MBS971 - Scale your business on your terms (Million Dollar Principles)

In this episode, Matt breaks down one of the most talked-about topics in business, scale. Matt talks about scale in three stages, 50 people, 100 people, and 150 people, and in each stage, there are pros and cons but ultimately you need to think about scale on your own terms. Do you want a team that can fit in your kitchen for lunch? or a big enough team turning over $5 million dollars in revenue? 
 
Find out what scale means for you in this edition of Million Dollar Principles. 

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Transcript

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Hi there guys, my name is Matt Brown, and over the past 20 years I've built and sold multiple million-dollar businesses. This is the Million Dollar Principle Series where I'm going to share with you some key principles that I've used in my entrepreneurial journey to build and exit or sell multiple million dollar businesses. Your principle in this episode is called scale on your terms. Now there's a lot to be said about scale. Everybody wants something big, right? Bigger is better. But let me be honest: bigger is not always better when you are a founder entrepreneur. Sometimes bigger sucks. I've been there, I've run companies of 50 plus people, and the cultural stuff that you have to deal with, the people stuff that you have to deal with, is sometimes overwhelming and quite frankly can make you miserable and depressed. This is, you know, there's an upside and a downside to every size of business. And this is what I'm going to talk to you about today. There's essentially three numbers. Each number represents a number of employees. Those numbers are 15, 50, and 150. I'm going to walk you through what's going on at this size of business. Okay. Now you want to build a million dollar plus business, right? Right? Yes. Yes, that's correct. So great. So what you need to understand is as you are going there, sometimes you hit more than a million dollars. What happens inside the business and how does it affect you as the founder? And what I've learned is that the ideal is to have a big business but with a small team. If you think about WhatsApp, for instance, they were sending a billion messages, you know, per day with only nine engineers. It's possible to have a big business with a small team. Now I've run businesses that are big with lots of people that are capital intensive, resource intensive. And for me personally, my learning is that it sucks ass. I don't want that. And so I have a rule called the uh team lunch rule. So if I can't have my entire team around my house for lunch, there's too many people in the kitchen. It's too many people, it's a headache. There's something wrong, right? I could it's it's never gonna scale. It's just, you know, it's it's a nightmare to manage as a founder CEO. You may be different. So when you think about scale on your terms, what are your terms? Who are you exactly? What kind of a founder are you? Are you a hundred million dollar founder? And I'm not saying that you should know right up front. I'm saying you should explore internally within yourself what makes sense for you. What are your own terms? I'm very different to you, and you'll be very different to other founders, right? Um, but you want to scale on your terms. So I'm gonna walk you through these numbers, 15. So I'm gonna start there. This is a startup, okay, with 15 people. Um, and so what are the upsides? The upsides here is that you're probably doing half a million dollars, a million dollars a year, maybe more. Um, it's a very family culture, right? It's fun, you guys are failing, you're building the airplane while it's in the air, and maybe, you know, maybe you won't make salaries this month, but hey, it's cool. We may we're having fun doing it. People are oftentimes doing multiple jobs. The founder's sitting over there. There's Matt. Go and have a chat to the founder. He's cool, he's right there. We're like a family, we get access to each other every single day. Uh, people are often doing multiple jobs for no money. One of the great uh hiring uh insights I can tell you is to hire kids right out of university. They are hungry. You pay, they you can mold them to whatever you want to uh build in terms of processes and things like this, and they're just hungry to learn. And so you get someone that will work their asshole for you. Um, and so oftentimes you can get them to do multiple jobs. Um, and so this is the reality of a startup. There isn't someone for every seat on the bus. There's only you, and there's five seats that have to be fulfilled only by you, right? Or five roles that need to be fulfilled by you or someone else in the business. Um, but it is a fun time. The downsides, though, is that it's very uncertain. You may not make payroll, you may die, right? Um, and so it's very much survival about all else. Things like causes, vision, and mission, they really don't matter. Um, it's a very uh fun time, right? But you may not survive. This is a startup. But inevitably, what happens is a business goes from survival stage to growth stage, and growth is where things really start to expand. So, as digital, what happened with my company, digital kung fu, we went well over a million dollars by niching into the tech space, and we were just shooting the lights out, growing exponentially year on year. So we were going from 15 people to 18 people to 23 people to 30 people, and suddenly it was 35. Then it was 42, and we were just living the dream, right? Because systems and processes were starting to mature. Um, you know, I started to see signs that uh the business was starting to run without me. Salespeople were generating sufficient revenue, things were good, things were starting to scale, right? And now I was thinking about well, why are we here? What's the cause that we're trying to, you know, solve here? What is the vision? Where are we going as a business, right? Suddenly you're no longer in the trend just taking