Scalability and Our Handmade Business

A series of posts I wrote on scalability for our handmade business in Oct 2013

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
white heart studios - get your spidey on
I wrote a series of posts a couple years ago on different ways to make money on Etsy, but it was really a kind of whine about how tired I was. You can read it here.

Burn-out is an occupational hazard of working from our hearts and with our hands and heads and I don't believe it is totally preventable. It is one way we know it is time to change things.

Scaling our business is something lots of makers start thinking about when we are burned out or our businesses become unsustainable; sometimes because we are selling more than we can make but sometimes because we are making more than we can sell - the smart ones work it into their model from the start.

For those of us who haven't, raises hand here, redefining our business later is a lot of work. It is like trying to comb your hair in a hurricane. Our business still needs to stay open and making money while we make changes in the background. This takes time and time is the one thing we think we don't have. Time is kind of stretchy though - if we need to make changes, we need to figure this out.

It's like spending more money now - for example buying your supplies in bulk - to save money later, spending time now to save time later works the same way.

One maker model of scalability is the make something once and sell it again and again model - the illustrator who sells prints of his work for example. He still gets to do what he loves which is draw, but he doesn't have the one for one maker model that limits his sales to how many drawings he can produce in a day and he has the bonus of still being able to sell his originals for much more.

(of course he still needs the traffic and he still needs to be producing original things people want to buy to make this all work for him)

Anytime you can make something once and sell it again and again you have created scale. Anytime your fixed costs or the time it takes to make the next one of something you make is reduced from the first one you made, you have created scale - it can take me as much time to make 1 of something as it does to make 3, for example. So every time I make 3, I create scale (of course this assumes I can at some point sell 3).

Some ways for makers to
start thinking about scale:

1. Sell a pattern or tutorial (the old create it once, sell it again and again thing)

2. Sell 3 things to 1 person - Upsell to existing customers. It is cheaper to sell 3 things to one person than 3 things to 3 people, so set up your site to make this easy.

For example a customer looking at rings should be shown a link to other rings or maybe a customer looking at a ruby ring should be shown a link to other ruby jewelry, you decide what you think they want to see, and pics are always better than words when it comes to links and selling online.

When thinking scale it is always better/cheaper
to focus on existing customers ... or is it?

3. Sell 3 things to 3 people (you know my rules are always bendy) 

Create a referral system - more happy customers create more good word of mouth which creates more customers that you didn't have to do anything to get (other than be your amazing self, of course)

For example - try a send a friend deal with a coupon code for people who refer people - you might not totally be able to police this, but who cares.

4. Create a mailing list - this is very important because it is so much less work to sell to people who already love our stuff - just ask your customers if they want to be added and make it worthwhile for them. Give them sneak peaks and discounts and information they want.

I wouldn't email them more than once every 4-6 weeks - when people using mailchimp email me more frequently than that I almost always remove myself from their list - the emails, just like every interaction with a customer, should always reflect your brand. Don't just throw something out there.

For example - Email customers a coupon for a discount on something in your store and in the email include a downloadable simple card they can give with it if they purchase it as a gift. I have found this works better than just a coupon.

5. Keep track of your existing customers' wants and needs - remember, the less time and money you have to spend finding new customers the more you are thinking scale.

For example - Soap lasts, I don't know 30 days - can you sell auto-renewals or subscriptions? You have probably seen this genius viral campaign for this genius tampon delivery company.

Someone who bought mittens from you last year will almost certainly have lost them by now.

Someone who bought cufflinks from you for their wedding a year ago will have an anniversary right now.

Ask customers for their birthdays and email them a birthday card and a coupon two weeks before.

This stuff will take time and maybe money to set up in the beginning, but if you do it right will more than pay for itself later. Hire someone local on TaskRabbit to help you get this set up.

