What’s the secret to growing your business without breaking the bank? How can you outmaneuver competitors while maintaining healthy profit margins?
Hamilton Helmer’s book 7 Powers reveals how to scale up a business through strategic production methods. He offers practical approaches to multiply output while keeping costs in check, ultimately creating sustainable competitive advantages.
Keep reading to learn how to scale up a business and set it on the path to success.
Scale Production
To learn how to scale up a business, look for ways to multiply output without multiplying costs. This allows you to produce more with less, generating higher profit margins. As a result, you’ll have more money to invest in improving your business and you’ll be able to offer competitive prices for your products and services.
Additionally, this strategy will ward off competition, especially from smaller businesses, which face resource limitations coupled with smaller customer bases that prevent them from increasing their output. This means their expenses are higher and they must charge higher prices to cover them. Faced with these economic realities, they have limited options—they can either match your prices and see profits shrink, or maintain higher prices and risk losing market share.
(Shortform note: Eliyahu M. Goldratt (The Goal) writes that an easy way to increase output without multiplying costs is to identify and manage bottlenecks in your production process. Bottlenecks are points in the production system that limit the overall output, such as a slow machine on an assembly line. By optimizing these specific constraints, businesses can significantly increase output without proportional cost increases. It’s important to note that the strength of this approach may work against you: Because it’s an ideal strategy for smaller businesses with limited resources, they can also employ this technique—allowing them to stay competitive when your company increases outputs.)
How to Scale Production
Helmer suggests that you can effectively scale production by following four methods:
1) Increase production volume: Output more to spread fixed costs over more units. For example, produce more plant-based product variations to distribute manufacturing costs across more product lines.
(Shortform note: Mike Michalowicz (The Pumpkin Plan) suggests a focused approach to increasing production volume. Rather than expanding all product lines equally, identify products with the highest profit margins and greatest customer demand. By concentrating resources on scaling up production of these select items, you’ll boost production volume while minimizing the risk and costs associated with expanding less profitable product lines.)
2) Expand facilities: Upsize existing operational spaces and equipment to boost output without escalating overhead costs. For example, procure a larger warehouse to store more raw materials or larger delivery vans to transport more products at once.
(Shortform note: Carliss Baldwin and Kim Clark (Design Rules) recommend incorporating modular designs (independent units that can be easily scaled or reconfigured) to expand facilities efficiently. For example, build warehouses with standardized sections that enable expansion without structural demolition, or design delivery systems with interchangeable vehicle components that allow for capacity upgrades. This approach reduces the costs and disruptions associated with upsizing facilities, allowing for more agile responses to changes in demand or production.)
3) Streamline supply and distribution: Consolidate and optimize your procurement, logistics, and fulfillment processes to enhance efficiency and reduce variable costs. For example, merge delivery routes from various farms to streamline the collection of raw materials and reduce travel times and fuel costs.
(Shortform note: Adopting the lean supply chain strategy—an approach that focuses on eliminating waste and improving flow throughout the supply chain—can help you effectively streamline supply and distribution. To implement this, first map your entire supply chain. Then, identify areas of waste or inefficiency and redesign them to reduce resource usage.)
4) Negotiate supplier terms: Secure favorable deals with vendors to lower costs for key supplies. For example, buy key ingredients like soy or peas in bulk to secure cheaper prices.
(Shortform note: Supply chain experts argue that there’s more to securing favorable deals than negotiating supplier terms. They propose a three-step approach: 1) Identify what you’re buying, who you’re buying it from, and at what cost. 2) Classify suppliers into two groups—those integral to your business and those providing substitutable goods. 3) Focus on building long-term, mutually beneficial partnerships with integral suppliers. For suppliers of substitutable goods, look around to get the best deal but maintain good relations to ensure supply continuity.)