grenades, you're actually looking up and saying, okay, where are we now going? Um and this is what happens as you start transitioning towards a 50 employee or staff business. So things really start to change. Things go from fun to more formal. So now it's not just enough to you to pitch up and have fun every day. Now things actually start to matter because the consequences of this thing failing are starting to not only affect 15 families, they're starting to affect 50. Also, what's happening here from a uh from a downside's perspective is that you're investing a lot of money into people. And unfortunately, if a business is going to scale, you need something like an executive management team, which is expensive and there are no guarantees. I've hired senior people that, to be honest with you, weren't that senior. They weren't that good. Uh, there may have been a great cultural fit, but lack the skills to get us where we needed to go. In other words, I couldn't trust them as the founder to execute on my vision uh for the business. Um, and ultimately, people had to be let go. Ultimately, what also happens here from a downside's perspective is that the original team, the original 15 people, they don't like the way things are changing. They don't want to report to an executive team. They've been reporting to the founder for the last year. And so suddenly the CEO is no longer accessible in the same way that uh he or she was. And ultimately uh they don't like this new environment. They want things to go back to the way they were. Um, and so this then means that oftentimes you start to lose people. So you're losing people, you're attracting people, things are starting to scale and run without you, or start to use there's signs there that things are starting to run without you. Um, and ultimately culture starts to become the focus. So, what happens here as you're moving towards 50 people is that the founder is no longer focusing on just on the things that he or she is very good at. So, in my case, it was sales. So, I had to let a sales team compliment, you know, pick up the slack around sales so that I could focus on the things that needed to get uh you know um resolved so that the business could scale. Building an executive management team on its own is a nightmare. To get a team of people to do things the way that you want them to do, even with documented systems and processes, is an incredibly hard thing to do. It takes a long time. People underestimate how long it actually takes to build a management team that can run a 50 shop business plus um, you know, without you. And the other thing to say here is that um uh you know it's a very capital-intensive period. So uh if you start to lose people or th or the market starts to turn, you will ultimately need to downsize. Um, and a business that downsizes from 50 oftentimes goes all the way back down to 15. So you have to figure out as a founder what do you need to put in place to stay at 50 people and then grow continuously upwards above 50 to get to the next stage, which is 150 people. Okay, so I've been in a business we had to let people go because of COVID, uh, and we went from 50 people to 25 people, uh, literally, you know, within a couple of weeks because we could not stay there because of the market condition. So going back to what happens if you can stay there, the next number is 150. What are the upsides here? Well, the upsides here is that your business is usually doing well over $5 million in revenue at this stage, and you are now in an expansion stage. So you went from survival to growth, and now you're in expansion. This is where you start to add products, new geographies, new customers. You're looking oftentimes to raise some debts on your balance sheet, you're looking to raise some capital so that you can start to scale, right? Some businesses must grow or they die. Um, and so what you then want to uh recognize at this point is that um the business is most definitely running without you at this stage. If it's not, it bloody well should be. Um, and so a board is is usually established. Um, exco leadership is now steering the ship, and you are now the CEO. But should you be the CEO, are you the right person to run a 150-man shop? Do you love having 150 direct reports or what about 300 reports? Um, I learned and as I touched on earlier, that um that's not for me. I want a big business, small team, not a big business, big team. So if you want a big business, big team, do you really want that? Are you the right person to be leading the ship? And oftentimes what happens is that the market um uh you know, again, may determine that the business goes from 150 people down to 50. But really the question is, are you the right person to run a 150-man shop anymore? I'm the type of founder who sees a gap in the market, commercializes that gap, builds something of value, but I'm not the skyscraper guy. I'm the I'm the home guy, right? So hence why I have a team around my house uh for lunch. And if there's if they can't all come for lunch, there's too many people. Um, and so this is what I mean by uh, you know, scale on your terms. Your terms really dictate everything. It's not even about how big a business you can build. If you're curious about doing that, go for it. But if you're real with yourself, you need to answer the question: what are my terms? Are my terms 50 people, 15 people? Do I want a hundred uh million dollar business with you know $50 million in cost, or do I want a hundred million dollars with $10 million of cost? Um, and so these questions are very subjective and very personal. So my point to you is this scale on your terms. The Silicon Valley narrative around building a business at scale, and you must be Uber, or you must be Airbnb, or you must be some kind of massive business at scale, is just a narrative. Your narrative is the one that counts. So think about it. This is Matt signing out, guys. I'll see you all again soon. If you like what I had to say, please like, comment, and subscribe. I'll see you soon. Ciao.