The 3 Main Stages of Scaling Your Small Business

So, you say you want to be a business owner. Do you have what it takes?

I am not sure that you do. Sleepless nights, 100-plus-hour workweeks, and little time for leisure—can you handle it?

As a business owner, nothing is “deserved.” Everything—and I mean everything—is earned. It’s a battlefield, and you are one soldier among thousands. Each soldier has a 95% chance of being beheaded by a foe, or even by themselves.

That’s right. According to the U.S. Small Business Administration, 95% of small businesses fail in the first five years. Encouraging, isn’t it?

Sorry, folks. This article was not meant to encourage you. I’m here to teach you what it takes to be a true business owner and how to scale from a lowly one-person company (you) to a well-oiled machine with multiple employees. At that point, your business should simply require a weekly tune-up that takes just 1-2 hours.

At the end of the day, you want to be among the 5% of success stories, right? To passively make boatloads of money while doing things that truly empower us: traveling, spending time with family/friends, crossing off bucket list items, volunteering, getting good at a hobby—whatever it is! This is the idea behind owning a business. Oherwise, you’ve just created a J-O-B for yourself.

There have been many books, podcasts, and courses taught on how to start and scale a business. Many of them have inspired this article.

However, most of that will be beyond the scope of this 1,500-word blog post. In this post, I am going to use the example of a real estate agent named Jimmy and how he can go from a solo act to a well-oiled machine.

Before you close out because you have no intention of becoming a real estate agent, please know that I picked this example because I have built a team of real estate agents and am most familiar with this business. But the concepts can be applied across all business endeavors.

The One-Person Team

The first step in starting a business is to literally start the business. If you were to ask an academic, they would tell you that you should start with a business plan. There’s a reason they are an academic and not an actual business owner.

Business plans exacerbate your chances of getting stuck in the “analysis paralysis” phase. You fully think through every part of your business, writing and re-writing as you find different holes, make adjustments, and optimize efficiency.

When you’re all finished, you are left with a 30-page document that is supposed to serve as the map for your business. However, by the time you are done, the document is outdated.

Once you take action, there will be things you did not foresee when writing the plan. Now you have no business and an outdated 30-page document that took you a few weeks to make. You have wasted this precious time thinking you were being productive, but instead you were just being “busy.”

My advice? Ditch the business plan and just get started. In the beginning, you will be adjusting your strategy almost daily as you figure out what works and what does not work.

Let’s take a look at Jimmy. Jimmy has house hacked for a few years and can see how powerful this strategy is for building wealth.

He then obtained his real estate license, and he wants to build a business around helping investors and house hackers purchase house hacks and investment properties. He hops on BiggerPockets and starts building relationships with other buyers in the area.

Not long after networking on BiggerPockets, he has his first client. This is super nervewracking, but once you obtain that first client—someone who is willing to pay for your services—you have a business!

At this point in time, Jimmy’s business is a one-man team. You may remember from the infamous book The E-Myth that if Jimmy were to build an organization chart of his business, he would occupy every single position. It might look something like this:

As you see, Jimmy occupies every single position. From CEO down to administrative assistant and transaction coordinator, this is how his business starts.

2 or 3-Person Team

After a few months, Jimmy’s business starts to pick up serious traction. He has figured out a way to distinguish himself from other agents. Since he invests himself, he is able to reliably analyze deals and guide investors through the entire process. He is able to help them obtain great cash-flowing properties in areas that have a high chance of appreciating.

People want this. So, the calls come in.

Soon all of his time is spent writing up contracts and scheduling inspections, as well as going out and doing showings, having meetings with prospective clients, etc. Before you know it, Jimmy is completely overwhelmed.

At this point, the unsophisticated business owner quits and joins the 95% of failures in the business graveyard. Too much work, not enough time.

He did not take on this endeavor to work twice as much as he would otherwise. So, he should throw in the towel, right?

Not Jimmy. He knew this would happen. He’s read books, watched webinars, and listened to podcasts. He knows exactly what to do. First, he looks at his organizational chart and thinks to himself, “What jobs do I hate doing?”

The answer comes quickly. “I hate doing admin work,” he thinks. The logical next step is to start at the bottom. He hires a transaction coordinator and an executive assistant.

What is the difference?

The transaction coordinator does all of the administrative work when a deal is in progress: scheduling inspections, making sure disclosures are signed, setting up closing, and being the buyer’s go-to source of administrative information as it relates to a particular deal.

Where does that leave the executive assistant?

The executive assistant does all of the administrative work that is not in the transaction coordinator’s scope of work. This includes drafting contracts for Jimmy’s review, bookkeeping, asking for reviews, and other ad hoc tasks.

At this point in time, Jimmy is still the lead man. However, he now has more time to understand his client’s goals, determine a strategy to attain those goals, analyze deals for his clients, show houses, and act as an investing/house hacking consultant.

Well-Oiled Machine

Jimmy has now gone through 70+ transactions with his three-man team. Like any reasonably successful business, the operation is growing. Now he is getting to the point where he is overwhelmed with showings, inspection reports, and analysis. All of the stuff he used to like doing is becoming a drag. He is ready to spread his wings and grow more.

So, what does he do?

At this point, he understands how to help buyers and sellers achieve their main goal. For buyers, that’s to obtain the best possible deal for their situation. If he is helping out a house hacker or investor, he is looking for the highest possible return within the constraints of the buyer’s criteria. If he is helping a seller, he is looking to see what minor changes can be made to the house such that it can be sold for the highest possible price.

After 70+ deals, Jimmy knows this information like the back of his hand and can execute on it. The only problem is, Jimmy wants to grow more and he can’t if he is still working in the business (i.e., showing houses, going over inspection reports, etc.). He needs to focus on higher-level tasks such as marketing, lead generation, content creation, and actually growing the business.

What does Jimmy do next? He starts documenting and videoing everything he does. He records his phone conversations, has a checklist for what to look for when considering a property, and has video documentation on how to write offers.

He is doing the best he can to take everything he knows and document it. That way, any agent can come in and offer the same or higher service to the clients while Jimmy continues to grow the actual business.

And Then…

If you have noticed a trend, you will understand that to create a truly passive business you need to work “in” the business. Once you understand how things work and can articulate it nicely in the form of documentation, you can hand it off to someone else while you work on the next level of business.

After you have climbed the ladder of your own business, you have a choice. You can either find someone who is better at lead generation, marketing, and building while you step away, or you can stay in the business and continue to do it.

Conclusion

At the end of the day, owning a business is not passive. There is really no such thing as a truly passive investment unless you don’t care about that investment’s performance.

The most common type of passive investment people tout is the stock market. Well, if you don’t do anything, over time you will end up with a portfolio that is misallocated or not super-efficient.

Real estate agents and investors need to worry about managing their teams just as stock investors need to manage their portfolios. If one team member leaves, then there is a void that needs to be filled.

With that, how do you grow a business in a few short sentences? You work hard in the business. You replace yourself through automation or delegation in each portion of the business until you no longer have another role to fill.

Happy creating!

What stage is your business in?

Tell us how your growth process is going in the comments.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.