6. Streamline your makings

for example - if you sell on Etsy, maybe you created certain whosee whatsees that you don't sell much, but they drew customers in who maybe bought other things - or this was your thinking anyway, well, maybe now that search is so different and so crowded this isn't true anymore and you can just ditch this stuff and save yourself time, money and headaches

7. Think passive income

For example - sell blog advertising, create a subscription service, etc

8. Hire help; any kind of help that saves you time - if you can pay people less to do things than you can charge someone else, you have created scale. You may not technically create scale if you do this solely to save your own sanity, but in a spideywoman world it totally counts. So if you save 4 hours a week, by having someone clean your house and can put that time into your business, or into wth a nap, and need to do it - go ahead.

Spidey-woman is not superwoman. 
Superwoman burned out.
Spidey-woman is just getting started.

The best thing we can do is build scale and passive income into our business in the beginning - this does not have to be something gigantic.

Big thinkers do not always look like big thinkers to the outside world because our thinking is more broad than tall - we are thinking deep. We are not leaping tall buildings anymore - we are scaling them. This allows us to move over here and over there when we need to, so we get to have an actual life as well as a business.

Spidey-woman has taken superwoman down, folks.

Of course the problem with dollars for hours has always been that if you create a successful whosee whatsee you will run out of hours.

Next week - part III what to do when we really run out of hours
look the world straight in the eye
Scalability makes some makers nervous. It makes me nervous, too.

This is the working on your business and not in your business thing we talked about here.

Of course I talked about the reverse; the importance of working in our business vs. on our business and I still believe that building yourself a job instead of an empire is a totally acceptable and sometimes the most appropriate thing to be building.

It is also the difference between building a business with the goal of selling the business (and not just the whosee whatsee our business produces)

and building a business we want to grow ourself for a long time or even leave to our children, if anyone still does such a thing - this used to be the main reason people started businesses, when I was in banking I heard this all the time - it does not so much happen anymore, which is probably a good thing, kids don't need empires.

Or maybe it's easier to say it is the difference between a business that runs itself and a business the owner loves to run.

(and some kind of balance of both these things may be the ideal)

Most makers I know set up their businesses for the second scenario - the build a life as well as a business scenario - but they did this totally unintentionally, so may have allowed the business to grow in unintended ways and maybe it has become unstable.

They might actually prefer the first scenario at some point - maybe not the selling part, but the business running itself part, but didn't set things up that way and it is hard work to transition.

When I was in banking I told business owners, "make yourself unnecessary" - they couldn't always do this and now that I have worked both sides of this thing I know why.

(it's the passionate heart part of making this thing that ropes us in, folks)

There is no right or wrong answer here.

What I do know though is that when a business reaches a certain level of activity it will actually become less stable without scalability. 

Are there ways to scale and still do the thing we love to do? Yes.

Start out asking yourself what it is you truly love to do.

(think about your ideal work day -
what is it you are actually doing?)

1. Some makers who love the physical part of making their makings have to do that part. There is no question about this. If that is you - you can still make things run smoothly as you grow

(and yes, you will have a limit to your growth; limiting growth is often a good thing - it is called sustainability - unlimited growth is not always good, it is what cancer cells do)

by streamlining your operation, hiring the right support people, charging premium prices by packaging your work in a way that it has a higher value to your customers (this is the part where your story comes in, too) and setting up the right systems.

(we will talk about these systems in Part V)

There are only so many hours in the day. If you are this kind of maker you have to know your limitations. You have to embrace them. You have to know you are building something bigger than something big. You can't take on too much or you will make yourself ungrounded and unstable - you have to be happy with enough.

(I usually find that people who cannot be happy with enough are not happy with 'more' anyway)

This doesn't mean you cannot build something truly amazing and powerful and important.

2. Some makers will find they love the building a business thing more than the actual building of their whosee whatsee.

We will talk about these makers in Part IV later this week

(and thank you to Kathy for letting me know this post had somehow posted empty, which was not some kind of new marketing ploy, but if it makes me sound smart and cutting edge to do this, I will totally take credit)
follow your bliss locket - shira sela and polarity
See the previous parts of this series HERE, HERE AND HERE.

