It’s all very well to pick really good people and ensure they work like crazy for you. And it’s great if, at the same time, you really understand your market, competitors and customers. However, endeavour is not enough, and that’s been particularly clear in this recession, where you can often see bosses working themselves into the ground yet making no progress at all.
If you’re running a business, the key questions are:
- What are the market trends in your sector?
- Are your competitors doing something that you’re not?
- What are the potential economies of scale in your market?
- How much investment will be needed to scale up?
Economies of scale are available at all levels of enterprise. I recently bought into a very small business where the founders assumed they would need to be much bigger before they could stop doing absolutely everything themselves. But they managed to free up their time by outsourcing one function at a very low cost and purchasing a software package on the internet that radically speeded up a key part of their process.
Similarly, there is a whole range of businesses that work on the “bums on seats” principle whereby increases in volume at certain stages bring disproportionate profits. Examples of such businesses are airlines, shipping, cinemas and restaurants. The main cost difference between having a 40-seat and a 60-seat restaurant is rental, but the food ingredients are much cheaper than people think and the only additional staffing would be one more pair of hands in the kitchen and another in the restaurant.
Apart from increasing the size of your restaurant, you can open another one. This is much less risky than it was as a chef’s celebrity status can now illuminate several restaurants at once. The overheads of the most expensive people therefore become spread across a bigger income base, making them more profitable at the margin. A good example of this would be Carluccio’s, with several dozen outlets bearing his apparent style and Italian swagger despite the fact he has now left the business.
This is the magic of branding – when given an attractive and consistent offer (easier said than done) it can produce wonderful economies of scale. With manufactured goods the results can be even more startling (think Apple).
In conventional company structures, it is often forgotten that the first principle is for the less valuable work to be done by the less expensive people so as to increase the profitability of handling a project.
This is a challenge for those with flat structures offering clients access to senior people. In fact, cynics will say that is why management consultants often seem intent on selling you a process and not a tailor-made solution.
Enjoying economies of scale is not about trying to grow your business rapidly in the same old way, but streamlining operations and using the flexibility of your company to realise fresh opportunities. It means taking the following steps:
- Delegate whatever you can (anything someone else can do as well as you but who is cheaper)
- Investigate outsourcing thoroughly and with an open mind (but ensure you know what is the real essence of your business and don’t outsource that)
- Listen to innovative ideas (most people are scared in a recession to try new things but that’s when many big breakthroughs have occurred)
- Acquire, merge or JV in some way with your competitors
- Market your company more aggressively
- Go to existing customers for repeat business and see if you can aim the same offer at a different audience.
At CIA, the media marketing agency I founded, we came through the early 1990s recession in good shape because we persuaded bigger, struggling agencies to outsource their media service to us, and we expanded aggressively abroad (but always with a local partner’s know-how).
If there really is no way of scaling up your business and becoming less involved in its day-to-day management, I would have to question why you’re investing the enormous time that you do in a business. You should always have the endgame in mind.
Unless, that is, you’re working just for the fun of it.