Feeding the dog is not a good business model

Tue, 08/11/2009 - 18:12 — admin

Business model
Recently, a client has asked me to review a business she is interested in acquiring. This business was in a growing market segment (healthcare), had a list of established clients, and was growing annually at a decent rate. It appeared to have a promise of becoming an IPO candidate in 2-3 years. 
 
Upon further review, I discovered that the only way that the company can grow is by adding costly, and specialized resources, and devising a new process, customized to each new customer they acquire. The operating model required re-inventing the wheel every time a revenue opportunity presents itself. Furthermore, there is no opportunity for leveraging a “critical” mass, after which the rate of resource needs will diminish.
 
Companies that are poised for growth and success have an “operating system” that scales up without requiring that you keep feeding the payroll “dog”. The system also allows for a repeatable process that can be utilized over and over. These companies leverage the “law of large teams”. A tem of ten can accomplish 2.5-3 times a team of five, not just a “linear” 2X.