Businesses are fundamentally composed of two elements—revenue and expenses. Every resource in an organization is devoted to one or another, or both. When scaling a business, it’s equally as important to ensure that expenses are minimized while maximizing the efficiency of those resources. It’s a big part of what helps create healthy profits.
Most businesses are focused purely on revenue with the mindset that they will be simply be large enough to cover expenses. But as a business grows, so do associated costs. Being vigilant in creating operational efficiencies from the beginning will ensure your profit margins are maximized.
I know a thing or two about creating a very profitable business from being operationally efficient. I started a digital agency that has the highest profit margins in the industry. I know this because I currently assess and acquire other agencies for Lynx Equity. Currently, I’m applying the same principles to a company I invested in and started called Bad Axe Throwing, which, in less than two years, will grow to 12+ locations.
I want to share my insights & tips on how to look at operational efficiency to maximize profits.
Pay more for A+ employees. Mark Zuckerberg famously said that a great engineer is better than 100 average engineers. I have always applied those principles to my businesses. Our team at Majestic Media is extraordinarily talented. We have beat out some of the largest digital agencies and consulting companies in the world for business, primarily because of the talent we have, and we can execute projects faster, better and more economically than our competition. I would attribute this to be the number one reason why our profit margins are as high as they are.
Let go of mediocrity, it’s expensive. If you haven’t read the Netflix Culture document, that’s the first thing you should do today. It outlines the type of culture you should employ to create a highly efficient business. One of the key points that resonates with me is that there is no room for mediocrity. You should be paying people based on value, not price. Do not focus on absolute dollar figures, think of it as an investment, pay based on the value and potential return on investment.
I have been working from home for over eight years and have scaled up several businesses in different industries, with no office space. We hire a global workforce. Why? Because we do not discriminate based on location. We discriminate based on talent. We increase our talent pool by using a global scale as opposed to a local one. It allows us to compete and recruit talent away from large companies like Google and Facebook. Do not confine yourself to location specific resources. Always think global. The talent that is out there is mind-blowing.
This has helped my businesses differentiate our offering, our corporate structure and how we grow. We never focus on, or follow the competition. We create our own model of what works, regardless of what everyone else is doing.
When I started Majestic Media, I had zero agency experience. I had never built a website before, I didn’t even know how to bill or how much to charge clients. I created my own model. Now that the company is much larger is in scale, folks on our team that have worked at other agencies in the past are shocked at how differently we operate. We have no hierarchy structure, we do not work overtime, we have never and will never have account management staff—the people doing the actual work on projects speak to the client (there is no middleman).
The same holds true for Bad Axe Throwing. We created a culture that is distinct from all our competitors. We created a different brand that the public loves. A lot of what we have done with our business, our competitors try very hard to copy us, not realizing we’re already moving onto the next thing. You cannot be a leader by copying. It’s not a strategy; it’s a reaction to competition.
When you’re looking at creating operational efficiencies, there is no right approach. It’s about being methodical, logical and not being afraid to try new things (within reason). These core frameworks that I’ve outlined have helped me scale up and create multi-million dollar businesses.