I recently had dinner with a guy who trains dogs. He used to train them one-on-one for an hourly rate but he decided to shift from selling his time to selling a product.
Now he markets a set of pre-recorded dog training videos through his website and earns more than $1-million a year selling something people buy while he sleeps.
According to the mergers and acquisitions (M&A) professionals who sell businesses for a living, the most important measurement of a company's growth potential is the ability to handle five times the number of customers you have today without adding significantly to your costs. In the case of the dog trainer, whether he sells one video or 1,000 videos, his effort is the same.
The ability to easily absorb a sharp uptick in the number of customers speaks to one of the reasons strategic acquirers buy companies: they often want to bolt your product or service to their platform. If they have 100 sales reps – or offices, stores, websites – they need to know your business can handle the demand.
Customization is the five-times killer
If you customize what you sell for each of your customers, it usually means people are involved, which makes it impossible to scale by five times overnight.
We used to offer to customize the research reports we sold, but it robbed our business of its leverage. Once we standardized and stopped offering to customize, we were able to scale up. We lost a few customers who were used to the tailored reports, but we added five times the number of new subscribers because we weren't wasting our resources customizing.
The need to customize often comes from 10 per cent of your pickiest customers. Would it be worth saying goodbye to the people who a Big Mac with no pickles?
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. You can download a free chapter of his new book, Built to Sell: Creating a Business That Can Thrive Without You.
Join The Globe's Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT