Sunday, October 20, 2013

Scalability and Our Handmade Business - how do we get to be spidey-woman and still make stuff?

round and round we go - polarity locket
So, as makers we have been kicking this scalability issue around forever.

And since our businesses are living, breathing entities (not in a businesses are people kind of way, of course) that evolve and grow maybe this is something we can look at now with fresh eyes.

You have probably heard that you might be able to increase profits by making your business scalable (or that you do not really have a business if it isn't scalable) and maybe

you are kind of picturing yourself climbing a mountain or maybe being carried up a mountain on the shoulders of a hardy sherpa.

(which is probably the only way I could climb a mountain right now - NOTE TO SELF - put the inflatable bed away, the guests have been gone for a month and pull the elliptical machine back out, oh and actually get your ass on there Cat).

When I was in banking being able to scale a business just meant the business was efficient enough to be able to grow and work just as well in a large 'scale' situation - when a business model or design failed with a quantity increase we said the business will not scale - so no loan for you good buddy, see you later, have a nice day.

Today more commonly when someone talks about scaling our business they mean we add more business (the ka-ching part) without adding more work or increasing our (proportional) costs - our business becomes more and more profitable without us expending more and more energy (energy = money or time).

Scalability refers to the ability of a site to increase in size as demand warrants. Businesses are extremely scalable if the costs to operate the business are relatively fixed and more customers do not significantly increase our costs but they do significantly increase our profits. This is the perfect business model but doesn't work for everything.

It might be easier to picture what scalability is with an example of what scalability isn't.

(and usually the best way to learn anything from my blog is to read what I have done and then go ahead and just do the opposite)

I used to sell from seasonal mall carts.

This was in the days when people still did most of their shopping there. I started with one cart (see my story about that first season from hell here) and worked it myself six days a week, insanely long hours as the holidays got closer, and then had my brother and his friend work on Sundays.

It was totally exhausting, but a short enough season that I somehow managed to survive and lived to do it again.

That first year I grossed X amount of dollars. Let's say the X was $100,000 - it was probably not that much but this number will be easier to work with. Now because I sold something for $20.00 that cost me $5.00 to make which is about the minimal kind of mark-up you needed for a mall cart in those days - so it was something like $100,000 gross minus $25,000 product, $10,000 rent, $10,000 start up costs, $2000 salaries and $3,000 out the window who knows where costs, let's say I made about $50,000 (before Uncle Sam took his cut).

The next year I became one of those 'go big or go home' kind of girls and rented two mall carts.

And because I am the kind of compulsive thinker who thinks 36.5 steps ahead and because these two malls were an hour away from each other I hired enough people to cover both carts all the time (I think I hired 12 people) so that I was never scheduled to work and would be available to race to a cart if someone didn't show up for work or something went wrong or we just got swamped somewhere, any one of which I saw as a high probability.

Anyhoo, to cut to the chase. The second year I did not work quite as physically hard but mentally I had more stress and worked harder - more people to manage, more situations to manage, more inventory to manage, yada yada.

The second year my numbers looked totally different but because of the salaries I paid people (and when you pay people salaries you also pay half their social security and FICA and need a little thing, which is not such a little thing, called workmen's compensation insurance) and some inventory miscalculations, I ended up netting almost exactly what I had netted the first year.

Almost to the penny is the way I remember it.

Now, I did expand my business - I almost doubled my sales and my customer base, but I also showed myself it wasn't a very scalable business model. I slept through most of January.

I thought about scale the 3rd year (although I didn't actually think the word 'scale', I thought the word 'exhausted') when I planned for 3 carts and a manager to run them, but life twisted on me again - my mother's illness worsened and she moved in with us. I did one cart and hired some help. I have never really been a "go big or go home" kind of girl anyway - I was always more of a stay small and nimble kind of girl.

(except I have never been either small or nimble, but this is kind of how I see myself, go figure).

Today, we are mostly selling online which is great for scale because we can potentially reach more people without outlaying more energy (time, money) but we are also selling things we make by hand which is not so great for scale because usually we can only make so much.

Scalable is definitely possible for us, too, (it will likely require help, most good things do, we didn't come to this planet with 6 billion other people to go it alone, folks) although if we have not set ourselves up this way, it will be some work for us to get this scale thing going. And a product based business will probably never be highly scalable, but there are things we can do to increase profits without increasing energy (time or money) expended.

Later this week - part II - So how do I get to be spidey-woman and still make stuff

let's get our daughters into this scalability thing early girls


Jane Pierce aka zJayne said...

"...we didn't come to this planet with 6 billion other people to go it alone, folks" -cat ivins

right up there with when you talk, I read, enjoy and listen. Thanks for this one too!!

~heart your sharing.

DancingMooney ♥ said...

"I was always more of a stay small and nimble kind of girl" too. ♥

and I loved your rule about fishing where the fish are in your last post by the way, because that too has always been where I feel I should be.

This year I've scaled back quite a bit, and find that to be working out pretty well. :)

KJ said...

Selling online seems appealing because you do not have to dress up, you do not have to show up to a particular place at a particular time, and overhead is low. Of course you miss the interaction with people, your customers cannot see the beautiful colors (is that cream more brown or pink?) the way a piece is finished in back, or what distinguishes you from the other million people trying to sell online too.

For these reasons I never really thought that online sales would work for me other than to reach people who have bought from me before.

Because there are a 499,999,900 jewelry makers trying to sell jewelry on and off the internet, I decided that I would stick with what I love which is bead weaving. I can scale by using larger beads, fewer woven pieces per design, repeating designs, but I will never be able to produce the number of pieces that most jewelry makers can.

Life is full of trade-offs.

Catherine Ivins said...

xo to you Jane- love following your facebook exploits!

Janelle- you are making me realize I need to write about the real scalability of small and nimble the ability to 'scale' back xo

I agree Kathy about the appeal of online and also missing the interaction - yes, always trade-offs - and for me this little part of em that is like 'is this small and nimble' or is this hiding and scared ... started the book then had to buy the previous book to read first - I think this series is going to take me through the holidays- making me nights so much better, so thank you

KJ said...

what book Cat?

DancingMooney ♥ said...

Cat, in response to that, my sales numbers haven't dropped. It reminds me of your story about the $18 print, and how you ran out of mats, and all of a sudden the $20 prints were your best seller... Sometimes less is more. Funny how it can work out that way, ay? :)

DancingMooney ♥ said...

yes! what book?! :)

Catherine Ivins said...

Sorry guys- I am all over the place tonight! Ha! Kathy mentioned a couple days back she was reading a good sci fi book and I asked what book - it was part of a series- she said her fave of the series was The Long Run so I bought it on the Nook- then saw there was an earlier book in the series so I got that to start.

KJ said...

The Long Run by Daniel Keys Moran- one of the best. I went back and saw your original response Cat and tried to respond there 3 times but my comments just disappeared- the goblins are well fed.