How to Choose a Scalable Business Model from the Get-Go

A problem arose in my friend’s counseling practice when things started going really well for him. Six years ago when he first began the business, his main focus was filling in the books. Now, the books were more than filled. He was at maximum capacity. He worked from 9am to 7:30pm Monday thru Friday seeing clients, filling out paperwork and keeping everything running.

Having a thriving business sounds like a “problem” that every business owner would like to have. Not having to constantly worry about finding new clients would be a dream for any entrepreneur. So what’s the dilemma? The problem is that he wants to bring in more money and he doesn’t have any more room in his schedule for additional clients. In other words, he ended up stuck in a business model that he can’t easily scale.

big-vs-smallUnfortunately, he can’t go to Amazon, buy more time in the day to add additional clients to his roster and make more money. (Too bad, because Amazon would make a killing selling time.) Plus, he it wouldn’t help to hire an assistant to free up some of his time because he’s the only one qualified to see clients and fill out paperwork (his two major time-consuming tasks).

If he wants to make more money in his business, he has two options: (1) raise his prices, or (2) hire other therapists and expand into a larger practice. Neither of these are a bad route to take, but there a few obvious pitfalls. With Option #1, he runs the risk of pricing himself too high for his demographic and not being able to fill the books. With Option #2, he takes on major responsibilities and liabilities by hiring other therapist and he might not be eager to change his business model of being an independent therapist. No matter which option he chooses, he’s income is still limited by the number of clients he can see in a day.

No matter who you are, how much money you have in the bank or where you reside in the world, there are only 24 hours in each day. Rich, poor, young, old—time is an equal opportunity commodity for everyone. You want to make sure that you understand exactly how time plays a role in your business before you run into a major roadblock later on like my friend did. In fact, it’s even possible to avoid the “time trap” all together if you choose a certain “Business Style” from the very beginning (or update your existing business to be more time-flexible).

There are 3 main Business Styles that you can choose from when starting a business on the side of your current day job:

  • Style #1: What you do
  • Style #2: What you make
  • Style #2: What you know

 

Let’s look at each of these approaches and explore how to choose a scalable business model despite the inescapable 24-hour day.

Business Style #1: What You Do

This is the model that my friend’s counseling business is based on. What-You-Do types of businesses include any kind of work that requires your direct hourly involvement to make money. Examples include photographers, graphic designers, copy editors, consultants, caterers, and other service-based businesses. This is typically a dollars-for-hours business model—you only get paid for the number of hours that you work.

The problem when you build a business around what you do, your growth is limited by the number of hours in a day. There’s a cap on the number of clients you can see or physical work you can do in a 24-hour period. Unfortunately, you won’t discover this to a problem until your business is at maximum capacity down the road and you still want to make more money.

In addition to time constraints, you are also positioned as expert in a What-You-Do business and it’s difficult for anyone else to take over for you if you need assistance. For example, if you are a photographer and a client hires you to photograph her wedding, you can’t just send one of your assistant photographers on the Big Day if you’re busy. Each client is specifically hiring you and you have to put in the time and expertise in order to get paid.

To scale a What-You-Do business, you have three options: (1) raise your prices, (2) hire other experts, or (3) hire an assistant. Keep this in mind if you want to go any of these routes, you’ll want to put the gears in motion to start scaling your business before you reach maximum capacity.

Business Style #2: What You Make

A What-You-Make type of business is exactly what it sounds like—it’s a business based around a physical product that you make. Examples of products might be anything from natural cleaning supplies to designer clothing to chess pie to sunglasses. Basically, any business that you find on Etsy or Shark Tank is a What-You-Make business.

Just like Style #1, this style of business will require a lot of your time (especially in the beginning), but it’s typically not a dollars-per-hours model. Depending on how quickly you can make your product, your business revenue is not entirely limited by the number of hours in a day.

The real problem that arises with a What-You-Make business is not a lack of time, it’s a lack of money. If you’re ever seen the TV show Shark Tank, most of the entrepreneurs pitching on the show are asking for money to scale their product-based business. In order to sell to a broader market, you need more money to create more inventory to sell to more people, but to get more money, you need to sell more products. It’s a chicken-or-egg dilemma.

To scale a What-You-Make business, you have a few options: (1) raise your prices (always an option), (2) hire people to help you make the product or run the business, (3) transfer your entire production to a manufacturing facility and have someone else make the product. Generally, scaling a product-based business is a little easier than scaling a service-based business (but of course, it depends on the actually business itself to make this judgment call). Again, you’ll want to have a plan nailed down from the very beginning with how you want to scale your business when sales begin ramping up.

Business Style #3: What You Know

On the flip side of the coin is constructing a business from what you know. This is my favorite approach. These types of businesses are informational businesses—they are designed to instruct, teach or inform other people on how to do something. Examples include any type of business that sells informational products (e.g. books, ebooks, audio or video courses, online training, etc.) or runs on advertisements (e.g. blogs, radio shows, YouTube, online newspapers, etc).

These types of businesses are highly scalable because they aren’t constrained by the dollars-per-hours model or by money. For instance, if you create an ebook or audio course, you only put the time and investment into it once. After that, you can sell an unlimited number of copies. So unlike a service- or product-based business that requires a consistent investment of time or money, you’re not going to run into this dilemma with a What-You-Know business.

Author Jeff Goins has a great What-You-Know business model. He took his love of writing and instead of merely writing his own books (in which he’d be limited by the time in the day), he began teaching other people how to become successful and effective writers. He used what he knew to create helpful virtual info products that he could sell on a large scale at no additional time or financial cost to him beyond the initial investment.

To scale a What-You-Know business, you just have to market yourself more in order to create more awareness about what you have to offer. You don’t have to hire anyone else (although hiring an assistant can be helpful), raise more money, or give up equity in your company by pitching to the investors on Shark Tank. That’s why this is my favorite approach.

Make note that you aren’t limited to choosing one type of Business Style. In fact, some of the most successful businesses combine two or more of these modalities.

A great way to scale your business might be to add a product to your service-based business. Or combine your services with informational products. Read this article about how to create multiple streams of income for your business using my friend Tisha’s business as a perfect example.

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