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Scale, Mess And Debt

Scale, Mess And Debt

Summary


Scaling a business is a sexy topic, cleaning up the mess and paying back the debt from scaling is not. 

This is a tricky thing to balance, most entrepreneurs get it wrong. If you don't grow fast, a competitor might overtake you —but— grow too fast and you'll make a mess and accumulate too much debt for the company to get out of. 

Finding the perfect balance between these two extremes is an art-form that lies at the core of an entrepreneurs ability. 

This video shows you how to think about scale, mess, debt, and how they're all parts of the same "growth cycle". 

I share practical tips to handle these issues in your business today + share personal stories of the rollercoaster ride I've been on to date. 

Check it out and let me know what you think in the comments?


Here's what we cover:

1. Scale, mess, and debt — how these are stages of the same "growth cycle" all businesses experience

2. Different types of debt: Financial, product (get's em all), process, talent, team, perception, time, detail

3. Debt occurs when: You choose a better today at the cost of tomorrow

4. Debt kills business: When you can't innovate because upkeep takes 100% of your time and energy you know your time is near

5. So what do you do? You must be conscious of all forms of debt, keep tally, and pay it back routinely

6. Growth often means taking 1-step backward to make 3-steps forwards (short-term sacrifice for long-term gain)

7. Personal stories of growth, mess and debt cycles I've been through: 2016 boom, 2017 repair, 2018 boom, 2019 repair

8. My advice for you: Think long-term, consider upkeep, keep it simple, YAGNI (you ain't gonna need it)


To Your Success!

Sam Ovens & the team at Consulting.com.

