Today we’re going to talk with Frank Bria, the author of Scale: How To Grow Your Business By Working Less.
Frank is going to help us understand that scaling doesn’t mean working 60,70 or 80 hours a week. Scale is about growing your business while maintaining your life. The secret is of course, creating a stream of passive income. This is where your business creates income whether you’re pushing the levers or not.
One of the secrets of building a business that has sustaining value is to have one where you’re not starting from square one on January 1st every year. Instead, you want to have all of your overhead covered before you even open your doors. And that is what scale and passive income is all about.
In today’s episode you’re going to learn:
- What passive income is and why you should care.
- What Frank means by scaling your business.
- What the time for money trap is and how you can avoid it.
- Why consultants need to pick a problem to solve and not just look a problem they could solve.
- Why you need to understand niches and become a nicheaholic.
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In the Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? Today’s guest is Frank Bria and you’re in for a treat. Frank is the author of several books. The one we’re going to talk about today is his book Scale: How to Grow Your Business by Working Less. He’s a senior Book Yourself Solid coach and I imagine we’ll talk a little bit about that. He’s been working in the small business world. He’s traveled the world, working for some of the largest consulting firms in the country. We’re going to talk about Scale today and we’re going to figure out how you can take the lessons that Frank has in his book and apply it to your business to make it one that’s truly sustainable. So, let’s bring Frank in and start the conversation.
Hey, Frank. How are you today?
Frank: I’m doing great, Josh. Thanks for having me on. It’s an honor being on your show.
Josh: Oh, it’s a pleasure. I’ve been really looking forward to this conversation.
So let’s start off and talk about passive income and how it can either help or hurt your business.
Frank: Yeah, that’s a good question because that’s sort of the sexy thing people like to talk about, is passive income. Well, first of all, I think you have to agree that there needs to be an element of passive income as part of what you do. The first problem that a lot of service-based businesses need to solve is getting out of the trading time-for money trap.
Josh: Can you define the time-for-money trap so people know what you’re talking about?
Frank: Yeah, absolutely. So, the way I look at it is this, if in order for you to make money, you literally have to have a direct relationship between the amount of time that you spend and the amount of money that you’re earning, you are in a trap because that eventually will run out. The easiest example of that is a billing rate – I charge $150 an hour for my time or whatever. As soon as you do that, you’ve automatically capped your income because there’s only so much time you have. But actually, the trap is worse than that because what a lot of people think is, “Well, I’ll just keep increasing my billing rates and then I can make tons and tons of money.” There is a natural barrier to that though. I mean, there’s a point at which you can’t raise the price.
Now, a lot of consulting experts will say “Well, the problem is that you have a billing rate.” So yes, you can raise it to $250, $350, $500 dollars an hour or $1000 an hour but at some point you need to change your pricing structures so that you’re not doing hourly billing but instead are doing something like project‑based billing or value-based billing and that gets you closer to the answer. So, instead of coming into a project and saying, “Well, this is going to take me ten hours to do and I’m $250, so it’s $2500”; you say, “Well I’m doing a certain amount of work for a company and it’s going to generate for them value of about $500,000, so it should be reasonable that I charge them $50,000 to generate $500,000 of value.” And now, you can have a conversation about return on investment.
Well, that’s great. Now, my time is not $250 an hour, it’s $5000 an hour but I’m still spending ten hours to do that job. So, it gets you part of the way there. But fundamentally, at the end of the day, in order to come up with one – of my favorite words and I know you talk about this a lot too, Josh, is having some kind of a scalable concept. And for me, the big definition – if we want to go macroeconomics or 101 is that as you grow, whatever you do, the marginal cost needs to decrease. Okay, it doesn’t need to be zero but it needs to go down so that the next time I do it, it actually costs me less to deliver that same service.
Well, even if you’re in project-based billing and I charge $50,000 for 10 hours of work because I’m generating half-million dollars of value for the client, the same exact ten hours, the next time you do it unless you come up with something scalable, right? So, to me, that’s the fundamental trap right there. You’ve got to come up with something where the next time you do it, you’re kind of leveraging the work you’ve already done and it becomes easier and easier, and cheaper and cheaper to deliver it over time.
Josh: Well, that sounds like a nice thing to do but can you give us an example of how that might work?
