In the early days of the dot.com era, I was the general manager of an Internet technology company that was heavily funded by venture capitalists. In those days, people were getting funding for throwing together business plans created over coffee on that same morning. The company that employed me actually had a fairly good concept built around helping people find jobs. One of my educational experiences while at the company dealt with scaling the business before our model was fully developed.

The CEO and the venture capitalists were eager to see progress quickly! The problem in those early days was that we had no structured models to follow. That left us trying to figure out the technology in addition to the model. We were still experimenting with the gears and were actually getting pretty close when the CEO hired a new vice president of sales.

The VP was absolutely convinced that we needed to hurry and hire a sales team. He almost immediately hired between thirty and forty salespeople before we even had the product completed. This team was out contacting businesses—and selling our unfinished product. We were sitting on the edge of a web bubble that was about to burst, and then we threw in an aggressive sales team selling only the prototype of a product. It was the undoing of the company. We ended up with forty sales folks selling forty different products, all unique, all custom. You can imagine the nightmare that ensued.

As the general manager, trying to hold it together, I vowed to never again attempt to scale something before the gears were meshing together. I learned the importance of making sure the process was carefully diagrammed and could flow so that the thing would scale well in the first place.

It’s imperative that you get the sequence right. First, you have to poke around the gears, fiddling with them and making sure they’ll run smoothly. Next, turn the crank! If the inner parts work, turn it again! Make a few adjustments, add a little lubricant, smear on some grease, and change the torque angle. Then turn it five or ten more times. If everything still holds together, keep improving and optimizing it.

Now you can go ahead and scale your product as rapidly as you choose. But don’t think about scaling it before you know what will happen when you turn the crank for the first time. The reason franchises are so successful is because someone has already tested the plan and checked the scalability. Regardless of who does the testing and checking, a franchiser or you, it must be done.

So, you’re all excited to scale your businesses and move to Tahiti, right? Well, not so fast! First, you have to create a business that will make some money. You must first document the processes you’ve found that work and, second, determine what distinguishes your business from all the others. At this stage in the game, it’s really important to watch and learn from other businesses.

When my wife was a teenager, she spent a summer working at Kentucky Fried Chicken. When she first started, her manager had each of the employees go through a training of the procedures that KFC required of its franchisees. You see, the successful fast-food chains have a simple, step-by-step guide for how to make each recipe. When you go into KFC, you expect it to taste exactly the same every time. That’s why you go! With so many employees the company has to provide step-by-step procedures that are quickly taught and easily grasped. In order to make the biscuits, they use a certain bread machine. I suppose the process looks something like this; first, the flour goes in, followed by the shortening and the “spice packet.” The machine is set to turn at a certain speed for so many turns. Then the dough is rolled out to the same thickness and cut with the same size cutter every time. The biscuits are put into the oven and baked at the same temperature every time. When they’re done, butter is carefully brushed over each deliciously flaky biscuit. This was the process followed every time when my wife was making biscuits years ago. More than likely it’s pretty close if not identical to the process KFC uses today. The biscuits still taste good, don’t they? KFC’s Original Recipe chicken is made with a same step-by-step process. KFC was careful to provide the exact procedures to make the chicken, but didn’t tell anyone the exact ingredients of the “secret recipe.”

Bringing the discussion back to my friend, the tile layer, this is one of his main problems. As he teaches and trains employees to work for him, they eventually branch out and start their own tile company—because they’ve learned all his secrets. Is there something unique about your business that you can and should protect? Is it a product recipe? Is it a process recipe? Is it a patent? Whatever it is, find it and use it to help set your business apart from all the others.

Porter’s Points – Secret Recipe

• As you implement your business plan, document what works and what does not. Refer back to your notes often to ensure you duplicate your successes and learn from your failures.
• Keep your plan simple, with step-by-step processes anyone can follow.
• Don’t attempt to scale the business until you have all the components defined and functional, and then increase the speed gradually.
• Identify areas that slow the process down and find a way to speed them up. Document the changes.
• Want it to scale well? Be consistent. Just like KFC doesn’t want variations in their chicken, you do not want variations in your business that hinder scaling.
• Define and protect your “secret recipe.” Protect and control one or more parts of the process very carefully so that others cannot easily duplicate your business.

We’ve now completed Chapter 9: I Never Want to be a Doctor (And Certainly Not a Lawyer!) and are about halfway through blogging the entire contents of Bootstrap Business!

