How do you scale quickly in retail?
"Blitzscaling" has become the hot new word in startup land.
Blitzscaling is a specific set of practices for igniting and managing dizzying growth; an accelerated path to the stage in a startup's life-cycle where the most value is created.
If this term sounds dangerous, it does. This means burning excess cash to capture marketshare in a highly competitive market because getting there First or Second could mean the difference between a sustainable competitive advantage and losing your job.
For the rest of the world, we look at these business practices and think
- "This is crazy."
- "It's never going to work"
- "They are running themselves into the ground"
Yet, we shouldn't be too quick to dismiss these sets of ideologies.
Even though you might not be in a winner-take-all market, wouldn't we all like to adopt some set of practices that can allow us to quickly (and sustainably) grow our business?
When is it safe to "Blitzscale"?
The fortunate advantage that incumbent retail companies have over their upstart counterparts is the vast amount of operational data they have at disposal.
- What's the ROI for every $1 spent on marketing...
- What's the seasonal goods that move faster during certain periods...
- What's the purchasing cycle of their most loyal shoppers...
- What's the payback period for different cohort types...
With all this information readily available, you are ready to scale.
(This strays from the original definition of Blitzscaling)
Because you have your unit economics figured out.
Unlike your pure technology, software-as-a-service or social mobile platform peers, the retail industry has been around for WAY longer. There are industry benchmarks that can give investors some piece of mind as to how "healthy" your business actually is.
If you are a new retail startup, you have a huge advantage over lazy incumbents. You were born into the world of data and you can quantify every investment you make. If you've already set up the data infrastructure required, you can pump any excess profits into the business without having to worry about cost getting out of hand.
Start scaling, once you've figured out your unit economics.
Other Related Questions:
How much money can this machine return if I drop $10 into it? How long will it take to see a return? Where else can I allocate the next $10?
How do you Blitzscale?
What can we learn from the book?
There are really only three things to get right. And they work regardless of your industry vertical...
- Identify repeatable processes
- Find points of leverage
- Define and track key metrics
1. Identify Repeatable Processes
There are tons of repeatable processes in retail. Here are just 5 examples;
- Reordering stock when inventory levels are low
- Receiving new stock/ merchandise from suppliers
- Sending a confirmation email for new members
- Offering discount codes to loyal members during their birthday month
- Running ads to spread the word for new products
I bet that you've already thought of tons more while reading this.
Why does it matter? Because these processes can be codified, delegated and revisited only when necessary.
If you find yourself doing the same job again and again, you are going to realize that you are never going to be able to grow your role and the business unless you start figuring this out.
Pro tip: These opportunities to translate time sucking work into repeatable process will pop up again and again. Just be prepared to play a long game of whack-a-mole as you start to scale.
This leads me to the next point. Leverage.
2. Find Points of Leverage
We all only have 24 hours in a day.
We know the old adage "It's not how long you work but how much you get done."
How much do we really practice this in our business everyday?
Have we really quantified the ROI of 1 hour of work?
Or how about the cost of each man-hour?
You have three stores at the moment.
You have one store manager at each store.
They each spend an hour a week preparing sales reports.
With every new store, the manual work scales linearly.
At 20 stores, 80 hours would have to be shaved off every month to prepare reports.
Assuming a salary of $10 an hour. (Less than $3,000 a month)
This is now costing you $800 a month.
Hire an intern, find a virtual worker or use a SaaS solution, it doesn't matter. As long as your solution cost less than $800 a month, you are saving money.
If you found a solution that only cost $300 a month, now ask yourself, how much more ad traffic can you buy with an extra $500 a month?
Find these leverage points now. Do not leave the best minds in your company working on boring repeatable work that can easily be outsourced or automated with software. That extra hour that you save can be contributed towards training more sales stuff or optimizing the visual layouts.
If you already have some of these ideas in mind, start with those in the company who are paid the highest and always seem busy.
These people need to find more productive ways to allocate their time else they will eventually be seen as an unproductive asset in the long term because they will always be too tired to do anything else.
Speaking of which, assuming you did free up your top executives and managers, what would they be doing?
3. Define and Track Key Metrics
Every team and every member of that team should have a number that they should own. Even within that team, there should be sub-metrics that everyone should be aware off.
- For content marketing it can be keyword rankings and page views
- For social marketing it can be social shares and impressions
- For paid marketing it can be customer acquisition cost
These numbers and dashboards should be everywhere within the company.
Sales teams should have monthly quotas and customer support reps should have minimum daily tickets. Merchandising teams should be compensated based on the leftover inventory at the end of each product lifecycle. Management teams should be awarded bonuses based on employee feedback.
Everything can be tracked. Everything.
But why do you have to?
Because you don't have time to track everything.
- Most important metric: Cash in the bank
- Next 2: Revenue and cost projection
- Next 4: Marketing ROI, Inventory Turnover, Average Order Value, Customer NPS
- Next 8: ...
You don't have time to track every single metric in the company. So you will inevitably need to delegate some of this responsibility.
Your role, as a senior executive, is to help define the micro-metrics that your teams should be optimizing and holding them accountable to those numbers. Your CEO will be doing the same to you.
Hiring, firing and compensation decisions made around well-defined metrics can feel hugely rewarding for top players. It also provides good boundaries around what to coach the weaker players (e.g. This part of the customer experience is broken based on these metrics. Here is what the better performers are doing.)
But, there is always inertia. Setting up these metrics takes time and resources temporarily away from building the business.
So, when do you know its time to implement these metrics?
6 months before you intend to scale up operations to the next order of magnitude. If you are doing below $10,000 a month now, just prepare for the journey to $100,000.
If you are already approaching the $1 million, it would be irresponsible to try to scale to $10million without having a good understanding of the business unit economics.
Even with all that competitive pressure to grow at all cost, there are ways to mitigate the risks along the way. Don't simply dismiss the "Blitzscaling" methodology, figure out which of it's assumptions apply to your business and work your way through the phases.