Scalable Systems - Define

Company Of One: Why Staying Small Is the Next Big Thing for Business - Paul Jarvis 2019

Scalable Systems
Define

IF THE POINT OF A company of one is to question growth and challenge scale, the answer might sometimes be that growth is in fact required—when it aligns with your overall purpose. When growth in profit, customers, or reach is needed, however, companies of one can look to simple and repeatable systems to facilitate scale, with no need for more employees or resources.

Marshall Haas, cofounder of Need/Want, used to think that a company needs to scale in proportion to the revenue it generates. Thus, a $100 million business needs to have at least hundreds of employees and several layers of bureaucratic managerial hierarchy. What he’s found in practice, though, is that, with fewer than ten employees, his company can grow very slowly and still increase revenue—which is currently at nearly $10 million.

Most people would assume that only tech startups or software companies could manage to scale revenue far quicker than they add employees and expenses, since their products exist in the ether of the web. But Need/Want, a physical product company that sells everything from bedding to notebooks to iPhone cases, has managed to build a big business with only a tiny team.

Need/Want uses scalable systems and channels to increase profits. They use prepackaged software, Shopify, to run their online store, which can handle anywhere from one order a day to over a million. They stay out of big-box stores, so they don’t need a dedicated outside sales team. They don’t do trade shows, and all their marketing efforts stem from a team of three who focus entirely on online channels, like social media, paid ads, and a newsletter (all of which can increase reach without too many extra resources to manage).

Need/Want outsources manufacturing to a factory with which they have a close relationship; it can handle anything from handfuls of orders to tens of thousands of orders in a day. The company also outsources shipping and fulfillment to a trusted partner. In other words, Need/Want is a perfect example of a company of one that utilizes scalable systems. Its direct-to-consumer sales model keeps things lean and enables the company to really experiment with the best way to find and sell to new consumers.

The company started when founders Marshall Haas and Jon Wheatley became interested in applying the knowledge they’d acquired from working at tech firms to physical products. Prior to their partnership, Marshall was making money selling products that you couldn’t actually touch (software), and Jon was creating things that could be touched, but without making any real money (VC-based startups that never got off the ground or made any profits).

They treat their company like a tech startup, but instead of selling software, they sell products, relying heavily on technology, automations, and the scalability of online channels. Their team, even at nearly $10 million in yearly revenue, remains small: besides Marshall and Jon, who run the business and handle marketing, there’s a head of operations, four support staff (two of whom are part-time), a CFO, and a developer. When they require more help, they hire freelancers and contractors and outsource until it’s cheaper to bring the job in-house. That is, they hire only when it’s too painful or time-consuming not to, or when the salary for a hire could easily be justified by the return on investment. The Need/Want model is growth based on realized profit, not growth based on potential profit (the model adopted by most startups or VC-backed companies). They operate out of St. Louis, where it’s far cheaper to rent office space and to live, rather than in a typical startup hub like San Francisco or New York.

Because Need/Want’s heavy reliance on social media and newsletters, which are both infinitely scalable systems, creates a one-to-many relationship, the company doesn’t need more staff to reach more people. They simply need increasingly effective messaging and positioning—which they’re always testing with tools like A/B tests in their ad campaigns and email campaigns. A/B tests let a company test a few variations of a small subset of a list, see which variant performs best, and then send the winning variant to the rest of the list.

James Clear—the author and photographer introduced in Chapter 2—has developed scalable systems in his own business, which creates and promotes digital products. With a mailing list that has more than 400,000 subscribers and increases by 1,000 new people per week, he could have his pick of goods to create and sell to them. His focus for paid offerings follows two simple rules that help him remain a company of one (with a single assistant) and serve both the many people in his audience and the people who buy his products.

James’s first rule is that his products must take little to no management. The digital courses he sells have no ongoing live webinars or training sessions—customers merely buy the content and then watch the prerecorded videos in their own time. His second rule is to charge a onetime fee for everything he offers; he accepts no retainers and no ongoing consulting work. To give a keynote speech, he’ll fly in, give the talk, answer questions, and then be gone the next morning. These two rules help James keep his business small, his overhead and expenses light, and, most of all, his time freed up to do what he wants to do: researching, writing, and sharing. By creating goods and offering services that are scalable without any actual major scaling on his part, he’s optimized his profitable business for the life he wants.

Of course, most people and businesses don’t work backwards like James did. People tend to start with a business model and then become unhappy when their days are filled with tasks they don’t enjoy. Instead of thinking, What product can I create? or What service can I offer, James believes that we should first think: What type of life do I want? and How do I want to spend my days? Then you can work backwards from there into a business model that allows you to create scalable systems to deliver your product to your audience.

Let’s break all of this down further by looking at how systems can be put into place to assist companies of one with creation, connection, collaboration, and support.