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Transcript / MP3

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Hi everyone, Sam Ovens here. And in today's video, I'm going to talk to you about Scale, Mess and Debt. And I'm going to tell you why most people love scale, and they want to scale and they try to scale and they they do scale. But then why scale leads to a big mess that looks like that. And then how really mess when left unmonitored, unchecked and left in the state of a mess instead of being cleaned up, turns into debt, which is essentially having a better today at the cost of tomorrow. And then with time we face tomorrow and when we face tomorrow, that's worse than today. Then we have to look the monster in the eyes, deal with it, pay it and deal with the consequences of our actions. So, recently, you've probably noticed that last week, I didn't make a video, there was just nothing. And then the week before I made a short one, because I was real busy at work and so the reason for that, and the reason why sometimes I don't make videos as consistently as I'd like to, it's because I got a company to run, and I'm trying to scale it, and we do scale it and that always leads to a big mess, that I always have to clean up and also have to pay back debt. And I don't mean the debt, like financial debt, sometimes it could be financial debt, but there's many different forms of debt. And I'm going to explain all of these different forms of debt to you. Explain how all of this happens, this is actually the reason why most companies cease to exist, because once your mess and you're debt takes up 100% of your time and energy, then you cannot innovate. You can't make new products, you can't improve your products, you can't do new things. And you can't seek and push new frontiers, because 100% of your time is taken by upkeep or admin or operations, or just trying to tame this damn mess. All right, so I've got eight things that I want to share with you eight points. Let's get right to it. And I'm going to throw in a couple of stories to explain how this has been present in my life as well. So let's get started. Now, the first point that I have is that these things run in cycles. It goes Scale, Mess, Debt Cycle. So it pretty much looks like this you've got scale happening that leads to a mess and that leads to debt. It's natural for this to occur by the way. So if you want an example of this in like some other area of life, a prime example would be like bodybuilding when they're trying to scale which is basically like bulk up and get bigger. They are trying to eat as much as possible they call it bulking and when they're doing that they're not really too concerned about putting on additional fat. So they eat lot of food and they do get fatter, their body fat percentage goes up and they're not too concerned about that, because they're mostly trying to get bigger, they're trying to scale. But then what they do, is when they get bigger, then they go into cutting phase, which is when they focus on eating less carbs and less things that make you fatter, and focusing more on different types of exercise to really bring down the body fat. And when you operate in this cycle of like bulking, cutting, it's sometimes more efficient than trying to bulk and cut at the same time. Because if you're trying to cut and not eat as much food and trying to bulk, they are opposite ends of the spectrum, really. Now, this is a real simple way to put it. But this happens in business too, like when you're trying to scale, you have to move quick. You have to make fast decisions, and you have to be sometimes scrappy, and you have to cut corners here and there. That's all part of scaling. If we were trying to scale perfectly without accumulating any mess, or cut any type of corner, then we wouldn't scale, we would just maintain. So that's the nature of scaling. And then the correct thing to do after a period of scale is to deal with that mess. You've got to come in there and clean it all up, sort it all out. And often put in a new infrastructure, or new systems or whatever to handle that new level of scale that you've experienced. And then you come back to scaling again. But what I see time and time again, is a lot of people just scale up, the mess builds then the mess festers. They don't deal with it and then it comes around bites them in the ass and it takes down the whole machine, it takes down the whole business just poof gone I see it all the time. And what you've got to do is you've got to pay back the stuff, you've got to clean up the mess. And so that's the cycle. Just like a bodybuilder has to cut after bulking, in business you've got to scale and then clean it up and it goes in a cycle. Pretty simple. Now, let's talk the second point about different types of debt. So there is financial, just think of debt, which is basically having a better today at the cost of tomorrow. That is debt, not just financial debt, where owe lots of money to your credit card or whatever. It's having better today cost of tomorrow. Every time you do that you're accumulating debt. So for example, sleep debt let's say tonight, I don't go to sleep. I might get more work done today but that thing is going to bite me tomorrow and on the aggregate, I'll probably do less. So if I was to think long term, probably best not to do that. You get the point. Then is financial debt. I might buy a big screen TV today with money I don't have on some credit card and pay off a lot of interest. Then I'm having a better today at the cost of tomorrow. There is also products debt, this is a big one. So really people forget in business that people buy products or services and generally because of the quality of the products or the services and how much value adds to them and their life. And quite often in the beginning companies are product focused, they're trying to truly make a great product. And then comes the scale and the complexities and then before long with all of the management of the financials, the management of the team, the systems, the communication, the operations, the admin, the customer support, and all this crap that's going on. And trying to grow it and focusing on all this marketing and all these things. The attention tends to go away from the product and onto just operations and when that happens you can't make the product better, and then competitors around you and making the products better, or people might be inspired to actually create