The Scalable Entrepreneur

Many entrepreneurs have big dreams . . . really big dreams. We start a company; nurture it; live with it through thick and thin, and then someday it turns into a major enterprise. Perhaps we’re selling a product or service across the nation. Maybe we have hundreds or thousands of employees. Possibly our top line revenue and bottom line profits extend seven or eight digits (or more) to the left of the decimal point. At this point we’re thinking that the dream has come true. But how do we get to there from here?

Some entrepreneurs believe that they can achieve scale if only they had sufficient capital. I believe there’s more to it. There’s no question that capital is an ingredient to achieving scale. But I don’t think capital comes first. What comes first you ask? The customer. Here’s my theory. We scale to meet customer demand. We don’t scale to meet capital demand. As we grow our business we’re always looking for ways to design systems and processes that are scalable – that’s a really smart approach. Maybe we even hire team members who we believe can handle scaling when the time comes. In other words, we’re take preparatory steps toward scale. But we don’t actually pull the trigger and start moving to scale just yet.

Max started a premium t-shirt company three years ago. His t-shirts are unique in terms of design, material, construction and incredible artwork that feature the work of an up-and-coming artist. Sales have been steadily growing and the venture is now turning a small profit. Max has a wealthy uncle to whom he’s pitched the idea of providing capital that would allow for significant expansion. Uncle Frank has agreed to lend Max $5 million which would be used for a larger plant, equipment and raw materials. With this capacity, the company could produce five times the number of t-shirts as it can presently. In effect, Max has taken the “build it and they will come” approach to scaling his business. He is being capital-driven rather than customer-driven. There’s nothing wrong with what Max is doing, however it is inherently more risky than expanding to meet customer demand.

Here’s how the story might be told differently from a customer-driven standpoint. Max has customers beating down his doors to buy his product. He runs three-shifts 24/7 at his small manufacturing plant and has a six-month backlog. There’s just no way he can wring any more production out of the current facility. He has heard from eight distributors that they would double their already sizable orders if he could increase his production. Max finally decides to scale his business based upon the exponential increase in customer demand he is experiencing.

Now you might be thinking that this is all pretty obvious. But in practice we see entrepreneurs scaling their companies all the time because they have access to capital – customer demand is secondary. There’s often the belief that they need to get big really fast in order to beat the competition and succeed. There’s no question that bigger is better under certain circumstances. The unit economics may be more favorable at scale, and marketing, general and administrative costs may be more efficient. But what about the customer? Is the demand sufficient to meet the increase in supply? Or will the corporate balance sheet reflect ever growing inventory levels?

I understand the entrepreneur’s desire to grow and scale. We’re doing just that with our companies. However, the apartment-related businesses we operate are responding to an increasing demand for the apartment lifestyle due to some powerful demographics that are at work in our industry. Capital is abundant, but we’ve been driven by customer demand first and foremost. As long as customers want our product we will use the capital to scale our portfolio. We’ve seen other firms in our space that are awash with capital and are building apartments to soak up that capital. We’d like to think that our approach is less risky because we understand customer demand and are meeting it.

Scaling an entrepreneurial venture is exciting and can be very rewarding. Doing so by responding to customer demand is undoubtedly less risky than growing a business primarily as a result of accessible capital.

You can also listen to a weekly audio podcast of my blog. What you hear will be different than what you read in this blog. Subscribe on iTunes or wherever you get your podcasts. You can also click on this link – Click here to listen to Audio Episode 111 – Gut Check.

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

Which Wire Do I Cut?

Question: I often find myself pressed for time due to a deadline of some kind. The more pressure I’m under the more mistakes I make. What can I do to feel less stress and perform at a higher level?

Answer: You may be expecting me to tell you to just relax, right? And while that’s good advice, that’s not going to be my answer here. Instead, consider turning the tables. This may sound counterintuitive but it works. What were the thoughts that ran through your mind when you faced a seemingly impossible deadline? “I’ll never get this done in time!” Or, “this is ridiculous, why did I agree to this crazy due date?”

What do you suppose would happen if you said this instead? “Wow, this is a fantastic opportunity! I have a chance to push myself to succeed where in the past I might have failed.” Naturally the words mean nothing if the mindset isn’t there. Think about all of the benefits of working under pressure. First, we get to grow. How does staying comfortable stimulate personal growth? Only when we stretch do we really learn how to be better. Second, we become even more effective at planning. The odds are better for successfully meeting a tight deadline if we create a precision plan to identify and execute all of the necessary steps. Finally, we get more done. In the overall context of eternity, our lives are but a blink of an eye. Working continuously in short deadline mode means that we get to experience a lot more of life.

Here’s a game that I devised years ago to help me handle the pressure of meeting deadlines. Imagine that you are a James Bondesque individual and you just learned that you are in a building containing a nuclear bomb that is set to explode in five minutes vaporizing you and tens of millions of people. There’s no time to call anyone – it’s totally up to you to defuse this device. You have to find the bomb; figure out how to remove its housing; determine if there’s a booby trap to disarm, and then decide which of the colored wires should be snipped (if you ever find yourself in this situation, never cut the red wire). Meanwhile the clock is ticking and you could very soon become a bug on the great cosmic windshield if you screw up. This exaggerated imagery has made me laugh, prompted me to plan, encouraged me to keep score (of how many times I’ve saved the world) and taught me never to procrastinate.

Whether we’re entrepreneurs or not, our lives are filled with deadlines. Perhaps seeing ourselves as Mission Impossible heroes will spur us into action and allow us to actually enjoy the process of reaching the finish line. Alive!

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

bomb defusing