CREATION AS A SCALABLE SYSTEM

It’s not news that companies separate product ideas, marketing, and sales from physical production. If done poorly, this practice can create problems ranging from low ethical standards and unfair wages to vast amounts of waste as a side effect of manufacturing.

In the beginning of separating branding from production, large companies believed that great fortunes could be made by achieving the lowest common denominator in production, and in recent years that belief has been propelled by the forces of globalization. According to author and activist Naomi Klein, however, globalization has had negative effects on workers, including poor conditions, low salaries, and unfair treatment. Klein believes that a new movement, one very much in line with the mind-set of companies of one, is breaking away from global brands with questionable morals that focus on maximizing profits over people, and that this movement will shift businesses toward slower, smaller, or on-demand strategies, making them more “fair” in all senses of the word.

For example, trend-setting companies like Arthur & Henry advocate for “slow fashion” and encourage customers to wear their clothing longer, and in stages—first at the office when a garment is fresh and new; then casually on the weekend, rolling up frayed sleeves; and then, when stains and small tears appear, for garden work. Ideally, the final stage for a worn-out Arthur & Henry garment is use as a rag in the garage. When we extract every ounce of usefulness from each piece of clothing by reusing it over and over, we get the most out of the work of the farmer, the miller, the tailor, and the factory employee. Arthur & Henry’s metric for success is sustainability in all forms: earning steady revenues, raising money for charities, minimizing environmental damage, and maximizing benefits to all workers.

Another example of a beneficial separation between brand and factory that has resulted in an ethical and profitable scalable system for a company of one is Girlfriend Collective, founded by Ellie Dinh and Quang Dinh. They sell bras and leggings that are manufactured in Taiwan, using mostly recycled plastic from used water bottles. Girlfriend Collective advocates for slow fashion and against pumping out large numbers of poorly made products; although its product order wait times can sometimes be long as a result, customers are happy to wait. The company pays workers 125 percent higher than minimum wage and offers free catered lunches, guided exercise breaks, health insurance, and free health checkups every six months. Its environmental practices exceed government standards for manufacturing as well as for recycling and waste water management.

Many overseas factories turn out vast numbers of brand-company products, which helps them stay busy and keep costs low: when one partner company sends in a smaller order, a factory can switch to producing for another company with a larger order. Not tied to any one brand, an overseas factory can work with any number of partner companies. This practice sometimes slows down production, but it also creates a more sustainable, almost-on-demand system in which production never outweighs demand.

CONNECTION AS A SCALABLE SYSTEM

By constantly working toward reducing one-to-one points of contact with customers and focusing instead on one-to-many relationships, a company of one can scale its connection with customers without actually scaling its business. Yes, personal touches, as we saw in Chapter 7, are essential, and direct communication with customers is always required to learn, empathize, adapt, and revise—yet the majority of connecting can be done en masse.

A perfect example is email marketing. It requires the same amount of effort to send an email to 50,000 people as it does to send that same email to one person. This is precisely why most companies of one rely heavily on newsletters and email automation: these are powerful tools for building relationships, trust, and even revenue. With an average return on investment of 3,800 percent, according to the Data & Marketing Association, email marketing is a valid model for scaling without scale.

Systems for connections don’t work simply by turning them on and watching them increase profits. (This would be like believing you can plant a real money tree.) Work is required, at the outset and through iteration, to ensure that these systems are functioning optimally. And as discussed in Chapter 6, personality is still required, even with automated customer communication, in order for these systems to be effective. The point of scalable connecting is to make customers and potential customers feel as though they’re getting on-demand information as they need it, not being relegated to an infinite loop of unhelpful and frustrating computer-generated responses.

Using personalization and segmentation in connection channels like email is key. You want to send the right email, to the right person, at the right time. Otherwise, you may be sending out a firehose blast of messages that may not even be relevant—like a sales pitch to a customer who’s already purchased the product. Tools like MailChimp are great for filtering and targeting an audience, allowing you to send emails with product pitches only to people who have not yet purchased the product, or notices of in-store sales only to people who live in the particular geographic location, or up/cross sells only to people who already own the relevant products. Also, a study done by Campaign Monitor showed that emails with personalized subject lines are 26 percent more likely to be opened. The Epsilon Email Institute found that segmented automation emails have a 70.5 percent higher open rate and a 152 percent higher click-through rate than “business as usual” firehose blasts.

To increase the effectiveness and the conversion rates of connection channels, you need to do careful testing. Luckily, systems like email marketing software allow for A/B tests. Similar A/B tests can also be run with marketing messaging on websites to increase engagement and commerce.

In my own business, email marketing accounts for more than 93 percent of revenue each year. It allows me to connect with thousands of people who have opted to receive updates, education information in the form of articles, and even product pitches. I can write a single email that is instantly delivered to 30,000 people. I can teach 10,000 paying customers how to use my products without communicating with each of them every day.