a product out of frustration because your product sucks. Quite often the new generation of products comes from users of products who were once satisfied that no longer are because their company stopped focusing on their product. So most companies breed their own competition in their own demise by forgetting about their product to the point that the users that were happy to pay the money now just have to live with no choice but to build their own and overtake you. So I see this one happened all the time and what even inspired Google was Yahoo. They just thought that it was ridiculous that when you typed in the name of a president on Yahoo didn't even work and they thought it was just ridiculous that a search didn't work. So just out of frustration, they were just forced to build Google. So this happens, product debt is big and it's real and process debt. So in the beginning, when you start a company, you might just get customer support through to your personal email, no problem at 100, 1000 customers massive problem. Now you can't even go near your Gmail account without getting heart palpitations. So it might work at a small scale, but later on, it doesn't function that way anymore. And you need a better process or a better system you might need to put in a customer support system. There's also talent debt. So you might have talent at the thing that you're good at. But then you might focus on running your business and looking after operations. And then with time your talent tapers off and other people's talent ramps up and you're stuck in a situation. There is also team debt when you start out, it's just you, you add a bunch of customers to the picture and a bunch of time, you get a mess. And now all you can do is just focus on the admin and you can't do the things you need to do anymore. And so there's also perception debt. So if you don't focus on making sure that your marketing message is consistent, and driving the core values of what you really care about with your brand, or if you if your customer support isn't right, or the people that it interfacing with your customers and your market aren't doing the right job. Then you're building up perception debt, where the perception of the aggregate market, your niche does not match the reality due to communication problems on the front lines of your business. So all sorts of debt and you've got to monitor all of these things. It's okay to build up a small amount of debt. That's normal. But you've got to pay it back before it gets gnarly and takes you down. So, the biggest one I probably see here, the biggest one you guys probably used to and know a lot of is time debt and financial debt. Like if you keep saying I'll do later, do it later, do it later, do it later to all of the things then later is going to come and then you're going to be fucked. And that's what a lot of people do with credit cards and things like that too. Products debt is the biggest one I see in business. Now, third one is basically just a simple role that debt occurs when you have better today at cost tomorrow. So whenever you're making a decision, you want to think, All right? What are the pros and cons of this decision? What are my options here? And then what are the pros and cons for each option? And you want to run two timeframe scenarios, you want to run a long term and a short term. Because some decisions like I know eating a salad or going to bed early, they don't seem that great right now. But longer term, they're great and then eating a burger and having 10 beers and staying up till 5 am might seem quite great right now, but doesn't seem that great later on. You want to weigh these different options. You want to look at pro and con, short term, long term for all options and then look at the goal you're trying to achieve, short term, long term and then you want to shuffle between these different options here until you find the one that is most optimal for what you want to achieve. And you always want to consider this. This, basically, is what makes people successful. They're just very good at thinking about the long term and debt. There's actually a study called the Marshmallow Experiment and you can Google it. And what they basically did is they got a bunch of children in and they presented them with two options. One was have one marshmallow right now, you get it now you can eat it, or the second option was have no marshmallow now, but wait a period of time, which wasn't defined, an unknown period of time and get two marshmallows. Now most children chose option one, they had the one marshmallow now instant gratification. Of course, this is why people use social media. So most children did that. Very few children chose to wait the period of time. Watch the other children eat the marshmallows, just sit there, and then later have their two. Now they tracked those children after that experiment for the duration of their life. And they tracked them on a basket of different metrics to see how successful they were from relationships, family, health, and social life and also like financial success and happiness. They looked at all of these different things and by and large, the children that delayed gratification and chose to wait the period of time and have a better tomorrow at the cost of today, enter debt. Those children were the most successful. And really, this is all a successful person is at its core, is somebody who can delay gratification, think long term and keep a clear head and not buildup debt. All right. So four, debt kills businesses. And the reason why it does this is because you can't innovate. So all the business needs to do really is stay at the forefront, at the absolute frontier of whatever it is they do. Now, really, for a business to do good, it has to really be the best in the world at something. So you really want to think what is something that I'm really passionate about? What is something that we can be the best in the world at? And then you really want to get there and you want to do ... that's your main priority until you get there, until people are like, "What's the best option for X? X being problem, then you would hope that your market would respond with, "This person's product." That's really all you need to do in business to do really well. It's easier said than done. So it takes all the effort, probably take you years. But I mean, that's the best way to grow a business. And that's been my main focus with my company is just to have the best