Frank: Sure, absolutely. A lot of the clients that I work with are basically consultants. And so, what they’ll do is deliver services. Now, the classic way to do that is to kind of like walk into every assignment from scratch and say, “Well, so what problem do you have? I can solve it. I’m a smart guy.” Like, I’ll figure out how to solve it. So you end up creating it from scratch every single time.
In order to create a scalable consulting engagement, what you have to do is two things. (1) You have to kind of pick a problem to solve. This is the challenge for a lot of smart business owners out there because they think, “Well, I’m a smart person so I should be able to solve lots of different things.” But if you’re going to create a scalable business, you’ve got to pick a problem.
For example, let’s say that I’m an HR consultant. I could start a general HR services practice where I come in to all sorts of companies and one company, I solve the recruiting problem. Another company, I solve a compensation problem. Another company, I’m going to help them with their performance management, whatever. But in order to make that a scalable business, I have to pick a problem.
At least, at the beginning, pick one problem. So, I’m saying, “Okay. No, I’m not a general HR services company. I’m a recruiter. I help you with your recruiting efforts. And so, now what I can do is productize that. I can say, “The outcome that I create for you, as an example, is I help you design a streamlined and inexpensive recruiting process so that you recruit and retain top talent, and we do it in a four-step process where (1) we come in and do a needs analysis. Then, (2) we come in and do whatever the next up is – I’m not a recruiting person. But you come up with a process.
Now, I can productize that process because now I can get other people to do it again and again and again. I can take each component of that process – let’s say, one of those things is writing about the job descriptions. I can actually hand that off to somebody because we have defined steps for what that looks like and someone else can do it. And so, it doesn’t make it a zero marginal cost which is what people think about sometimes when they think about passive income. But it makes it a lower marginal cost so that the next time, it’s cheaper and cheaper every single time you do it. Well, that’s something you can scale.
Josh: So what you’re talking about is actually one of my favorite topics in the world, which is I call “how to become a nicheaholic”.
Frank: That’s awesome.
Josh: Here’s the complaint I hear all the time, “Well, I can’t limit my business because if I do so, I won’t get enough customers.”
Frank: Mm-hmm, yeah.
Josh: I bet you have some thoughts about that.
Frank: I do because I hear it all the time too. In fact, that’s like the number one thing. Even if they agree that they need to niche, they actually don’t niche because deep down they have this fear that they’re going to go out of business because they’re nicheing down.
Here’s the challenge. The end goal is not the number of leads, it’s the number of customers. And what we know is that by nicheing down, we definitely are going to reduce the potential leads. I mean, there’s just no way around it. It’s true. If I am somebody who, my ideal client is any human being with a pulse, then the number of leads is 7 billion. If I’m going to niche, it’s going to go down.
But the problem is that the number of customers you have is a function of two things. It’s a function of the number of leads that you have and your conversion rate on those leads. So, for example, if I have a business that caters to every human being on the planet, I’m going to have a really low conversion rate. But if I niche down and I say, “Well, actually—and I live in the Phoenix area—so if I say, “Well, I help Phoenix business owners with–and let’s go back to the recruiting challenges, come up with a recruiting strategy that helps them attract and retain top talent.” Guess what? The number of leads that I have go from 7 billion down to maybe a couple 100,000 or less, maybe 10,000. But my conversion rate goes through the roof. And this is the part that everyone forgets. If I come up with a niched-down, very solid strategy for addressing a pain point that I can articulate clearly and consistently to the same audience over and over and over again, I’m actually going to have a really good conversion rate. And so, that number of customers I get out at the end is actually bigger. So, yes, one variable goes down but the other one skyrockets. And so, the product of the two is much bigger in the end. And this is the math that I think a lot of business owners don’t think through. They think that one variable of their addressable market size. They only think about that. But you also have to think about the conversion rate on that market size.
And think about it, just personally, if you had a choice between a generalist and a specialist who helps exactly your kind of customer, with your kind of problem, who are you more likely to purchase from? And frankly, this is another variable we haven’t talked about yet – the revenue, you’re likely to pay them more because they’re a specialist, right? I mean, that’s kind of how it works. So, when you put all of those together, you just win as a niche player. You just do.
Josh: By the way, for those were listening, I have had this conversation now with hundreds of people and nobody, who knows what they’re talking about in the marketing world, has ever recommended broadening your niche.
