The 3 Systems You Need to Scale to $20 Million

There are only three systems you need to scale to 20 million in revenue. And in this video, I'm going to show you what those systems are and how you can install them in your business in less than 90 days. Now, in case you don't know who I am, my name is Ryan Deiss. My partners and I manage a portfolio of companies that collectively generated over $200 million in revenue last year alone. And to date, I've personally taken eight different companies from zero to eight figures in revenue. I've also seen hundreds of businesses stall out at a half a million to 5 million because they failed to build the three systems that I'm about to show you right now. All right, let's get into it. So the key to scaling any business really does come down to three things. And the first thing that you're going to need is sales. That sounds pretty obvious, right? Obviously you need sales, but not just any kind of sales. You need leveraged sales. So you need sales that don't just start from zero every single month. You need sales that you can count on. They're predictable month after month after month. So that's the first thing. The second thing that you need is profit. Again, obvious, right? But not just any kind of profit. You need bankable profit. Not just P and L profit, but actual cash money in the bank. Distributable profit, if you want to scale, because profit, cash is the fuel of scale. The third thing that you need, and this is the one that everybody forgets about, everybody misses, is what is known as transferable. And I'll write this out. Value. Okay? Transferable value. Value. What transferable value means is the ability to transfer the value creation components of the business from you, the founder, to other people in the company and then ultimately to other people outside of the company if you ever want to sell it. Now, why are these three things so important? Because if you have both sales and you have profit, then you have momentum, right? I mean, think about it. If you've got sales and you're highly profitable, you can keep fueling this engine. There's not a lot that can stop you. And this is where that momentum comes from. Now, if you have sales and you have transferable value, this is when you're actually scalable. This is when you are actually scale able. You're able to scale. You have sales, which means you're scaling, but you also have transferable value, which means that you, the founder, you, the CEO, or nobody else in the company is going to become a bottleneck to that scale. And then if you have bankable profit, if you have transferable value, then you have options. You have options. And the nice thing about these options is you have the option to raise money or not raise money. You have the option to sell or not sell. You can do whatever you want because you're profitable, but you're also exitable. So we've got our leveraged sales, we've got our bankable profit, and we've got our transferable value. Now, the funny thing about these three things is there's people in the organization who, who should be responsible for these, right? So when you think about leveraged sales, ultimately it's the CMO or the CRO, chief marketing officer, chief revenue officer, who really should own leveraged sales. And when you think about bankable profit, well, now we're talking about the cfo. And then when it comes to transferable value, well, this is what a COO should be responsible for. So you got your cmo, you got your cfo, you got your coo. And as long as you have these three things, and presumably if they're doing their jobs well, you don't have anything to worry about because they're creating the momentum, the scalability and the optionality that you need to both be able to scale and to be able to exit. And when I say exit, I could mean exiting the company in a sale, I could mean stepping out of the day today. It could mean just exiting a role that you hate. The point is you can grow and you're free. This is what we're going for. This is the great big goal of business, is the ability to scale and exit. But here's the problem. At around $2,000,000 in revenue, guess what? You don't have. At around 2,000,000 revenue, you don't have a true CMO or CRO. You don't have a true CFO, you don't have a True COO at this stage. You need all of these people. The problem is you can't afford all of these people. And that's because each and every one of these people is going to cost you a couple hundred thousand dollars a year. And they're going to probably need a team that's going to cost another couple hundred thousand dollars a year. You need it, but you can't afford it. It's the classic chicken and egg problem of business. What's the solution? Well, the solution is we need systems that are going to replace or augment or support the people who are currently in those roles but who aren't yet at the level to achieve the skills that the people who are needed for those roles could do. And so that is where these three systems come into place. Each one of these systems plugs into one of these circles to fill one of these critical roles that currently you desperately need. So the first system is what we refer to as the growth engine. And so what is a growth engine? A growth engine is a proven process for generating an increasing flow of new leads and new customers from scratch, largely on autopilot. So why do we need a growth engine? We need to visualize so that we can optimize. We need to visualize how customers are happening so that we can optimize the flow of customers. And that's exactly what a growth engine does. A growth engine provides a visual answer to the question that every business should be asking, but most aren't, which is, how do customers happen? The ability to visualize