products for these different problems. And I know that we're there when people say this is the best product I've ever purchased for this, or when people in different communities say what's the best product for this. And people say this. Now, it takes a lot of work to get there and you can't get there overnight. And you can certainly make money in all of those things along that path. It's not like you don't get any reward until you get there. But the reward is a means there and that's really what you should be focusing on. Now, how you get there is by having the best product, the best service, providing the most value. Now, the way you do that is through innovation, which is rethinking these things. You don't accept the status quo, you don't just build a knockoff of somebody else's thing because if you try to copy this person at their thing, then they're going to be better at it than you because they literally invented it. The only way you can beat that person at their thing is if they start screwing it up, which is very common. So you can do that but the other way is to innovate and that's the main way. And that is to rethink all of the assumptions that this person who is currently leading has made. You want to rethink that and then, quite often, there's a new paradigm or a new philosophy or something that comes in, which enables you to make a product that superior. To innovate it takes an extreme amount of attention, energy, time and focus. It's a resource vacuum it really just sucks right up and that's how you achieve it. So the only way that you can really stop innovating, is when you're doing something else, or you're just playing stupid and you have the option to innovate, but you don't. Well, that's just playing stupid. The main reason that I see people stop innovating, is because the the admin and the operations starts taking up their time and they can't innovate. It's not like they even have the option they want to, but they can't. And so that's what debt does. Over time, and I noticed this with my own company, I went from about $2 million a year to like $18 million a year back in I think it was 2016, 2017 during those two years. Almost died there was so much scale all of a sudden and when that happened, I was still one person. My company was just me I worked from home and I did all my customer support, I did my admin, my bookkeeping, my accounting, like financials, I just did everything. Made the products did the marketing made the ads, made just everything did it all. And it was fine at like 2 million a year. But then all of a sudden it went boom right up and there was a big mess and honestly I think I probably almost died at one point. Because I was working sometimes just two days straight and then I'd crash and go to sleep. And I was just trying to catch up on this thing and trying to win but no matter how hard I tried to work, the mess was getting bigger. And I was at the end of my biological limits. But that happens to people and when that happens, my main concern wasn't really like about me not being able to do the work and get it done. My main concern was the fact that I was spending all of my time and energy and focus doing admin, just trying to handle support, tickets, fix broken systems, or just keep the machine running. And I knew that it was only a matter of time before somebody else out innovated me, took me out. That was my main concern. And so the primary motivation for me to fix that situation and calm that chaos right down was so that I could get back to innovating. And as a CEO or an entrepreneur, you want to constantly be trying to push back on the operational complexity of your business and push it back and keep it restricted and constrained to a small thing because as it gets bigger, the thing that it's eating over here is innovation. And once it takes a big enough chunk out of innovation, it's only a matter of time before somebody gets you and by gets you I mean makes a better of product or service. That is why debt kills businesses and so when I went from that 2 million to 18 million a year, it honestly took me about two years to fix all of that damage. Every system I had was broken I was getting like 500 support tickets a day, and it was just me. And so I had to just block out all the noise and just work like I've never worked before. I remember sometimes I was doing like 120 hours a week of work, I do not recommend that. I almost went insane at multiple points and I think I'd probably almost died. And so in hindsight, it was actually really stupid, I should have just hired some people to help me a lot earlier. But like I've said in previous videos, when you get sleep deprived, you get delusional, so I didn't even think that me trying to do all of that work myself was dumb. Because it was impossible I wasn't in a rational state of mind to even be able to see that. And the reason I wasn't in that rational state of mind was because I was sleep deprived and highly stressed and in an emergency situation and so I learned from that experience, don't get put in that position. Because you might think you're rational and smart now, but when you get put into a situation like that, it's hard to see clearly. And so I spend a lot of my time thinking about how can I make sure that never happens again, and I keep this operational complexity to a minimum and keep the majority of my time 80%, 90% free for innovation. That is the main thing I think about, how can I run my business so that it keeps growing? It has positive cash flow, it's profitable, and it has great products, but its operational complexity and it's time demands for me personally, a very small. So that 80% of my time can be spent thinking about tomorrow, not dealing with today. So most of what I do would be put into two brackets really, one would be, and this probably is 20% of my time would be cleaning out mess, paying back all sorts of debt I do a lot of that, 20%. The other 80% is thinking about tomorrow, thinking about the future, and building things that we're going to be using in the future. So like planting seeds for future harvest. Because the money that I'm making today is really the byproduct of work done two, three years ago. And you want to think like that too. So I don't want to make a mistake of just trying to skate on the work I've done that three years ago without building for the future because that will come to an end. And the main reason that it will come to an end is because if this complexity