Going from Life-Style Business to Scale

If you started your business with the aim of sustaining a particular level of income and no more; and have come to realize that your business is not going to sell for the multiple necessary to pocket the nest egg needed to sustain your lifestyle – you’re not alone

If you started your business with the aim of sustaining a particular level of income and no more; and have come to realize that your business is not going to sell for the multiple necessary to pocket the nest egg needed to sustain your lifestyle – you’re not alone. We’ve worked with a number of great lifestyle businesses that need to go to the next level of value in order to attract equity investment or a buyer. They have a great niche, an audience, and a way they’ve always done things that generated the income they needed – and they’ve never had the desire to put the energy into aggressively growing their business…until now.

Let’s level-set by defining some key terms:

• A lifestyle business is a business set up and run by its founders with the aim of sustaining a particular level of income and/or to provide a foundation from which to enjoy a particular lifestyle. These are firms that depend heavily on founder skills, personality, energy, and contacts.
• An Authority-based business has the power to influence thought, enthusiasm, opinion, or behavior to the benefit of others and is led by an individual that has unique and deep knowledge about how to do a job in a unique way that provides an upshot to people’s lives.
• To scale an Authority-based business means attracting an ever-increasing number of community members while:
  • Increasing the value to the business for each community member, and
  • Increasing the value of participation for the community member.
• An authority-based business’s community is made up of members that they have experienced an uptick in their lives resulting from engaging with the Authority-based business’ information and/or product.

OK – now that we have agreed to the lexicon – let’s get into how to scale your impact on the world.

First (A major “duh!”): Commit to Grow

This means that you do the math to determine what the EBITDA needs to be to get your desired valuation – and you commit to set ego, time, and cash aside and to invest back into the business.

Second: Do the groundwork necessary to scale

The groundwork answers a series of questions:

• What’s the real job people want to have done when they buy from you?
• Would you and your business, as an authority on accomplishing that job, attract an audience?
• Can you, the Authority, show people how to do the job differently enough that the audience would see the approach as a preferred process?
• Can the process grow enough in value over time that users will stay engaged and work at getting more value from the process?

If so, these issues need to be nailed down:

• Target valuation
• Category definition (we’ll talk more about this in a future blog)
• Community Design to support converting the audience into community membership – and lock up category dominance strategy (aka scale)

Third: Build a Broad Management Skill Set and Establish Scalable Processes

It takes more than a founder to build a successful business. Though founders have given expertise, growth requires an expanded skill set. As such, Authority-based enterprises need to build a team with broad and complementary skills.

Going from expert to Authority-based is a leadership challenge. Experts can be brash and get away with being a “technical snob”. Authorities turn that expertise into a collaborative skill that attracts customers into becoming committed, active community members. This is a BIG deal because communities perpetuate themselves. (As opposed to audiences which are much harder to maintain.) Businesses with active communities command a higher multiplier on earnings.

You will need to reframe the way you think about your business, implement measures that are aligned with the strategy, be open to doing some new things, and tighten down existing processes/behaviors (maybe including your own!).

When it comes to processes, flexibility can be the enemy of growth. It can be hard to admit but managing the operations by hands-on involvement of founders limits growth. If a lifestyle business is going to scale, managers need to implement standardized and repeatable processes. This will require investments in support systems including IT and training personnel accordingly, as well as a delegation from the founder and senior management.

Do’s and Don’ts

Evolving a lifestyle business to a scalable enterprise can be emotional – kind of like waving good-bye to your child after getting them settled into their dorm for the first time! You know it’s the right thing for them…you just hope that you did all the right things to prepare them for their next phase in growing up. To make this next phase in your business’ life less stressful for you, the proud parent, here are a few do’s and don’ts that we’ve experienced:

DO Take your team through a process that helps them contribute to the vision, define what’s in it for them, and establish mutual expectations for the journey.

DO Get the category thing right – if you do then you’ll have a home-run. If you miss that your valuation will suffer.

DON’T go it alone – get help from a team of experts that have done this before. It’s a skill that’s acquired through doing…and it’s worth every penny to avoid costly mistakes and false starts.

Recent Posts