Newsletter automation can also be used to increase customer education and retention at scale. Automated emails sent to people immediately after purchase can show these customers how to best use the product they purchased or answer common customer questions, greatly reducing customer support requests. Automated updates and notes and even simple check-ins with customers after a set amount of time can also increase the likelihood that customers will keep using the product, as well as the likelihood that they’ll tell others about their purchase (for instance, via social media sharing buttons within the emails).

Even companies of one that focus on client services, such as consultants or freelancers, can use automation software to reduce the amount of one-to-one contact during interactions, whether it’s onboarding new customers or following up after a project is finished.

Jamie Leigh Hoogendoorn, a designer and student in my “Creative Class” course, vastly cut down the amount of time she was spending dealing with emails from “tire-kickers.” By automating most of her onboarding process with automated emails that delivered information about her services and prices and setting up a calendar system that let people pick a date and time to speak to her (based on her own calendar’s availability), she cut down the amount of time it took her to take a lead and turn it into a paying project from between eight to sixteen hours to only one hour. Her success rate for winning bids has increased, since her potential clients get information on her services instantly, instead of having to wait for her to reply to their emails. And Jamie’s warm and stylish personality still shines through in all of the automations she uses.

SaaS is becoming more prevalent, and so too are the tools that allow us to spend less time on the minutiae of operating a company of one and more time on our core work, all while helping us scale our reach or profit with no need to also scale our time, staff, or expenses.

COLLABORATION AS A SCALABLE SYSTEM

Working for yourself doesn’t necessarily mean working by yourself. Even if your company of one is just you, there are still times when you’ll need to collaborate with others—from contractors to partners to clients. If your company of one is a small team or exists within an organization, even more layers of collaboration are required. But collaboration is a double-edged sword: technology allows us to easily connect with each other in real time, but at the expense of focused, deep work.

In the past, internal communication had to be face-to-face, in meetings or on scheduled conference calls, but as workplaces move toward remote workers and flex hours such communication is becoming less and less efficient. Increasingly common corporate messaging tools, like Slack, intranets, and cheap or free VOIP calling, are allowing groups located all over the world to not just work together but truly collaborate.

With these collaboration tools, however, many companies may unknowingly be filling their employees’ time with always-on distractions, especially if employees are required to keep their status as “available,” share their calendars, and keep up with group messaging all day. Real-time messaging can turn into all-day meetings, every single day, with no set agenda.

Samuel Hulick, founder of User Onboarding, believes that tools like Slack are “asyncronish”: they’re neither truly real-time (you sometimes have to wait indefinitely for an answer) or asynchronous (meaning no immediate response is expected). While the use of messaging tools can seem like a truly great advance in collaboration, too often they lead to daylong half-conversations, like a slow-drip coffee maker.

Real-time collaboration can be very useful when a whole team is required to brainstorm or solve a problem together, but it can also be completely distracting if it’s expected most of the time. This is why companies like Basecamp and Buffer tell employees to disconnect from the distractions of collaboration for most of their day. No one at these companies, for example, is expected to be immediately available, unless there is an emergency (which is quite rare). In general, responses are expected at these companies within days, not minutes.

By allowing collaboration to grow from face-to-face contact to notifications on all our digital devices, even the ones we use outside of work (like phones and tablets), we’ve let it scale beyond what makes for focused and efficient work.

Scaled collaboration does make sense when a project can’t be advanced without input from several team members. A perfect example is what is known as a “hackathon”—a combination of the words “hack” (exploratory programming, not computer crimes) and “marathon.” In a hackathon, several small teams of developers, designers, and project managers are formed, each group collaborating, with speed and focus, to complete a large project over the course of several hours or a few days. Their work has a specific focus—for example, coming up with a new feature for a piece of a software that a company sells, or designing a new website, as the City of New York did, for local government to use in building relationships with the private sector. At the end of a hackathon, each team presents a series of demonstrations to share its results with the rest of the group.

Hugely successful innovations have come out of hackathons—for example, Facebook’s “Like” button. Hackathons work because they are focused collaboration, not 24/7 “be available at all times” collaboration. They can be fun, energetic, and highly productive, since everyone is collaborating on a common goal and purpose. And once the hackathon is over, everyone goes back to their regular jobs.

Elsewhere in this chapter, I advise scaling up certain aspects of your business, but collaboration is the one area where companies of one should scale down—from an environment of always-on, always-available, slow-drip messaging distractions to a regimen of clearly defined times to work together to accomplish large tasks together. Otherwise, you run the risk of being available for distraction during every hour of every day.

BEGIN TO THINK ABOUT:

· Where you could use automation and technology to scale so your business doesn’t have to

· How you could outsource tasks that require massive scale

· How you could add personalization and segmentation to your one-to-many communication channels