The Art of Scaling and Exiting

This blog post is a summary and interpretation of ideas expressed by Adam Coffey and not a verbatim transcript. For the full depth and to hear the discussions in their original form, we encourage readers to check out the actual podcast episode.

Adam Coffey, a best-selling author and CEO, has masterfully navigated the business landscape, achieving over $2.5 billion in exits. His diverse background includes military service and a passion for strategic planning, contributing to his success in the business world. Adam's insights into scaling and exiting tech companies make him a sought-after mentor and strategist.

How does distinguishing needs from wants shape a business's strategy and resilience in economic shifts?

Focusing on what people need instead of what they want can make a huge difference for any business, especially when the economy gets shaky. You're setting up a safety net for your business when you zero in on the essentials—stuff that people have to have no matter what's happening with their bank account. This means even when times are tough, there's still a good chance people will keep buying from you because they can't do without what you're offering. It's like having a secret weapon that keeps you steady when everything else is up in the air.

"Why is it so hard to be successful? It's because people didn't invest in what they knew. They didn't focus on needs versus wants."

So, for any business looking to stick around for the long haul and not just ride the latest trend, figuring out the difference between needs and wants is a game changer. It's all about building something that matters and lasts, tapping into what's truly important to people.

Focus on steady income to ensure growth

Getting customers is tough, but once you do get one, aiming for a regular income is the game plan. Think about pest control in places like Texas, where bugs are so big, it's a must-have service. These companies nail it by having people sign up, charge them monthly, but only show up to spray every few months. It's a smooth setup: get a customer, charge their card regularly, and provide the service just enough to keep them happy. Adam has tried shifting from project-based work to more of this regular income style in his past ventures. It's about slowly mixing steady earnings alongside the usual project work, aiming to switch the ratio from mostly project-based to more balanced with recurring revenue.

"We should not be starting something hoping I can just get to the next round of funding. Let's start something profitable from day one."

Before dreaming of scaling up, it's vital to get things right on a smaller scale. Making money when you're small sets you up for later. Adam preaches the 30-20-10 rule: aim for a 30% gross profit, keep back-office costs below 20%, and make sure there's at least a 10% net profit at the end. Get this right, and you're all set to grow profitably. It's about building a solid, profitable base from the start, not just chasing the next funding round. Start small, get the basics right, and scaling up is just about keeping and expanding what works.

Focus on building a profitable product from the start

Let's cut to the chase: VC funds often don't outperform the stock market, with many startups failing. For tech and software companies, understanding unit economics is crucial, even amidst development costs and early losses. Success isn't just about advancing through funding rounds; it's about building a profitable product from the start. Despite VC's allure for its potential high returns, it demands investor savvy. Exceptional companies plan for profitability early, focusing on manageable costs and achieving the necessary sales volume to cover expenses, including licensing and SG&A. The principle remains: build for profitability, not just growth.

Innovation is overrated—sustainable profits come from mastering essential, everyday services

Often, we tend to complicate our entrepreneurial journey from the start, believing we must innovate the next big thing to succeed. But why not aim for achieving $1 million in revenue profitably first? Don't overcomplicate things. Consider some of the world's most successful investors, like Warren Buffett, who focus on businesses that may lack glamour but have solid profitability. There are countless opportunities in traditional, necessary services—like laundry, HVAC, or roofing—where innovation isn't about reinventing the wheel but doing the job exceptionally well. These sectors may not be flashy, but they offer substantial profit and scalability potential.

"Think about the world's wealthiest people. They have passion for what they're doing."

Find that passion

Entrepreneurs often think it's all about making a quick buck, but here's the thing: without real passion, success is pretty hard to come by. Look at big names like Jeff Bezos, Elon Musk, and Richard Branson. What's their secret sauce? A whole lot of passion. It's not just about liking what you do; it's about being fired up to make a difference every day. Your business feels it, your team feels it, and your drive sputters. So, if you're feeling meh about your work, it's time to find that spark that lights you up.

Be generous with your capital

Starting with a foundation of success and capital, many entrepreneurs mistakenly believe capital is scarce. However, the truth is, that money is abundant out there. The key to attracting investment is not just about seeking funds; it's about how you value and treat that money. If the going interest rate is 8%, offering 10% can make your proposal more appealing. Willingness to offer higher returns or share profits and equity can significantly increase your chances of securing investment. The world is awash with capital-seeking promising projects. Your approach to capital, especially without a proven track record, should be one of generosity. Many first-time entrepreneurs guard their ideas too closely, offering minimal equity to potential investors. However, when you lack financial history, offering a substantial stake can be the difference between getting started or not. Be generous with your terms; it's about getting your foot in the door and gaining the necessary capital for success. This generosity can pave the way for future opportunities, making it easier to raise funds when you most need them.

"Jeff Bezos only owns 10.9% of Amazon."

Don't get too confident thinking you don't need any advice. That's a trap

Getting to $1 million in revenue is just the starting line. From there, it's all about scaling up smartly to hit that $10 million target, and figuring out the capital and revenue you need along the way. Starting, you've got to be super hands-on, controlling every detail to ensure things are done your way. But as you move from $1 million to $10 million, it's about perfecting what works and starting to think bigger, like expanding your market or opening more locations, especially for service businesses that are great at generating cash with minimal capital investment.

"Every great idea doesn't have to be your idea."

The trick is also to keep an eye on the exit prize from the get-go, aiming for a juicy sell-out. But here's a heads up: success can make you overconfident, thinking you don't need advice or new ideas. That's a trap. To push past $30 million and beyond, you need to switch gears - less micromanaging, and more empowering others. That means hiring smart, letting them do their thing, and focusing on being the visionary leader. If you can master this shift, the sky's the limit - $100 million, even a billion, becomes doable. It's about planning, staying humble, and being willing to adapt and grow with your business.

Exit to multiply, not to conclude

For entrepreneurs, viewing exits not as the end but as a strategic pivot point is key to long-term wealth creation. Rather than fully exiting, consider maintaining a stake in your company. This approach allows you to leverage the growth potential further with less risk, using other people's investments to fuel the expansion. Drawing on personal experience, staying involved as a minority investor after selling a majority stake can lead to multiple, increasingly lucrative exits over time. This strategy emphasizes the importance of preparing your company for future growth and transitions, ensuring it continues to thrive with or without your day-to-day involvement. It's about setting a foundation for perpetual success, leveraging expertise and resources wisely to maximize returns and minimize risks. This approach not only enriches your wealth but also strengthens the business's value and sustainability for future owners, illustrating the significance of a well-prepared exit strategy.

Killer advice to wrap it up

Culture and team dynamics have a critical role in building a billion-dollar venture. A thriving culture not only attracts but also retains top talent, essential for scaling any business. Furthermore, the journey to success should be a collective effort, valuing each team member's contribution rather than focusing solely on individual achievements. Hiring with future growth in mind ensures the team evolves with the company, preventing the cycle of talent turnover. Sharing success, through creating ownership opportunities for employees, fosters a motivated workforce aligned with the company's vision. This approach has not only enriched many but also cultivated a sense of collective accomplishment, underpinning the foundational belief that taking care of people and including them in the wealth created is paramount for sustained success.

If these handpicked highlights have sparked your curiosity, you won't want to miss the full conversation with Adam Coffey on our YouTube channel or your favorite platform.