5 Ways to Scale ANY Business

There are only five ways to scale how many people you can sell to for any business. And I'm going to give you all five in a framework to think through that you can apply to any business that you ever start for the rest of your life. If you're not selling as many clients or customers as you want, you might be able to fix that within just a few minutes. If you don't know who I am, my name is Alex Ramosi, I'm the founder of acquisition.com, a portfolio company that sells over $200 million a year, and I make these videos because I want you to use as much of my free stuff as you can, grow your business to three, to $100 million a year in revenue, and allow us to invest in your business to scale beyond that. Let me tell you how I discovered this scaling framework. A few years ago, I went to this meetup, and so the businesses range between 30 on the low end and $250 million in top line on the high end. So everyone who got there got up and shared stuff that was working well for them in their respective industries. Everything from phone repairs, to solar sales, to solar, to a massive international MLM selling supplement. So the experiences were super diverse. So as I listened to each of the speakers, and I was among the smallest in the room at the time, one thing became really clear to me. No one had any magic that I didn't have. The two biggest observations that I had were that, one, people there had been in business longer than me, doing the same thing the entire time. That was a big lesson for me. Growth just happened as a consequence of not stopping and steady, consistent improvements over time. That was my biggest first takeaway. They'd been doing it a long time, they hadn't changed directions, and they'd just been getting a little bit better. The second thing is that they all attacked a much bigger market segment than me. In other words, they had a much larger TAM, an investing term for total addressable market, the amount of people who you could reasonably qualify to buy your thing. So in the beginning, you want to niche down. So that's normal. So if you're new, it's normal to want to niche down. That's always the advice for people starting out, because it's much easier to attract a narrow field. It's also easier to deliver to a very narrow segment. You can talk in their language, you can give them exactly what they want. Over time, though, it's natural for a business to expand its scope, and by extension, its market. If you look at Apple, for example, they're not niche. Netflix isn't niche. It's just when. It's a question of sequence. So those guys sell to everyone. And over time, you start a niche, and then you expand. And so that's what I'm going to talk about, the five ways that you can possibly expand from a niche. Over a very long time horizon, if you build an enormous business, you'll do all five of these scaling methods. But everyone who's watching this, you'd only do one. The first thing that you can do if you envision a triangle, this is the whole marketplace, is that you can go upmarket. What that means is that every segment has a higher or more leveraged version of its core market. If I were to sell to hair salons, I could go upmarket to multi-location chains or big national corps or franchises. That would be going upmarket. If I sold a widget to small business owners, like Salesforce did in the beginning, over time they went upmarket. And so they went enterprise. So they went to Fortune 500 companies. The pros are the deals are worth significantly more, and they churn far less often because you're dealing with more sophisticated business owners. You don't have non-payment issues. The cons are they're harder to sell. Sometimes it takes six to 18 months to close enterprise deals. So if you look at Neil Patel, what did he do? He has SEO services, but he makes his money doing it for Fortune 500. Gary Vee, what does he do? A normal agency business, but he sells to Fortune 500. Going upmarket is harder, but it pays off in the long run. Bottom line, if you increase the quality of your customer, you increase the quality of your company. The second way to scale is that you can go downmarket. So if I were selling to hair salons, this would be selling to hairstylists. If I were in gyms, it would be selling to trainers. If I were in Cairo, it would be selling to the employees who work in the clinics. If I went after small business owners, it would be going after aspiring business owners or entrepreneurs or business opportunity seekers. The advantages of going downmarket is that you never run out of customers. They're always making new ones every day. People float in and out of the market because they're not established. There are more emotional buyers. There's an ocean of them. The downside is, it's hard to build a recurring revenue business from them. They are not consistent. They don't follow through. You have constant payment issues. They change their minds and have, in general, unrealistic expectations because they're poor. And they believe because $50 matters to them, that it should also entitle them to you flying out to walk them through whatever it is in person every step of the way. It is what it is. You can try to educate them, but for the most part, it is the avatar. So the key to making it work in this market is having very strong marketing and sales. It's less about the product in this sub-segment. Because even if you have an amazing product, 30% of them go out of business every year because it's who they are. So a friend of mine has a CRM that targets super small entrepreneurs, small business owners. And they have 4% monthly churn, which is insanely high for a CRM. And he processes all the payments, everything. And I was like, where's