comes in eats my time away. I can't plant seeds for tomorrow, harvest disappears. So what do you do? Number five solution and I've said this, throughout this but you must be conscious of all of this. And you must pay it back routinely. So the first thing is just some kind of awareness. Because you've got to be aware of debt better today cost of tomorrow, just run that simple analysis on any scenario. Whenever you're in it, is my today better or what is my tomorrow like? And if today is asymmetric to tomorrow, tomorrow's bad today's good. That is debt. You do enough of that get yourself into trouble. But when is sacrifice today gain an advantage tomorrow, which is basically the inverse of debt. That one is good. So that's a simple way to think about it. So you need awareness of this thing and you also need to pay back routinely. So, by payback routinely, I mean, you've got to go in some cycle. Now, my business does a lot of this and it typically looks like this. So in 2000, and I typically have a year of boom, and then let me think of '17 was yeah, so '16 was boom. 2016 for me was 2 million to 18 million a year like that boom. But then, in '17, I was basically dealing with the shit storm that I created in 16. And so I'm pretty sure we actually went back a little bit to about 14 or 13 million in '17. Not because we couldn't grow, I knew how to grow. I knew how to do that trick. Just spend more money on ads, just keep pushing your foot on the gas, but I knew that if I kept doing that, it would they would be an explosion and probably wouldn't be very good for anybody. So I just had to bite the bullet and deal with the the mess I made. And all of '17 I spent my whole 2017 just cleaning up the mess. And what we did is, I hired a lot of people, and we put systems in place, we built our own billing system, we built our own e-learning system because we'd broken these other products. We had to get customer support people train them put customer support systems in place. We also had to get an office and a general manager and create different communication channels through Slack and through like meetings and whatnot. I did all of this stuff to basically clean up the mess I had made. And then that was '16, '17 was down a bit, but then in '18 I was really excited. Because by the end of '17, I had built a serious infrastructure. Like in '16, I was doing 18 mill a year on a one person million dollar year infrastructure. Just imagine like putting a Lamborghini engine in a Toyota Corolla. That's basically what I'd done here. And the thing it was about to explode. So then in '17, I made sure that we got a Lamborghini chassis to match the Lamborghini motor. And that required me to go back a bit, paying back the debt, sorting it out. But then in '18, that enabled me to go up this again. And so just put in here, if we were like, 2 million, then here was 18 million and then at the end of '17, we are maybe 13 million or something, which is back. Then here, we got to 34 million or something and this was in '18. And then I remember ... this is the hard thing to deal with. When you do this, like sometimes you've got to take a step backwards to make two steps forward. But when you take a step backwards, it doesn't feel very good because you're used to winning and making better, better, better all the time, and everyone around you is used to seeing you grow. But then when you've got to go back a bit to clean up the mess, it's not as exciting and no one really is all that. It's just not a very exciting story. It's not a growth story. It's a person cleaning up a mess story, which is not really ... you never hear about those stories. So it it's hard to do that like emotionally and for your ego too but then you get to do something awesome when you've done it. And I remember in '18 when we exploded to this level, I remember a lot of people like, "Whoa, where the hell did this guy come from? What did he do? What is his magic trick?" And I was like, "Man, those same people just didn't really care or listen, when I was cleaning up a bunch of shit for a whole year straight." And so now they're trying to look at what I did in '18 to figure out how I did there I was like, that's what I did in '17 that sucked. That's how I got there but now we're in '19 and I have another one of these messes to clean up. It's not as bad it's a different mess. So this mess here was like systems mess. The systems that I had in the business like billing systems, support system, just just all the systems were broken and we had to build our own ones. That was what got us through here and we had to hire humans, had to hire team to manage the systems. But then, in '18, we got to like fully exploit those systems. But then at the end, in '19, most of the problems that came up were human problems, not system problems. And I had to learn how to better run a team, how to hire better talent, and really how to deal with the human side of business more than the system side. And so towards the end of '18, and all through '19, I've spent most of my time trying to hire really talented people, trying to improve our team, reduce it in size like to some core players, and that's where most of my focus has been. And so what I'm doing now in '19, it's not the most exciting of work, and we will go back a bit here on revenue, not that much. But what we are able to do is actually improve profitability. Even though we're going back a bit on revenue, we're able to improve profit because there's less waste, because we're cutting a lot of costs instead of adding a lot of costs. And I'm also trying to reduce the demands that the operational side of my business places on me personally, because at the end of '18, I had no time left at all. I had to do so many things that I had no time to create anything new and that really annoyed me. Because I knew that it would be screwed in give it a year or two, three max gone. So went to do something about it and so really, a lot of my time this year has been pushing back on that. I used to have zero hours a week to spend on innovation and planting seeds for the future. Now I have 80% of my time to do this. So reduced back that and that's what I've been doing. So then we'll be able to take full advantage in twinning of this new infrastructure. So this is an example of how to actually solve this thing. And I know a lot of entrepreneurs are like worried about doing this one step back to take two step forward thing. Honestly, all the biggest jumps have