how customers happen is what gives you the ability to optimize how customers will continue to happen. And if you don't visualize, you can't optimize. If you don't visualize, you're going to fix stuff that isn't broken. If you don't visualize, you're going to throw tactics and shiny objects that aren't going to resolve where the bottleneck is because you don't even know where it is. Now, this process for us is pretty simple. It starts out with sticky notes and a whiteboard. We get out the sticky notes, we get out to a whiteboard, and we go up to the upper right hand corner of the whiteboard and we say, okay, how do people find out that we exist? Facebook and Meta ads. Cool. And we're going to stick that in the upper left hand corner of the whiteboard. Then we say, all right, what are we selling? Well, we're selling this product great. We stick that in the lower right hand corner of the whiteboard. Then we go back to the beginning and we say, okay, how do we get from here to here? Then what happens? Somebody clicks on an ad, then what happens? Then what? Then what? Then what? And when we're done, the whiteboard looks, well, something like this. And if we don't have whiteboard, sometimes we use big sheets of paper and small sticky notes. But when it's done, you should have something that looks kind of like this. So this is an example of Mommy Fit, which is a fictitious company based on an actual direct to consumer client of ours. And you can see it's pretty simple. They were running Facebook and Instagram ads, they're running Google Ads. They're running Instagram stories and reels, driving those over to an email opt in challenge type page. And then once people are in there, they're doing some follow up, doing some sales, not an overly complicated process. This is a company that does software and consulting. Again, they're running primarily just meta ads to a webinar. And if you look really closely, you're going to see there's a lot of steps that they're missing. There's a lot of points of optimization, and that's okay. When we're doing this, we don't want to document what should be, we want to document what is. Again, we're going to visualize and we're going to optimize. And people will say, well, what if I'm running a brick and mortar business? What if I'm like a dentist? Well, you can do it if you're a dentist too. I know, because we've done it. Here's an example of one of our clients who is a dentist. And this is what their growth engine looks like. So this is where it starts. And then eventually you wind up with something that looks a little more like this, kind of in a prettier, professional flowchart form. And then eventually your growth engine starts to look something like this as it gets optimized. Because what optimization looks like is in filling in all the gaps, realizing that, well, somebody's going from here to here, but there should be another sticky note in between those two steps and stages. So once you visualize what your growth engine is once, now we can start to optimize it by adding more steps and more stages to the growth engine. Once we visualized, we need to know what we are supposed to optimize. And the way that we do that is by building a growth scorecard. So now we want to go back to our growth engine and we want to look at each and every one of those steps and stages. We want to look at each and every one of those sticky notes. We want to ask what metrics should we track to know that each and every one of these stages is working, that it is performing. And just like you're reading a growth engine kind of, you know, a book, it's going left to right, we with a scorecard, it's going top to bottom. So you can see here on this particular growth engine, they're running Facebook and Instagram ads and Google Ads. Well, if you look at their scorecard, guess what? They're tracking things like ad spend and cost per click, right? They're also tracking social sessions so if you were to read their growth engine left to right and you were to read their growth scorecard top to bottom, you would see that they perfectly mirror one another. And this is the key, because what this allows you to do once you have a growth scorecard in place, once you've set targets and once you have a color coding system, is to simply look for red, because red means that we are behind target. And in this case, where should we be optimizing on this particular growth engine? Well, right here in this section because it's the place that has the red metrics. So how does the growth engine work? How do we put into practice? Well, again, first we need to map it. We need to map that growth engine. Then we want to design a metrics to scorecard and dashboard so that Everybody knows the KPIs that matter. And then based on that, we're going to build and execute a 90 day growth plan with the goal of unblocking those bottlenecks, with the goal of turning the red metrics to green. And then we're simply going to repeat this process again and again and again. And what do you know? Before long, what you have is consistent, sustainable leveraged growth. Now let's move on to system number two, which is the cash flow waterfall. So the cash flow waterfall falls right here in the bankable profit stage. The cash flow waterfall is a cash management and margin maximization system that's designed to, as the name suggests, improve cash flow, improve profit, EBITDA owner distributions, all the things that again, the CFO should be doing but probably isn't. Now why is this so important? It's important because even if you have good financials, even if you have P and LS, P Ls can lie. But cash doesn't lie. I mean, anyone who's been in business for any length of time knows that it is possible to be profitable on your P and L while simultaneously