How about 2x? What’s wrong with doubling, say revenue or profits? Would you take it?
2x may not be the crème de la crème of business multiples, but it’s still a powerful tool when employed properly.
Getting Started with the 2x Mindset
I love thought experiments or thought experimentation in small business. For instance, my favorite conversations at lunch with a client sometimes start out like, ‘Have you ever considered … ?’. Or, ‘Have you thought about … ?’. Sometimes, we hit paydirt in those discussions.
My favorite thought experiment revolves around doubling. Accordingly, I’ve created a planning tool that I call The Power of 2x™. It’s insanely simple to use.
Let’s take the example of a small professional services firm providing business consulting (the small version of BCG or McKinsey). The process will work in any type of business.
I don’t simply double revenue. I want to know how many clients the company has and how often they serve those clients. If you want to double revenues, you only have two options. You can either pull the number of clients lever or the average project size lever. In the example below, I 2x revenue 3 years out by doubling the number of clients and keeping the average number of client projects per year and project size static.
Why 3 years? It’s hard, but not entirely impossible. To double in two years is extremely difficult unless the firm is much smaller. So in the case above, I do the doubling in 3, and then 5 years out.
Another way of doubling is changing the business model. Instead of focusing on small projects, how about doubling the average project size as shown below?
Is it Plausible to 2x?
Before I start asking questions, I need a simple framework to start the Q&A process with a small business owner. It’s not perfect, but the mental gyrations look something like this:
I don’t always start with data, but you can. In discussions likes these, anecdotal evidence works fine as the starting point. That allows us to craft stories and assumptions to 2x our way to growth. Then we can examine data to challenge our assumptions.
Still, we need to answer some serious questions. My incomplete list follows:
Are there are enough hungry customers needing or wanting our service? If so, where are they? Once we find them, how do we get their attention? Finally, how do we get permission to tell them the story that our service will make them better?
How many new reps do we need? What skills do they need? Can our existing salesforce support the growth effort? Will retraining be required? Will a new sales management process be required to support the growth?
Fulfillment and Service
Is the delivery option solid right now, or is it broken? If solid, can the same fulfillment process be ramped up? Is it repeatable? Are customers far better off after a project is completed? How does continuous innovation play a role?
With growth comes more overhead. For instance, does accounting and billing need to be overhauled? How about HR and IT? Are there cash resources to tap into to support the new growth?
The Power of 2x™ is Not Just for Small Business Planning
I started using the 2x mindset several years ago when I’d go over financial statements page by page with new clients during the early years of a new CEO relationship.
I’ll never forget a meeting I had 7 or 8 years ago with one of the most talented CEOs I’ve ever met. I don’t think I’ve ever encountered a CEO who picks up financial analysis as quickly as he does. When we went over revenue per FTE for the first time, we were around $500k per FTE. Immediately, he said, “Mark, I’m going to double it. I want $1 million per FTE.” That was the first time he had heard about this concept. I kept my opinions to myself as I thought, “No way it will happen.” Wrong. He’s not there yet, but he’s getting close.
I’m a failure at trying to get clients to radically improve their inventory management practices. That’s because the majority of business owners practice what I call just-in-case inventory management practices. I get it. They love their customers and they never want to be out of stock. But there’s a cost to just-in-case, right?
One of my manufacturing clients has a great P&L and no debt. So it’s easy for them to justify inventory overspending. I hate it because it leads to waste and obsolescence. The way I applied my 2x thinking was through a simple question. “What if we could cut your inventory in half?” Bingo, almost. We’re a long way in halving inventory, but there’s now a new mindset–buying smarter and smarter.
What about a 2x mindset in a big company where doubling revenue is impossible? Here are some 2x questions to prime the pump if your company is sitting atop the sigmoid (business maturity) curve:
- What if you could double the speed of closing a sale?
- What if you could cut in half the time to hiring your skilled A-players?
- What if you could 2x your insights to existing marketing data to better understand your customers?
- What if you could 2x the speed of solving customer/client problems and how would that help your customer satisfaction scores?
- What if you could cut in half the time in finishing critical IT projects?
This should give you an idea of how to apply 2x thinking in your business. Don’t discount the last question. If your IT team says it will take 18 months to complete a project, that means it will take 36 months. But you need to find out how that project can be done in 9 months. It won’t happen, but at least strategies and tactics can be employed to remove waste from critical IT projects.
Are You Ready to 2x?
10x is sexy and glamorous. But 2x is powerful and pragmatic. What’s holding back your 1x company?