your churn come from? He said, 100% of my churn comes from people going out of business or starting new things. And so the bottom line is, if you're better at marketing and sales, then you are at product and delivery. Going downmarket might be a better fit for you in the beginning until you get better at delivery. Because you'll always have new customers to iterate and improve on, and then you can make another move over time. It's not going to make necessarily the most valuable business, but it will give you a lot of iterations because there's just so many of them. Which brings me to the third move that you can make to scale your business, which is that you can go to an adjacent market. These are markets that often sell the same promise, but deliver it in a different way. If I worked with hair salons, they sell beauty. I'd go to nail salons as an adjacent market, like who else sells beauty that's a service-based business in the brick and mortar? A nail salon, that would be adjacent. They sell to the same avatar that often wants the same thing and likely suffers from the same problems. If I worked with chiropractors, I'd look at physical therapists, as they likely have similar audiences with similar needs. If I sold to gyms, I could sell to dance studios, et cetera. These are all adjacent markets. They're right next door. The advantages of moving adjacent is that you can usually provide the same amount of value as your first market. It's a slower expansion play, because you go vertical by vertical, but it allows you to extract maximal value. You don't need to iterate your main thing or your core product too much. Usually it's just some lipstick and kind of a different wrapper, since they suffer from more or less the same problem. You just need to market it a little bit differently using their language. You need to find someone from that new world, that adjacent market, and bring them in. They'll have enough trench in industry knowledge to help you bridge the gap. This often just comes from an enterprising ************ from that space that sees your success in your niche and says, hey, do you think it would work for me? Gives it a shot, makes the minor tweaks, and then they figure out how to make your thing work in their market. Then, all you have to do is find a way to pay that person, and then they'll help you unlock this entire new category of revenue. This can help double or triple your market size just with one move. The disadvantages are that this is a slower way to grow than the other ways, and so you'll need more specialized knowledge to do it well. That's why that person is so key. All the stuff you know about your industry, you're going to have to know that same depth about theirs or find someone who does. It's a great way to extract maximal value. It's a slow way to grow, which is not necessarily bad when you think about it long term, because you can keep copying and pasting the play vertical by vertical. That allows you to get the most amount of money per unit of effort. It takes a little bit longer, but it can also build an incredibly valuable company. Fourth way that you can scale, which is going broader. We've got our triangle. You can go up, you can go down, you can go side, or you can go broader. This means that you generalize all of the things of your core product or promise across all verticals that solve the same problem. For example, going broader would be going from hair salons to beauty in general. That would include hair, nails, aesthetics, med spa, massage, etc. All encompassing. You'd put all the verticals together, and then you generalize your language more, and you go after them all. That's the big pivot that would happen there. Core promise, you expand the language, and then it applies to all of them. If I were in gyms, I would go to fitness centers in general. This might mean big box gyms, microgyms, boutique studios, dance studios, spin studios, martial arts. All the different verticals in one. The advantages are that you can scale up fast to this. You can 10x your total adjustable market overnight. The downside is it's hard to provide the same amount of value. So if we're comparing this to going vertical by vertical, you have to generalize more. It's going to be more templated. So you're not going to be able to have the same depth of nuance as you could if you go vertical by vertical, if you just go broader. But you immediately have access to 10x the amount of customers. And so it becomes more like fill in the blank than copy and paste. The other downside is that you also now compete against every other person in all of those industries. So you widen your pool, but you also compete against a lot more fishermen. And many of them are more experienced and more entrenched than you. You're competing against all the vertical players who are just doing that silo as you try and hit all of them. You have more customers, but all your competition are better in their micro niches. Once you've achieved a certain amount of scale and expertise, you may have earned the right to go broader. We'll say though, oftentimes people go too broad too soon because they're not good enough yet. They haven't really earned the right. How do you know when the right time is? When you have made it work in the other verticals and you have champions in multiple other verticals that have used your services or your products across them, and you have kind of case studies that demonstrate what changes you need to make, and you know that you can generalize it while still providing pretty significant value to each of them, then it becomes more of showing multiple case studies of how it works in each of them. You still try and hit all of it at the same point, but the overarching message is