I like to make money while sleeping, golfing, sitting in church, playing with my kids, and, yes, even while working at the office. You may think that sounds too convenient to be true. All businesses have obstacles to overcome, but certain businesses are much more attractive simply because they can become long-term assets. If you have to go to work every day and you don’t make money unless you’re there, what you’ve got is a job. What you need is an asset.

Robert T. Kiyosaki, in Rich Dad, Poor Dad, defines an asset as “something that puts money in my pocket” and a liability as “something that takes money out.”[1] After reading this book, I decided to teach my children the difference between assets and liabilities. Their asset of choice: candy machines. After buying a few candy machines using their Dad’s “venture capital,” my kids had to go around and find businesses that were willing to let them put the candy machines by their front doors. Once they felt the exhilaration of harvesting quarters from their venture, they never asked for money to stick in a candy machine again. They had learned that it’s much more rewarding to take the money out than to put the money in.

One afternoon, I found myself craving a snack. After going through the cupboards, I remembered one of the candy machines in the garage. As I opened one up and dug in, my nine-year-old son Matthew walked by. When he saw what his father was doing, he stopped in horror, exclaiming, “Dad! Stop eating the profits!” Matthew knew he needed to protect his assets! He had learned through experience that he could put a little candy in a machine and let it sit while he went to school, played with friends, and did all the things that he really wanted to do. Later, he could return to the machine and enjoy the rewards of his asset.

You’ve probably read books or heard presentations on using real estate to create wealth and assets. Rental properties are a continual asset. Sure, it’s a pain to get called out on the weekend to unplug a hairball in the bathroom sink. However, fixing a drain once in a while is a very small price to pay for having an asset that pays for itself every month and brings in positive cash flow without your having to be there. Maybe it’s worth getting a rental agency to take care of the daily work of managing the apartments, which can still keep the cash flow positive while you find other ways to enjoy your time.

Whatever your business or venture, you can ensure that it becomes an asset. It all starts with your knowledge and awareness. Do you always have to be in the office in order to make money? Can your company breathe without you around? Once you’ve figured out if you have an asset, or just a job, you can plan accordingly.

Maybe you’ll need to hire some employees or look into better technology that keeps things going even when you’re not in the office. There are as many ways to get out of a liability as there are ways to get into one. If you’re just beginning your venture, now is the opportune time to make choices that will help you avoid being stuck with a “job.” If you’re already in deep, I’ll bet there’s wiggle room in there somewhere. You simply have to pinpoint the opportunities that will turn your job into an asset.

Porter’s Points – Is it an Asset or Just a Job?

• Until it starts putting money in your pocket, it ain’t an asset.
• The more money it puts in your pocket with the fewer resources, the better an asset it is.
• No matter what your current “job” is, you can find a way to turn it into an asset.

Up next week is a section on entrepreneurs and their ‘secret recipes’. I think you’ll enjoy it!

So, what is an example of a business that scales well?

Let’s take a look at a gorilla: Microsoft. Bill Gates and his buddies built an amazing operating system, one time. Okay, they have delivered a gazillion versions, updates, and upgrades, but they built the basic thing once. They conducted beta tests and documented what worked and what did not. And, while still on the road to perfecting their Windows OS, they sold it millions and millions of times. What is their upward limit on how many times they can sell that piece of software? Infinite is high, but not too far off. Do they have to sell it themselves? Nope. Pretty much every PC maker sells the software for them.

Look, most of us won’t get the opportunity to create a Microsoft. But here’s the thing: I firmly believe there are opportunities for scalable success everywhere.

I personally favor businesses that involve digital assets. By digital assets, I mean companies that do not stock inventories of physical goods, but instead are based on software or technology. Digital assets are not prerequisites for scalable success, just my time-tested preference.

A good example of one of my favorite digital assets is a website. Several years ago during the height of the housing boom one of my partners and I built a website that collected mortgage leads. We found a nice picture of a house and created some meaningful content that would appeal to people in the market to buy a home. We added some useful tools the visitors to my site could use to calculate their mortgages and topped the site off with advertisements that provided links to take users to other sites. It generated revenue 24 hours a day via advertising and affiliate deals.

Every time someone clicked on the site, the company brought in money. This business scaled incredibly well. It turned out to be wildly profitable and made money with very little human involvement. We made money in our sleep!

Think about this. Once the website is programmed, set up, and running, do you ever have to hire a clerk to sit at the checkout register and collect money from every user? No. Do you have to worry about the eggs spoiling if they get too old? No. Do you have to worry about an employee making off with inventory? No. This is an asset built one time; and, if put together properly, it will grow quite nicely, without an army of employees!