going out of business because you ran out of cash. A cash flow waterfall specifies the movement of available cash from the company's main operating account into prioritized and specialized accounts for predetermined future uses, including, but not limited to distribution. What you're going to need, number one, is you're going to need an operating account. You should already have this, a checking account where all your sales, all your everything goes into. What I don't want you to do is just leave all your money in there. And here's the problem with that. An optimistic entrepreneur's ability to spend will always outpace their ability to earn the way that we manage our cash flow waterfall accounts, the way that we encourage all of our clients to do it is to establish within the operating account one month opex, how much do you need to cover one month's of operating expenses for that business at the end of every single month? Anything over and above that we're going to sweep out. Now the first place that you're going to need to sweep is to a tax savings account. Here's the deal. You have one vendor and only one vendor with missiles who can put you in jail. And that vendor is the government. We do not mess with these people. We make sure that the tax person gets their taxes. Everything over and above that should flow out into what is an emergency savings account, our emergency fund. And for us, we're typically going to let this build up to about three months of operating expenses, fixed operating expenses. So not every single operating expense, but just what are the fixed expenses that we need to truly keep the lights on. Now we're going to waterfall out of that and this becomes available. So where does this go? The answer is it depends. Maybe we need to save for a future investment. So we're going to create a sinking fund because we, we know that we're going to need to rebuy a piece of equipment. We're going to put a roof on one of our buildings one day or something like that. Maybe we got a big event coming up that's going to cause a massive cash outlay and we need to save for that. Right. So maybe we need to have a specialized savings account for future purposes. Maybe we know that we're going to do an acquisition or a significant investment and we want to set aside some funds for that. But if not, everything over and above that should flow into a distribution account. And it is this distribution account that I'm looking at for all of our portfolio companies. Yep. I'm looking at the P and L. Yep. I'm looking at the balance sheet. But the number that I want to look at is, is the distribution account getting bigger month over month? If it's not getting bigger, then that suggests that the company isn't operating as efficiently as it could. Because look, you know, if you need to make some investments in the business, that's fine. They should be budgeted for. But at some point the business should be producing enough surplus value that money is flowing out of the business. If not, then the business isn't doing its job for us. The money doesn't sit in this distribution account very long. Generally at the end of every quarter we distribute 80% of what is in that distribution account. 20% stays there until the end of the year, and then we kick the rest of that out as well. And people will say, Ryan, what if we need to make a reinvestment? Like, what if the business needs it? This happens. Here's what I say, great, let's distribute the money to all of us, and if the business needs it, we can all decide to put it back in. And in my experience, once that money has left the company and gone into the pockets of the stakeholders, people get a lot more thoughtful, a lot more intentional, a lot more strategic about the investments they make when they need to take it out of their wallet and put it back into the business. If a business cannot pay its most important asset, well, that's a problem for the business. But if it can, that's going to be a very, very, very good thing for the business. Paying yourself well is not a selfish act. It's evidence of a well run business. That's why a cash flow waterfall is important. That's why this system, while simple, is so incredibly important. We have got two systems down now. Let's get to the third and I would argue most important system of all. This is the company operating system, or as we like to call it, a scalable operating system. So what is an operating system? It is a company's single source of truth. It documents what the company does, it documents how it does it. It documents the progress that it's making towards its goals and its objectives. Every single business has an operating system. People say all the time, like, you know, do I really need an operating system? You know, are we big enough to need an operating system at this point? And I tell business owners, you have one, you just have what is known as a you operating system. You are the operating system. The operating system is you. Because you did everything and you're still doing everything. The business is running on you. And what I want you to know is that in the beginning, you were enough. You were enough to launch your little business into orbit. And so in the beginning, when your business was little, you were able to keep it in orbit. It could hang around you. The mass that was you was big enough. But then something happened. Your business got bigger. Congratulations. You succeeded. Your business grew. Your business scaled. And now your business is flinging you around, not because you're not good at this anymore, but because you succeeded, because you won. And this is why, at scale, if you want to go from 2 to 20, the most important thing that you can do for your business is to upgrade your operating