beauty industry, fitness industry, investment industry. Bottom line, if you want to go fast, go broad, but if you want to be good, you're staying narrow for a little and scaling out. Facebook started in colleges before expanding out. The other thing is you can go narrower. The way that you scale by going narrower is a little bit different. Part of that is the niching down component, but I'm going to explain a very different way of going narrower that ultimately makes you more money. I like to think about this as becoming more specific. I actually wrote an entire chapter on this that got cut last minute from my $100 million offers book, and the chapter's free on my site called Your First Avatar. The basic idea is that you go from a small business owner to small businesses with $30,000 a month in revenue and at least two employees, or hair salons with at least X clients, Y staff, and Z revenue. You get narrower, and the idea is how do I increase the quality of my prospects without necessarily going upmarket? You're not changing the nature of your avatar, you're just changing ... You're adding qualifications to them. I learned about this from the former head of packaging and pricing at Vista Private Equity. The quick story on this is that I was at this event, guy got up on stage, is that they would do a huge customer analysis of every customer of a company that they want to acquire, and then they would do a fractal, basically, analysis. Basically, there's 80-20. They would look at the 20% of customers that brought them the most money, and look at the 80% that didn't, and they would say, how do we get more of these 20 and ignore these other ones? They would look for the common character traits, the channels around that 20, and say, what if we just made all of our customers that 20%? When they did that, they were able to 5X a company without even having to incur a significant infrastructure cost, because the actual total number of customers didn't change dramatically. By doing that, it became significantly more profitable, and ultimately, created a lot of value. I learned that concept from him, and that's where this concept around going narrower comes from. Here's the process for doing this in your own business. Number one is you survey all your customers to find out what their stats are, and what they like most about your services. I go in-depth on this step-by-step in that chapter. Two is you look at your best customers, and the ones who spent the most and stayed the longest. Number three, you do a common factor analysis, which is just a fancy way of saying you see what they all have in common. Ideally, you want it to be as few things as possible. Think two to five traits, no more than five, because each time you add a layer, you narrow your target even more. What you're essentially trying to figure out is, who are my most qualified buyers? Who are the people who get the most value from my stuff? Step four, once you find that out, you do two things. You change all your marketing language to attract that specific avatar who has traits X, Y, and Z. Number two is you figure out what process they all went through to buy. Often, they consumed certain pieces of content, or they came in through a specific channel. It might be SEO, or it might be a group, or a Discord, or YouTube ads, or whatever it is. These people consume this thing. They go through this process. They go through this channel. Then, what happens is you reverse-engineer the buying process to force every customer to go through that process, and basically, you make your best and most qualified customers. Force the on-the-fence prospects to become the higher-quality prospects by reverse-engineering what the best guys went through by accident, except now you do it on purpose. The advantages of going narrower are that you can increase your prices and your profits significantly. Remember, we're now finding the people who we provide the most value to because you do, in a real way, provide more value to this sub-segment, and so you also stop wasting time with shitty customers. You also have fewer people to compete against in this very narrow space, and it also costs you less to service fewer people. All of these things are good things for a business, especially on the smaller side that wants to just become more profitable. If that's you, this would be a play, often one that we start with some of our portfolio companies. It's like we can 3 or 4X the profit of the business just by going narrower and getting very clear on who the avatar is. Here are the disadvantages. You have fewer people to sell to, which is significant, but if you're not making $10 million a year or more, then you shouldn't be worried about that. If you're not there, then don't worry about that. You just want to figure out who you provide the most value to and then focus ruthlessly on serving that avatar. That means saying no to people who aren't the new, better, narrow avatar. It means saying no. You have to know who you're not going to serve. If you're starting out, there's a reason they say to go narrow. You can be laser-targeted in your marketing and delivery and start to build a reputation for yourself, which takes time. Think about this. Elon started Tesla super expensive, selling electric cars to the rich. And then, once he had a reputation, he went down market one step, and then he just created normal expensive cars, right? And then he went down a step again, and he reached the masses. Zuck went college kids. Then he went broader. Salesforce started with S&Bs, and then they went up. But no matter where you are, you can scale up your tandem in any of the five ways that I just outlined and the number of people you sell to by going narrower and getting very