't grow.

Well, shit. That doesn't seem too difficult. And really, it’s not. The concepts and mechanics behind scaling a business are easy to grasp, because they’re the basic building blocks of any business.

If you asked the guy who runs the burger place I hit for lunch every day, he’ll tell you that making money selling meat patties on a bread roll is as simple as making sure that no matter how many customers he gets, he’s not spending more on rolls and bowel busting red meat than he can make.

So why is scaling a business tough?

It’s the execution. Oooh, what a brilliant insight, right? You've heard this before. You've listened to every start-up podcast, and you've read every book, and boy did you love the last 90 seminars and meetups and drinks and hackathons and workshops you attended. You probably took detailed notes, didn't you?

I can bet that those notes have got you working hard on trying to create pitch decks, build power-point presentations and eventually get the venture capital or angel investment you need to “scale your business.” We call it accelerated growth, and we talk about hockey sticks, but we miss the point.

If your entire plan to grow your business is to flog it and yourself to investors in the hope that you’ll be given enough money to make it grow with no reference to reality, the fairytale you’re living in has nothing to do with a business mechanic. It’s got a lot more in common with Jack & the beanstalk, giving away everything he had in exchange for magic beans. You want your beanstalk to grow to the clouds overnight so you can climb up there and steal from the giant.

Maybe that’ll work, and you’ll make it out with the golden eggs. But maybe it won’t. Maybe in your version, you get fleeced and those magic beans don’t grow, or the giant takes a giant sized dump on you. In fact, those latter scenarios sound a lot more likely.

What’s the alternative? The alternative is to scale through that basic mechanic, using it as your guide and yardstick. You work out how much it’s going to cost you to acquire some users, and you price your product according to that cost. You don’t burn through cash on support costs (and that includes ridiculous employee perks) you keep costs down and ensure that they only grow in accordance with your revenue.

I think in start-ups they call it bootstrapping. In the real world, for the guy running that burger joint, it’s called business.