system. You got to replace that uoperating system that got you where you are now with a more scalable operating system that will take you to the next level. We have an entire process, an entire framework around how to build these. I created an entire video around our process for doing this. I will link to it down in the description, but I'll just kind of go through and hit the high points right now. Just so you understand how this works, the first step of this operating system build out process is we got to systemize the execution, which means we've gotta get you out of the grunt work, we gotta get you out of the day to day. What happens first is we wanna start with really simple questions like hey, how do customers happen? Now this should sound familiar cause you've already asked this question back when you created your first system which was the growth engine. But now we need to start asking questions like how do we fulfill, what do we do with a customer or client once we got em once a sale is made? This is what's known as value engine mapping. And what I showed you before when we were going through the process of mapping your growth engine is one type of a value engine. So a value engine is simply a visual representation of how a company captures and creates value. And there's three ways that it can do this. It can do this in the form of a growth engine which visualizes how a company attracts and converts new customers. So we talked about that. There's the fulfillment engine, which visualizes and how a company delivers for a customer or a client after they have them. And then the innovation engine, basically how do they make the things that they sell? So what I want you to think about right now, your business today, where is it the most constrained? Are you more demand constrained or are you more supply constrained by demand constrained? That's basically if you're sitting there thinking, I just need more sales, I just need more leads. If you're thinking, please for the love of God, don't send me more customers, don't send me more leads. We can't fulfill the ones we have, then you're supply constrained. Whichever one that is, that's the one that I would encourage you to start with. Now if you follow along, you've already mapped your growth engine that's going to solve for demand. Next, you would simply want to map your fulfillment engine that solves for supply. Because when you've mapped one growth engine and its associated fulfillment engine, congratulations, you visualized the entirety of the customer journey. You now know how customers happen and what you do with them once you got them. Next, we need to assign roles and areas of accountability to the people on our team. So we've started to build out the systems. Now we need to install the people. And to do this, we're going to audit those value engines. So we're going to go back to the value engines and we're going to ask who should be doing this? We're not going to go to our team and say, what does Bob do? Or what does Fred do? We're going to go to the value creation steps themselves. We're going to go sticky note by sticky note and say who should be doing this value first. And then you assign what we refer to as critical accountability bullets to each person as you divvy them out. Now, if you do this process, what you're going to find is there are some people that have a lot of these different critical accountability bullets next to their name. One of those people is probably going to be you. There's going to be other people who don't have very many. And for those people, we need to figure out how to get them some extra work because it shouldn't all fall on you. But if you want to talk about what does it look like for you to start to get some freedom, what it tactically looks like is zero of these critical accountability bullets with your name on them. It looks like giving things away one sticky note at a time. So we go through this process, we visualize how value is created. And when you get to the point where there's no more of these next to your name, that's when you know the business can truly run without you. Because there's somebody else responsible for each and every stage of your value creation process. The more valuable you are to your business, the less valuable your business is. So that's kind of the first phase of the operating system build out process. The next phase, we need to systemize the optimization. We've basically got to get our people, instead of just owning tasks, we've got to get them actually owning the outcome. So not just being the lever pullers, but actually owning the outcome. And to do that, we need scorecards, we need dashboards, we need them to know the metrics that matter. We need them to feel like they can impact the metrics that matter. So I'm not talking about overly complex and expensive business intelligence tools. I'm talking about a simple Google sheet that just tracks the metrics that matter. And again, you've already seen how we do this. We're gonna go back to those value engines. So what starts at the top with the growth? Just keep on going. And congratulations, you now have a scorecard that tracks the entirety of the customer journey of that customer experience. So step number one, choose the metrics that matter. Again, you've already started this process. How do we know these are working then? What you want to do is you want to determine who's going to own each metric. This is so incredibly important. Every single metric on the scorecard needs to have a name next to it, because if everyone is responsible, then no one is responsible. Fortunately, you've done this step too. When you ask the question, who does these different steps and stages? When you assign those critical accountability