The 3 Stages of Scaling a Business
In this video, Matt goes over this business professional’s explanation of the three stages of scaling a business. However, the advice doesn’t seem to apply to all industries. Watch to see what Matt has to say about it.
There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this series watch CapForge’s owner react to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!
Video Transcript:
Business Advice Video:
So three stages of scaling a business. One, you have to shift your perspective, that the first stage of scaling a business is an investment phase. Too many people try to scale a business and still make money. Then what you have to do is chart out execution phase, where you get to multiples of execution. For me, I like to get to a three-time multiple for everything that I do. So I get people to break even. Then I try to have every asset including the resources of employees to get to a three-time multiple. And then I give an equity phase, which can include bonuses, options, warrants, or even equity in my business.
Matt:
Okay. I think maybe he’s talking about some specific types of businesses. It’s definitely not the case that every business has to go through a long phase of time where you’re putting more into it than it’s giving back to you. It really depends entirely on the kind of business. If you start a window washing business your upfront investment is 100 bucks. A couple of Home Depot buckets, some squeegees, some sponges, a long pole to reach the second-story windows, maybe a ladder. You’re not into it for very much. After two or three jobs you should be seeing a profit, if you’re not you’re doing something wrong with that business. It shouldn’t take you two years to make money in a window washing business. Now yeah, on the other hand, if you’re starting a manufacturing business and you have to start it from scratch, and buy the building, and buy tons of equipment, and it, you know, hire a bunch of employees before you can start producing the product. Yes, it could definitely take you years to make it back to break even. So again this is a sort of that general advice, ‘Here’s three things to do for any business’. But it’s really not any business. It’s very specific to the kinds of businesses that require a large upfront investment and a long runway to break even.
He kinda lost me on the last part 2 or I guess the middle part, where he tries to get 3X value out of every asset. I don’t know what that means. And I mean I do accounting and finance for a living. So I’m a little confused on exactly how he’s measuring that or why 3X is enough in some cases or how you even get to 3X in other cases. So that is not explained well and it’s not clear what he means to me at least. And I would suspect to most people listening, cause there’s just not enough information to understand how he’s even considering that. And then he gets to an equity phase which again I don’t really understand what he’s talking about. Equity cashing out the business or it’s returning an investment? I don’t know. This advice is lumpy, and missing a lot of pieces, and specific to only certain kinds of businesses. So if it happens to fit your criteria and you know exactly what it’s talking about, great. But I think this is not super helpful for most people listening.
