Know thy limits
Why you must clearly understand the limits of a business (and yourself)
I’ve spoken before about why I believe it’s important to know when to stop investing in your business. However, I want to dive into something different today.
Understanding the natural limits of a business.
“But Scott, every business can scale to the Moon!”
That’s technically true. However, some businesses have pre-defined limits and scaling past those limits is extremely difficult.
And… I’ll be honest. I’m here to have a good time, help people, scale businesses, profit, and do things I love (with people I love).
So what don’t I try daily? Set out on Mt. Everest and see if I can reach the top.
Understanding the limits of a business and what is required is critical when scaling…
Shooting too “big” can make your failure rate increase substantially. Simply put, the more you try to “bust” the limits of the total addressable market, the more money you invest, and the bigger the vision, the higher the chance things can go wrong.
I recently acquired a business that generates about $500,000/year in revenue. Looking at the business, I know that I can, by 2025, get the business to generate $5 million per year…
Beyond that number? My chances of being successful go down by a considerable amount.
Further, my strategy today would have to be massively different. It would require a different team, more capital, different marketing, and a new business model.
Simply put: My desire is to 10x this business, which, if done correctly, will help cashflow a few million in profit, along with an 8-figure exit.
However, if you looked at this business differently, you could say… I could try for a 9-figure exit. But the effort and risk involved? I’m not motivated by it.
Every business has automatically set limits—if you want to go past those limits, you must be willing to make massive changes.
This begs the question… how do you decide how big you want to grow a business and its limits?
There’s no one-size-fits-all. However, I’ve found that when you look at businesses and their growth, they will come in various flavors…
#1. Buy and Hold and Profit
#2. Buy and Exit
#3. Buy and Roll Up
#4. Buy and Integrate
Going into a business deal (partnership or acquisition), it’s best to know what makes the most sense.
I acquired an eCommerce company a while ago, and I want to test if I can convert it into a Media & Education company.
I’ve given myself a timeline (3 years) with a specific, actionable exit goal ($5 million). In this case, I’m buying and desiring to exit.
Another business of mine consists of a partnership between Wisdom Media (my Media company) and a popular Software Company. In this case, we intend to build a roll-up of dozens of media companies in the Business/Entrepreneur niche and then sell.
In another business of mine, we purchased a software company that will integrate into another portfolio, adding recurring revenue to the entire group and helping those inside it. A sale is optional, and the value is easily found and seen.
In each case—I know the intention of the business.
And in each case—I know the limits of the business at some level.
When I acquired OnlineBusinessOwner.com, I knew it wouldn’t be a 100 million-dollar business…
Simply put… I knew it would be ONE of many businesses inside a roll-up in the business niche. A valuable one? Yes.
Will it make $10 million next year? Probably not.
Could it? Of course.
Does it make SENSE for it to make $10 million? Sure, if it didn’t have SO MUCH stress and risk.
Know thy limits, and once you build inside, your business is far more predictable and stress-free.