bullets, if somebody owns one of those bullets, they're going to own the metric associated with it too. Now what we need to do is we need that person to tell us what's the goal. And the person who owns the metric, they're the ones who should set the target. It's in the target where everyone agrees ahead of time what winning looks like. So there's no revisionist history and there's no question about what good is. Good should never be subjective. So we don't want to get into this whole like, yeah, we missed, but we learned a lot. None of that nonsense, right? We're either at target or we are not. Then we're simply going to start tracking week by week by week by week. My team comes in first thing Monday morning and they're just filling in manually all of their different numbers. And that's right, I said manually. In addition to manually entering their numbers, they're also going to manually compare where the metric is now against the target. And they're going to select as a status, red, yellow or green? Red, we're missing green. We are on track. Yellow, we're behind. But we have a plan to catch up. If you want insight and not just data, make your people manually enter their numbers in a scorecard. If you want your people to know their numbers, everyone wants to show up, at least with a yellow one, which means they're bringing a plan. Your job moving forward once you have this in place, is to execute the projects and really to help your team execute the projects that turn red to yellow and yellow to green. That's it. And management becomes pretty easy. Should we take on this project? I don't know. If we do this project, is it going to turn red metrics green? Should we hire this person? I don't know. If we hire this person, are they going to turn A red metric, green. This is when growth turns into scale and this is when your people truly become accountable. So the goal is you want to learn about the red metrics after they've already become yellow, after they've already become green. So when you start showing up to meetings and your team's like, this metric's behind, but here's where we're going to catch up. And that's how I marked it. Yellow. And you're just a green, green, green. And you're showing up and everything's green. Life is good. That's when you can start opting out of those meetings. So that's phase two of the operating system build out process, third phase. Now I want to systemize the decision making. We want to automate the high level decision making process that currently still falls on your shoulders. How do we get the team thinking with the help of the operating system, like you think, maybe even better than you think. Now is the time to perhaps do an executive off site and to come up with, hey, what are, what is our company mission? You know, what's our overarching goals and strategy? Now the tool that we use for this is called the Clarity Compass. The Clarity Compass captures the three year target, the company purpose, the company's core values and our strategic anchors. Because these are the four elements, the four ways, the four necessary ingredients for doing decision making at scale. You're making the company case, the customer case, the culture case, and of course the competitive case. And so that's kind of the way that this works. And we're typically going to do this during our quarterly Sprint planning meetings and then we're going to check in during our weekly team scorecard meeting. So this is that the meeting rhythm that we'll put in place. This is also when we're going to set our short and long term revenue and profit targets using a tool that we call the 12Q planning canvas. And it's when we're going to set our short term and 90 day strategy using our process and using this quarterly Sprint canvas where we're going to select, okay, this is our big goal for the quarter. These are the three main kind of North Star metrics that we're going to look to really optimize. These are the three main metrics that are red that we want to turn green. And then these are the projects that we're going to greenlight that we believe will turn those red metrics green. And then what we do is we package it all up, all the value engines, all the playbooks, the accountability charts, the scorecards, everything into a single accessible operating system dashboard. So that nobody has to keep asking you, hey, how do I do that thing again? Hey, where's that information again? If we can get it all in one single place, that's when the business is officially out of your brain and it is inside an operating system that you own, but that other people can access. Once this happens, the third and most important system for scale is complete. You have built out your custom and your scalable operating system. So there you have it. Three systems that when combined, will get you more sales, more profit, while also making the value creation components of your business more transferable, both inside, throughout the organization, as well as outside the organization, if you ever plan to sell it. And this simply means two things. It means more revenue, which means hopefully more money for you, but it also means more freedom. And look, if you want some help actually implementing any of these three systems, that's quite literally what we do at the scalable company. I'll drop a link in the description where you can get more information about our services. But for now, just remember, I want to leave you with this. Good people don't fix broken systems. Broken systems break. Good people build these systems and then hire the people to run the systems. And again, if you need any help building the systems and then some help hiring the people, let me know. That's quite literally what we do. Until then, I'll see you in the next one.