This blog is going to tie a whole bunch of other blogs together so try to keep up. 😉
As I mentioned in my explanation of why I buy, build, and sell businesses, its important to find a business that you can grow very rapidly. Another way of stating that is to find a business that’s about ready to reach critical mass. According to wikipedia, critical mass is The amount of a tendency needed to keep it going on its own momentum. In other words, you get your business setup with such a strong foundation that now it’ll take off and stop growing linearly and start growing exponentially! With that strong foundation, your profits will grow exponentially as well (and probably faster than your revenue).
So here are the components needed for any business to reach critical mass.
- You focus on improving the business through the 6 Stages of business evolution
- You have the 3 Leaders every business needs
- You have Systems, Processes, Procedures and Scripts in place for everything
- You have a program in place to maximize Back-end Sales and to generate Referrals from every sale
This may be the most simplistic way to view a business running on all cylinders, however all of these points are needed to achieve that massive growth. Keep in mind, most businesses do not have more than 1 point of critical mass. They can only have a massive growth period once in their existence which is why it’s so important to know a business that’s about at that point. More importantly you need to know how to take it past that threshold so you can then sell it and cash in on that amazing growth.
Ok so let’s look at each point in a little more detail:
1. The 6 Stages of Business Evolution
In his book, The Business Coach, Brad Sugars steps you through these 6 stages. At his Entrepreneur’s Masters Class he goes into even more detail. I haven’t written a blog about it in detail yet so here’s a quick overview of those stages.
- Mastery – Mastering Money (cashflow), Time, Delivery, and Reporting (most businesses are stuck here)
- Niche – You no longer can be compared to competitors because you have something unique
- Leverage – You’re leveraging (doing ever more with ever less) all aspects of you business
- Team – You know how to recruit and get the right people in the right spots
- Synergy – Everyone and thing is working together
- Results – Just a natural by-product of everything else
2. You have the 3 Leaders every business needs:
A leader leads people and a manager manages resources so it’s important that they’re leaders. Those leaders are the following:
- Service and Operations Leader
- Sales and Marketing Leader
- Finance and Administration Leader
Those systems include your software and computer systems as well as the systems needed to effectively deliver your product. The processes and procedures are the methodologies that you use to put those all into place. They of course all need to be documented to deliver consistency and to get someone trained and up to speed as quickly as possible. Scripts are the methods in which you effectively communicate with your customers, vendors, and maybe even each other. They should all be based on strong NLP principals.
In my office last week we just hired a new Office Administrator for Sales and Marketing and the person training her has given her a whole packet of the procedures, processes, and scripts we’ve developed over the past 5 months. It’s amazing how quickly those things can get someone trained and productive. It also helps you quickly determine if they’re up to the task or if you made a bad hire.
4. You have a program in place to maximize Back-end Sales and to generate Referrals from every sale
I tied Back-end sales and Referrals together because they’re basically the same thing. If I can drive down my cost per lead for marketing by getting referrals from every sale or by increasing the times a customer comes back to buy from me, I’m way ahead of the game. Building that loyal customer base is critical and an essential piece to acheiving critical mass. The way to do that we’ll have to address in a later blog.
So now you have a basic understanding of all of the pieces necessary to acheive critical mass, however don’t forget that this also gives you the perfect formula for determining what businesses have not yet acheived this. In other words, these are the businesses you want to buy! The businesses that just get by or manage consistent single-digit growth. If you’re like Warren Buffet you look for the businesses that have a strong position in the market but have been undervalued or beaten up by speculation in the market. Warren Buffet’s strategy, however is long-term. We however like to think short-term and repeat that short-term buy, build, and sell again and again. Warren Buffet himself said that he could generate 50% or better annual returns if he didn’t have so much money. In other words if he could just invest in small to medium businesses that are about to reach critical mass he’d be an even richer richest man in the world. Makes sense to me. Does it make sense to you?
To your success, Bryan