Josh: They all say the same thing.
Josh: Narrow it. So, Frank is right on the money. So, Frank, when I was reading your book, you had a statement in there which I found really interesting and I have a question about it. Why is lack of capital a symptom of a problem and not a cause of a problem? I’m doing a little pivot here. I just found that a really interesting statement that I said, “Oh, interesting. We need to talk about this.”
Frank: Yes. You are the first person who’s ever picked that statement out of the book and got to it. But knowing you, that does not surprise me at the least. But there’s two elements to this. First of all, I think lack of capital is an excuse that everyone uses – lots of people use to talk about why a business fails. “Oh, we just ran out of room. We ran out runway.”
As you pointed out in the introduction, I kind of come from the high-tech space where capital is—I won’t say free but there’s a lot of it running around. In other words, you can get venture capitalists, if you have the right setup, to invest a lot of money in some crazy stuff. Yes, it’s getting less so but you can still have them throw a couple of million dollars at you to start some stuff up, where you probably don’t need all of that if you had the right infrastructure in place. Interestingly enough, what a lot of high tech companies are having to do today, because the gauntlet they have to run to get funding has become more sophisticated -venture capitalists are coming in later stage now, is they have to bootstrap. So, that means you have to start generating cash today, doing something of value, creating something of value. You can’t just go hide behind a research screen for a year or two and then, pop, come out with a product.
It used to be that way. I mean, back in 2000. The first dot com boom, you could basically go with a PowerPoint presentation to Silicon Valley and get $6 million or $10 million and then go build a product. You can’t do that anymore. But the fundamental argument that I make to a lot of these tech companies is, listen, “if you can’t get the funding from some place, there probably is a reason, okay?” If it’s not coming from investors, then you haven’t proven your idea yet. If it’s not coming from customers, then you’re not generating any value yet.
I’m tired of listening to product companies say that they can’t generate value out of the chute because that’s just not true. One of my favorite venture capitalist guys is Guy Kawasaki, former apple evangelist. He now has his own VC fund that he runs. I think he’s in Austin now. He has a book called Art of the Start which I think is like a must-read for anyone who’s an entrepreneur. It was really geared towards tech startup guys but I think there’s some really cool stuff in there for anyone who’s starting a company. His start argument is, listen, “it should always be consult first, build tools to help the consulting go easier, scale – fundamentally, and then productize the tools.” And if you do it that way, then there really isn’t any reason why you can’t start generating value on day one.
And so, a product company that doesn’t have access to capital, can become a services company at the beginning while they get their sea legs underneath them and start generating revenue. I had this exact conversation with a tech startup in the banking space, a fin tech startup based in the Philadelphia area. They’re trying to create a savings portal for people. Their mission is to help people save more money. And they think that one of the reasons why people don’t do that is because there aren’t enough tools to help them save money and simultaneously spend at the same time because people think about money as “I need to spend money.” So if they can actually get them to save money while spending money, it would actually help people put more away for a rainy day, for retirement, et cetera. Well, that’s a lot of technology to put together. But fundamentally, in order to make it work, they have to be make all of these deals with providers for discounts on travel, or discounts on groceries or whatever. Well, they can start consulting. They can start leveraging those relationships and provide value to financial planners, or money managers, or money coaches. And there’s plenty of ways they can start generating cash without having to spend a year and a half developing a website and this really complicated back-end matching platform that they’re working on.
I guess, that’s what I mean by lack of capital is a symptom rather than a cause. If you structure what you’re doing in a way that’s providing value to somebody – customer, investor, I don’t care what it is, then you’ll have access to the capital. And so, yeah it’s a bit of a provocative statement but I make it because I think we use it as a crutch, as an excuse. We look at failed companies and go, “Oh, they ran out of cash.” No, they didn’t run out of cash. They weren’t creating value for anybody, so that’s kind of what I meant by that.
Josh: Yeah. I agree 100% with that. By the way, you have no argument from me. As a matter of fact, one of the things I really dislike about the New Age business press – you know, the fast companies and the wired, is they lead you to believe that you don’t have a real business unless it’s fast growth. If you want to put your business at risk really quickly, go on a fast growth path and not a profit first path.
Frank: Absolutely. I agree with you there.
