How to Build a Scalable Business with Virtualization and Digitization

The ability to scale up a business is something we talk about a lot. And to do that you need to have adequate systems, processes, and talent. But if you're struggling to scale, something I discuss in my book, Great CEOs are Lazy, your challenge is to identify the kink in the hose, that one key constraint, that's holding you back.

While there are many potential kinks holding your business back, the most common constraint among businesses is not having the right processes in place to enable you to scale. That's because when most small businesses start to grow fast, they don't have the time or resources to invest in processes. Rather, they throw people at the problem. That means that as the business grows, so do the number of people within it. That catch is that, in time, all those people and their management will become the constraint to your ability to scale further.

Consider the example of an attorney. A single attorney who hangs a shingle outside her office might be able to bill a prodigious 2,000 hours a year for their work. When you multiply that by a healthy billable hourly rate of $1,000 an hour, that becomes a $2 million business. Of course, there are plenty of costs associated with legal practice, so they aren't taking home that kind of coin. But the question is how can you turn that into a $10 million business? The short answer is that you can't, because the constraint is the number of hours that our lawyer can work.

The answer to scaling a business like this is by investing in new digital and virtual technologies to remove the human capital constraints by augmenting their productivity and capabilities.  In a future article I'll discuss the next step past augmentation, which is full digitization.

1.    Digitize to Augment Your Business

For example, I had a client who was in the debt collection business. For him to get an agreement from the lenders who were owed money, he first needed what's known as a "wet ink" signature on the client agreement to pay. In other words, he needed the person in trouble with their debt to physically sign an agreement and snail mail it back to him before he could do any business. What he found was that only 40% of the people his agents got a verbal agreement with signed their paper agreements and mailed them back. That meant his people were wasting a lot of time chasing agreements that never turned into contracts. Over half their quality work was wasted and they didn't get paid for it!

That changed when a different lender agreed to let my client collect e-signatures, where people can just sign on their mobile devices and computers, instead of the wet ink signed agreements of the past. That immediately made an impact on the speed with which my client could now process agreements because they could email files instead of snail mailing them. But just as importantly, by making it easier for people to sign their agreements, his conversion rate of verbal agreements to signed contracts went up to 80%. That's a doubling in productivity in one move. Unfortunately, the first client still would not adopt digital signatures because their regulatory environment wouldn't allow it. Many times, regulations will slow this type of powerful innovation.

2.    Work Virtually for Productivity

In the wake of the current crisis, many of us have introduced to the idea of working remotely for the first time, perhaps even by using some of the many video conferencing tools that have boomed in popularity. What this trend shows us is that the need to have people working in proximity is melting away.

Consider the difference that working remotely might have on an employee who used to commute 45 minutes each way to the office and back. He would now have 1.5 hours more of his day to use for a combination of business and personal productivity. Even if that employee worked for just one half-hour more per day--and was happier and less stressed by doing it--that's a monstrous win-win for both the employee and the business. There are consequent benefits to consider beyond health, happiness and productivity in the form of a much smaller real estate footprint.

The other side effect of virtualizing your workforce is that you can now consider hiring anyone no matter where they live in the world. That means geography can no longer be a constraint to building the best team possible.

3.    Target the Process Handoffs

When you think about improving your processes and people, and how you can use digitization and virtualization to augment your abilities, target the areas in the business where there is any kind of hand-off between teams, suppliers, customers, etc.

Let's think back to the lawyer example I shared earlier. With the help of new processes and technology, she could now expand her potential client base to anywhere in the world. She could also digitize as much of her work as she can, to make it easy to replicate and to make as streamlined as possible. By doing that, she might be able to charge the same rate that she used to charge for 50 hours of work--but now get that same work done in just 10 hours. That's how you can successfully scale a business like that.

The point is that there are now tools available to help take your business to the next level. And if you have some extra time on your hands these days thanks to the crisis, then maybe you have an opportunity to rethink how you can digitize and virtualize to augment your business in such a way that you can scale your growth when the upturn arrives and thrive into the future.