If we scale our handmade business and the thing we love most is the making of our whosee whatsee, then chances are we won’t be doing the thing we most love as our production numbers increase.

That is when we either get real with ourselves, delegate stuff we don't want to do to free up time for us to make stuff, streamline our processes, figure out a way to make our hours for dollars the highest $ possible and decide that is enough

(yes, you can actually turn away business and survive)

or we train someone else to do enough of our production that we can produce greater and greater quantities without killing ourselves.

(no matter how popular our whosee whatsee, no product has a shelf life of forever anyway)

And yes, there will be a learning curve with this and yes, production will slow at first and yes, there may be weeks when we will be paying someone else more than we are making ourselves

(owners get paid last folks)

If we dream of a really huge order and our plan if we were to get that really huge order is to "do whatever it takes" which is the kind of un-planning many of us call planning (raises hand), well, this is the thinking we want something we don't really want stuff that just makes us and our business weaker.

We send life mixed signals. Mixed signals cancel each other out.

We don't get what we want because some part of us - the part that thinks we are not ready for it or thinks it will be too much work or knows we are out of our comfort zone with this - some part of us doesn't want it.

But, what if we actually made plans for that huge order and got ready for it - what if we made it feel welcome. What if we took the time to bring that unconscious part of ourselves that feels this is outside our upper limit into the game. We could write out a plan to adapt to sudden market changes. We could calculate exactly what supplies we need to buy to produce X amount of whosee whatsees, we would draw up orders for these supplies, we would find backup suppliers and production help, we would know exactly how many hours of production such a large order would take and we would have this information ready to go. We could make files marked 100, 250, 500, 1000 so a large order brings us to our sudden market change file and we would know exactly what supplies to order, our time frames and the steps we will take to make this order happen.

(we should also have pictures of our makings with white backgrounds ready to go, too - I have used Pixc for background removal - only $2 an image and they do an excellent, fast job)

This is the kind of action that attracts what we want- not just pinning pictures of what we will do with our earnings on vision boards (although if that helps with your focus do that, too).

If your business is going to scale you might have to speak in public - how can you get ready for that? Is there a public speaking class near you that you can take? If we hate networking, how can we get more comfortable with that? If you are a "go big or go home" kind of maker, then getting ready to go big is the surest way to make it happen. Just don't pigeon hole yourself - stay flexible and available to what life offers up as you take action.

If we are a maker who is more in love with creating a business than the actual making of the whosee whatsee we are producing is it possible to recreate our business in order to scale? 

Zappos shoes is the biggest online shoe retailer. If you haven't heard this story you might be surprised at how the founder of Zappos got started.

He didn’t start by stocking up huge amounts of shoes and investing in an expensive back end website. Instead he went to local shoe shops. He asked the owner’s permission to take photos of the shoes they sold and he put those photos online. When an order came in, he went to the shoe shop, bought the shoes and shipped them ... all by himself.

This is not a scalable business model. But with this model he learned that there was a demand for the service he had created. Then he recreated his business to scale.

Maybe if we are in love with the business creation more than the whosee whatsee creation we could think of our current business as a way to test our assumptions about what people want. Maybe we can then recreate our business to scale. If our love is the business making, then we can make anything.

Can we create a service from our makings business? What have we learned that other people might be willing to pay for? Can we create an add-on that would work with the "make it once sell it again and again" model? If we love the business making more than the making - can we turn our making into a kit and sell that? Less work always = scale. Should we stop thinking product and start thinking service?

The best of kickstarter 2012 is HERE - what we can learn from them? This is my favorite project right now.

To wrap this up our handmade business (without outsourcing production and I am not even going to get into that one with this post except to say it sounds like a very slippery slope to me) may never be able to create the kind of scale that has us lying on a beach during the month of November, but there are ways we can create scale and stay true to ourselves and our makings.

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