When we are building business capacity there are two principles that we are wrestling with that impacts our decision making: Profitability and Scalability. I think people are unclear about the two.
For years, I heard when you start a business, do something you love. I HATE cleaning. Though I knew that it was what I was to do; I couldn’t figure out why the Lord would ask me to start a business where I hate the work. Then I hit the pivot point of pain. In the midst of it, I realized the gift of having a business that I hated the technical product was motivation to learn the skills of capacity that I wouldn’t have been willing to invest in otherwise as I would have been too confident in my own ability to do the technical work. Often we do not make the wise choice until there’s enough pain to make the jump and overcome fear.
So some salient thoughts around the nuances between profitability and scalability:
- In general, it takes about 11 employees to personally make what you were making when you do the technical work. I personally made more money the first 18-24 months of Carpe Diem when I was doing the cleaning than for the next 10 years as I made investments to grow the business. This is also the area of challenge where often business falter. They have 5-6 employees; struggling personally financially and are not confident enough to take the plunge.
- Business revenue and personal revenue are two different things. Figure out those two numbers. They are separate! When you are building a business; can you keep minimal your personal expenses for a season? When I first started Carpe Diem, I intuitively was grateful that I was starting when I was 20. I knew I didn’t have a mortgage, kids, expenses, etc. What I have discovered is life seems to get more expensive as we get older. Then they may slow down a little as you get older but then your energy and drive to invest in vocational priority and potential health investments shift in that season. Though I am more of a spender than saver; I prioritized intentionally focusing on minimizing my personal expenses the early part of my business and life.
- When I am creating a business plan; I prioritize scalability. Any venture that we invest in will need our personal time, energy and resources. However if I put that as a significant part of the equation in my planning; it’s not the right plan. It will cost the other areas of my life too much if it’s part of the planning equation- whether my health or my family or my peace. I am NOT saying I won’t invest my personal time, what I am saying is I am starting with the end in mind that what I am investing in is greater than me. This is a key ingredient in the secret sauce of investing in a large enough dream that actually brings us peace.
- All profit is in the margin. Prioritizing scalability is the strategic gift of creating margin. Margin leads to profit.
- Scalability allows you the gift of truly accounting for all costs for healthy sustainability and growth. Often our profitability comes at the cost of not truly accounting for all costs including opportunity cost.
There are a number of things that businesses can do to prioritize scalability. Some of the most important include:
- Building a strong foundation. A strong foundation is essential for any scalable business. This means having a clear vision, a well-defined business model, and a solid team in place.
- Investing in technology. Technology can play a major role in improving scalability. By investing in the right technology, businesses can automate tasks, improve efficiency, and reach new customers.
- Focusing on the customer experience. A great customer experience is essential for any business that wants to scale. By focusing on the customer experience, businesses can build loyalty and attract new customers.
- Building a culture of innovation. A culture of innovation is essential for any business that wants to stay ahead of the competition. By encouraging employees to be creative and take risks, businesses can develop new products and services that meet the needs of their customers.
Are you prioritizing sustainability or profitability as you are strategically planning your business or your life?