Don’t get me wrong. I’m grateful for an attentive doctor and you better believe I turn to my lawyer’s expertise regarding my businesses and assets. This breed of entrepreneurship is simply not suited to my particular taste. First, it requires a tremendous amount of time, energy, and money to scale well; and, second, it requires constant care and attention.

When deciding what kind of business or profession you are trying to bootstrap your way into, make sure to evaluate your idea’s scalability as part of your deliberations. Do you want to be your company’s only source of oxygen, or do you want some left over to breathe life into other interests as well?

Porter’s Points – How Well Do You Scale?

• I can’t think of a business that cannot scale; the matter to consider is “What resources will be required to scale it?” Know up front what those resources are and whether you can afford them.
• The ideal for scaling a business is to figure out what you can accomplish with the fewest possible resources.

Beyond being able to scale your business, you need to know if it’s an asset or just a job.  More on that next time!

My brother-in-law, who is a successful doctor, loves to hike. Every time I get ready to head off on an extended hiking vacation, he expresses frustration at his situation: “I would love to do that, but if I’m not at work, my practice doesn’t make any money! My overhead doesn’t go away, and if I’m not there seeing patients, no revenue is coming in.” His cost of missing work is far greater than the cost of the trip to Nepal for a week. If he gets sick, he has to cancel all of his appointments and loses an entire day’s revenue. Sure, he can double-book his appointments the next day, but there are only so many hours available during which he can see patients.

Ron’s brother is an attorney, as is his brother-in-law. They face the same challenge as the doctor. They can only bill for services when they are meeting with or solving other people’s problems. How does a doctor replicate himself? How does an attorney scale her business? No doubt about it, doctors and lawyers are entrepreneurs who build a business around themselves. However, these types of businesses do not scale as well as other businesses. It’s not that it can’t be done, but doing so involves leveraging other professionals or bringing in additional partners, which brings its own set of challenges.

I have a friend who is a professional tile layer. The work he does is absolutely remarkable, truly an art form. But when the building market is soft, he can spend hours or even days bidding to win a contract. Sometimes he gets the bid, but increasingly he’s finding that people are choosing to use cheaper tile layers.

When he does land a job, he spends his own money or credit to get the supplies he needs for that job. Frequently, his work requires him to order special tile products from overseas. He worries (understandably) that his workers might break the expensive tile while transporting it to the job site. The cost of Italian granite or Egyptian marble is enough to bankrupt him if it gets broken before the masterpiece is finished. To mitigate his worry, he involves himself in every aspect of ordering and moving the imported tiles and supplies.

As good as he is at what he does, the question he forgot to ask himself years ago was, “Will this tile business scale well?” Do you understand why the tile business is difficult to scale? He can only lay one piece of tile at a time. And no matter how many tile layers he hires and trains (and pays!), each one of them can only lay one tile at a time.

Before you jump headlong into starting a business, it is absolutely critical that you consider how you will scale your business. Most people start their business without asking themselves this essential question. But the answer will make all the difference in the amount of work you are required to do yourself in the business and the amount of revenue you can make via the business, without having to clone yourself.

Next time we’ll get some examples of businesses that do scale well.

Rich and I have several family members who are doctors and lawyers. This chapter is certain to offend them. But here is the reality: if a doctor isn’t in her or his office sticking a tongue depressor in someone’s mouth or snapping on a rubber glove, he or she is not making money. Attorneys are no different. Sure, their rubber gloves may be metaphorical, but the outcome is the same. The only way these professionals make money is by putting on the gloves. Now, we both realize there is nothing wrong with choosing either of these professions. They just don’t scale very well.

The three sections in this chapter deal with the importance of scaling your business. The first section deals with the brutal fact that some types of business are simply more inclined to scale or grow than others. It is critical that you carefully consider your idea’s potential for scaling—for better or worse—when deciding whether or not you want to turn it into your business.

The second section explains the difference between an asset and a job. The purpose of this section is to help you get in the mindset of building a business that is an asset, not a liability.

The final section shows the importance of your timing in scaling your business. Rich and I have both learned from personal, painful experiences how important it is to get the models and structures in place before growing your business. It may be hard to believe, but growing a business too fast and without an effective process guide can be as big of a problem as that identical business not growing fast enough.

Now that you have a taste, we’ll dive into the first section next time!