Josh: So, what I heard you say was, “Make sure you’re profitable and then all the capital you need will come your way.”
Frank: Yeah. And the other thing is, this is a bit of an argument against a lot of the venture capital-funded philosophies behind how to grow a company because we have all of these books and all of these Harvard Business Review articles talking about pivoting. One of my favorite books, actually it’s a very good book, Getting to Plan B because the argument is “your plan A never works.” The reason your plan A never works is because you go out with a product before you even figure out what your value proposition is. That’s the problem. And so, instead of recognizing that what we’ve done with venture capital businesses, generally speaking, is we’ve structured them in a way where we waste a whole bunch of money upfront, trying to figure out what our value proposition is and who our customer is, and then eventually, hopefully there’s enough money left over to actually run the real business we’ve created. We basically said, “Oh, well, everyone has to pivot.” It just seems like that’s totally the wrong answer. Like, why not recognize the fact that we need to do some work upfront to actually identify the value proposition and the customers and do that via a services orientation first. But, you know, you go to a venture capitalist with the services business and they’ll throw you out.
Josh: They don’t see a services businesses as being scalable or have a recurring revenue model which is part of the problem. And frankly, once you have some cashflow then you get a whole different class of investors who might be interested in your ideas. It’s a little bit slower but at the end of the day, it’s a lot safer. I’ve had too many people I’ve consulted with who’ve chosen the fast growth world, taking VC or private equity money, and within a year, they’re thrown out of their company.
Frank: Yeah. And look, this is a new model. You know, classic example is Omar Zenhom. Do you know Omar?
Josh: Oh, sure. Yeah.
Frank: Webinar Ninja, I figured you did.
Frank: Omar’s business model is the exact opposite of the venture capital business model for a software company. So, what Omar did is he first – for those of your audience who don’t know him, he is the host of the $100-MBA podcast – fascinating, great podcast, best of iTunes, really good stuff. So, he goes out with a podcast. He starts generating revenue from an audience that he starts to curate. He creates this audience. Once he gets the audience, he basically finds a need the audience has. He determines the best way to address that need. He handpicks from his audience a beta test group to develop software around who, by the way, pay for it before it’s even built. And then he rolls it out to them slowly – to your point, Josh, in beta groups until he’s confident he’s got a stable product. And then he releases it to the public.
Guess what? He’s a software company who didn’t need a penny of venture capital funding because he went about it exactly the opposite. And we’re starting to see other people do the same thing. Derek Halpern’s done something like that. John Lee Dumas is doing that with a technology platform, Podcast Websites. Brian Clark, of Copyblogger fame, did that with his technology platform. This is exactly the opposite of what classic Silicon Valley software companies are like. Now, they may argue, “Look, that’s not a billion-dollar corporation.” Well, maybe not yet. It’s early stage but I’ll tell you, it’s a much safer growth path than going to get a bunch of cash and blowing it on ping-pong tables and very high-priced programmers out of Silicon Valley and then see what you got after the first pivot. Do you know what I mean?
Josh: Oh, I think you’re absolutely right.
Unfortunately, we are already out of time and there’s at least two or maybe three more podcasts we’re going to have to do together because there’s a bunch of stuff I never got to but I’m going to but I’m going to bet that there’s people listening to us today who would love to find out how to get in touch with you. So, why don’t you let them know how they can do that, Frank?
Frank: Absolutely. So, if you’re interested in the book, Scale, you could go to scalebookoffer.com because often times we’re running promotions there on the Kindle version or you can get the paperback there as well, through Amazon. There’s a direct link to Amazon there, so it’s just easier for everyone to remember. You can also, there, get in touch with me. I’m at frankbria.com, happy to chat with you on social media. I’m on Twitter and on Facebook and LinkedIn. So, grab a copy of the book if it’s of interest and then say “Hi!” on social media, and happy to chat with you more about this.
Josh: And your e-mail address is email@example.com, is that correct?
Frank: That is correct.
Josh: Okay, cool.
Well, thanks so much for your time today. I knew this was going to be a fascinating podcast. If we had two or three hours, we could keep going but you’re probably at work now and want to get out of your car, so thanks a lot for your time and we’ll see you all soon.
Narrator: You’ve been listening to The Sustainable Business Podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802‑846‑1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an e-mail at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.