For owners & leaders of mid-life companies looking to maximize shareholder wealth
A Shift to Scale
A common experience for seasoned business leaders is that, over time, there are periods when sales growth slows, proﬁt margins get squeezed, or return on assets in general decreases
Our ﬁrst reaction is to work harder.
When working harder didn’t provide marginal return we decide to work smarter. We’ll try to optimize the operations of the business to increase profit margins. Optimization programs can deliver meaningful results, but over time those efforts meet with marginal returns on the time invested. Assuming our optimization processes are successful, we enjoy short-term cost, quality and efficiencies that we can use to change our pricing strategy; which in turn inspires us to redesign our sales and marketing efforts. However, those sales and marketing efforts also are doomed to marginal returns as our competitors recognize our efforts and match them.
Realizing that our product sales and marketing efforts don’t deliver transformative performance gains - and recognizing that these efforts are nothing more than adjustments in our current business model - we come to grips with the hard truth that our effort must be placed into rethinking the entire business model. And here’s where it gets hard.
Multiply the Equity Value of Your Business
For many executives changing the business model means acquiring new divisions, new product lines, or changing the go-to-market strategy.
At their core, these tactical maneuvers simply continue the existing business model, with add-ons that are mere extensions of the core business.
Achieving scale can’t be done with the traditional business model. Traditional business models can support rapid growth, but not scale. In order to have a meaningful impact on earnings and growth, the business model needs to be transformed.
Scaling is about adding revenue at an exponential rate while only adding resources at an incremental rate
We define scale as two complementary components:
- Exponential Growth where revenue per customer (which
we re-deﬁne as “community member”) increases as the size of the community grows, while
- Achieving Economies of Scale (proportionate reduction in costs per dollar of revenue gained by an increased level of sales)
From our point of view, when a company is scaling it exhibits these seven dimensions:
- Unit costs decline as it grows.
- Product or service value grows as sales increase.
- Service costs decrease.
- Category dominance and rapidly increasing sales from customer recognition of the company as the authority in the category.
- Operational costs decline as a percentage of revenue.
- Innovation is an integral part of the culture.
- Shared values and expectations as expressed through a structured measurement and feedback process.
The ScaleWerksTM curve demonstrates the exponential growth (“Scale”) created through our processes of Transforming the Customer Base while Remodeling the Customer Experience
The “Y” axis – Transform the Customer Base– is a powerful, deep-insight deep-relationship continuum.
- The base of the continuum is grounded in knowing your With deep-insight analytics yougain a granular level understanding of your audience – enabling you to clearly deﬁne the jobs that your audience comes to you to have done.
- With a clear, data supported understanding of those jobs you can deﬁne your product and serviceoﬀerings from a whole new perspective – not a niche or market competitor – but a category leader.
To be a category leader you MUST become the Authority in the jobs that customers come to you to have done. Being the Authority means engaging, educating, and attracting your audience into a community that’s built around the category that you lead.
The “X” axis – Remodel the Customer Experience – is built on capabilities that provide value to your customers:
- A customer-centric technology platform that facilitates fast, intuitive and engaging interfaces,collects relevant information and organizes it to support eﬃcient, intelligent decision processes by both the customer and the company.
- A smart customer experience which makes it a pleasure for your customers to interact with you tocollect information and execute
- The ability to leverage precise customer insights, generated from your data that empowers you toquickly customize your interactions, products, product mix and service to meet the “wants” of your customers … and leave them with a “Wow!”
The X and Y axis work together to generate scale.
- As you increase or expand yourcustomers’ capacities to do the job they want to have done, the more they tell other potential customers about the positive experience. This causes growth to accelerate because it follows the laws of the network effect.
- As the size of the communitygrows, the more valuable it becomes. As the authority that leads the community you can use the data collected to identify more opportunities to serve the wants of your community.
- As you identify more opportunitiesto satisfy community member wants…you scale.
- As you scale you’re presented with the opportunity to evolve your business
Scale multiplies enterprise value
Depending on the industry, each dollar in additional sales is worth six times more to the valuation of the business than dollars from improving operating margins. This is because:
- Scale accelerates proﬁtability
- Scale generates its own capital for investment in sustaining the scaling process
- Scale energizes the organization
- Scale leads to category leadership, and Category Leaders capture 76% of category capitalized category (Source: Play Bigger, LLC)
At ScaleWerksTM we’ve been on the forefront of change as thought and implementation leaders our entire careers
We know that change is not a single initiative … and Scale is not a program; Scale is a way of seeing the world – it’s a paradigm – it’s a lifestyle. And like any healthy lifestyle, it can be learned, internalized and be a source of life-sustaining energy.
According to a McKinsey Corporate Performance Analysis, less than 8% of strategic initiatives result in performance improvement.
As seasoned authorities in sustainable value creation, we’ve made careers of leading those that are in the 8%.