ever made, like the big 2 to 18. Yes, that was a year of work, building infrastructure from '18 to 34 one year of lame stuff but the lame stuff gets you the infrastructure and the foundations you need to erect that scaffolding to really handle that much scale. Now, what else have we got here? Be okay with one step backward two steps forward. This is a big one, I meet so many people who just cannot even consider doing that and that's the reason why a lot of people don't get good at things or don't try or don't start a business or whatever. Because, let's say they call it like the golden handcuffs. Let's say you're a respected individual with a respected job, earning a really above average salary. Well, you're quite happy in that position it's quite nice you can have a good lifestyle, all that stuff. But if you were to go and start our own thing, you're not going to be very good at it. Everyone is going to question you like, "Dude, do you know what you're doing? Maybe you should get a job again." And you're going to suck because you're brand new at it. No one's great at something like right off the bat, and you're not going to make as much money initially. So there's that. And so you have to take a step backwards, and most people can't do that. But they always want the two steps forward. But sometimes these things the step back comes before the two steps forward. And then number seven, was going to be stories of times I've taken time to rebuild it and how it paid back immensely. Already told you those. So stories. There was like the key ones was '16 was scale, '17 was debt paying back, '18 was scale, '19 was like some debt paying back. This state was systems. This state was humans, team, infrastructure. Now, if you look at this pattern here, boom, boom, you kind of see what's going on. So you want to think about this awareness and payback routinely cycle and you want to think about this in your business. You want to keep tally like I always keep a long list of all of these debts. I've even got one without product that I call detailed debt. Which is all of these tiny little details like let's say you click on something and it just loads funny. That pisses me off, I can't handle it. So I have to write it down in the detailed debt list but I don't want to distract our whole team to fix this little detail right now, because we're trying to push a big initiative, which is more important. But I know that if if enough of those small little details buildup, the product will suck. Because when it comes to products, it's all about the details and you got to keep track of these things. You don't need to solve them all now, but you need to keep record of them and then you need to have these payback cycles where you flush it out. And this happens with building software too and technology, there's tech debt. The main thing that takes down like software companies is tech debt. They're adding feature adding feature and they're going really well but then they're not updating the core or the infrastructure at the base of all of this. And generally there's some smart engineers if they are in here at all, they probably left after some time because they keep screaming at the top of the lungs, like, "We need to fix the core." But no one wants to listen, typically marketing because they want to keep adding features. Because features are sexy and they make people go like ooh. So typically these engineers just do the shit that these people screaming at them tell them to do. They keep adding the features and with every new feature comes exponentially more complexity because of the complex interactions between all of these things. So then, there is a black swan event, which is typically a complete meltdown or explosion. And then out of that dust emerges like a computer that's better because they've been basically in the darkness, building something better. So that is what happens when you don't pay back the debt. So you got to think about it. Now eight is my advice to you think long term minimize upkeep. Now I call upkeep, basically work that is required for thing to maintain. So if your whole life and your whole day is spent up keeping, then it's only a matter of time before someone gets you. You not only need to keep the thing up and maintained, but you need to make it not require so much of your time to stay up kept, that you also have time to improve it. It's not enough to maintain we must improve too, which some people can't even maintain. And the reason why they can't even maintain is because the thing is in disrepair because they've accumulated too much debt. If you accumulate too much of it, it is impossible to pay it back so you're just screwed. And in that case, you've got to start fresh. So that's my advice, think long term, minimize upkeep and keep the thing up. And a good way to really minimize this is this little acronym thing that goes like this. Can you see that? YAGNI. So YAGNI, what does this mean? I always think about this. You Ain't Going to Need It. The solution to a lot of this is YAGNI and you ain't going to need it. Like you think about this fancy chat bot thing, that's fancy everything, there's so many fancy things out there. And if you add too many of these things in, then your whole life will become upkeep and when your whole life becomes upkeep, you can't innovate and when you can't innovate, you'll be gone with a bit of time. So, root cause YAGNI, you ain't going to need it. So that's basically it for today's video on Scale, Mess and Debt and how to deal with it, and how to not be an idiot. So if you liked it, click the like button and if you really liked it, click the subscribe button. And I release a video like this once every week, most of the time on a Tuesday. And if you like this one, you'll probably like the other ones. Also, let me know what you think in the comments section below. Let me know which one of these appeal to the most or which one of these really is going to help you the most when it comes to your business and your personal growth. And if you've got suggestions for future videos, let me know in the comments section. I'm going to be reading them all myself personally, because I like to see the feedback. And a lot of people's ideas and problems that they told me about the comments become future videos. So you guys and girls shape the future content of this channel. So thanks for watching. I'll see you in the next one soon.

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