Category Archives: at www.sitepoint.com

On the subject of Scalability

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 $1M in sales in year one, and around $3M in year two.  However our sales plateued 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; whom would rather wait until a consultant became available (in one case up to 6 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:

1.    One unit of effort returns one unit of reward, and when they stop selling they stop getting paid.

2.    They find it nigh on impossible to get good people to increase the scale of the business

3.    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, its 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 its 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 (eg mobile phones, fast food, ISP’s, petrol).