Chapter 33: The Commandment of Scale - The Millionaire Fastlane

CHAPTER 33: THE COMMANDMENT OF SCALE

In business, to be a success you only have to be right once.
~ Mark Cuban

Speed Limit-15 or 150?

When your business road violates the Commandment of Scale, wealth acceleration is incarcerated within constricting speed limits. Drive any road with a speed limit of 15 and you aren't going to get anywhere fast. Scale is about leverage and leverage is what gives the Fastlane wealth equation its power.

N – E – C – (Scale) – T

Business leverage is like a playing field, or a habitat of water. You can choose to inhabit the ocean or a pool at the local park. There are six business habitats:

• Local/community (pool)
• County/city (pond)
• Statewide (lagoon)
• Regional (lake)
• National (sea)
• Worldwide (ocean)

Scale is difficult to find locally or in a pool that fits only a small number of people. Sure, it can be done, but it requires magnitude, and magnitude doesn't come cheap. If you own a tanning salon, your habitat is local. If you own an upscale restaurant, your habitat is county/city. If you own an Internet company, your habitat is worldwide. The larger the habitat, the greater the potential speed, or leverage, of your Fastlane.

Swing for Home Runs, Not Singles

Billionaire Mark Cuban recently wrote on his blog that it doesn't matter how many times you strike out in business because you only have to be right once, and that “once” can set you up for life. In other words, be in the business of home runs.

Business is like baseball. Play on a field where you can hit home runs; don't play on a field where they're prohibited! For example, if you own a clothing boutique on Main Street, you violate the Commandment of Scale because your pool of customers is drawn from the local trading area. To break scale, the business owner needs to introduce leverage in the form of replication: Open more stores, sell franchises, or sell on the Internet.

Unfortunately, most entrepreneurs engage in “singles-only” businesses. Their playing field is stunted. Their road screams “Speed Limit: 15.” The home run is impossible and their habitat shriveled. If you're a massage therapist, you won't awake one day and have 10,000 patrons outside your door. There is no leverage! And if you don't have leverage in the Fastlane equation, you don't have a chance! The Commandment of Scale is like a tollbooth on the road to the Law of Effection!

The Fastlane Wealth Equation: Disarmed

When you violate the Commandment of Scale you disarm the Fastlane wealth equation and demote its power to Slowlane status. Recall the Fastlane wealth equation:

Wealth = (Net Profit) + (Asset Value)

Asset value is predicated on net profit, which is predicated by unit profit multiplied by units sold.

Net Profit = (Units Sold) X (Unit Profit)

If “units sold” has a ceiling, you handcuff your ability to create leverage. Without leverage, you can't create wealth exponentially. When you travel a business road incapable of scale, you render the Fastlane wealth equation impotent.

My favorite example is the guy who buys a popular sandwich franchise in his local neighborhood. This business violates the Commandment of Scale because the variables-units sold and unit profit-are implicitly limited. How many sandwiches can this guy humanly sell in one day? Fifty? A hundred? How many hours are in the day? Twenty-four? See the similarity?

The objective of units sold is to have an upper limit greater than 100. How about 10,000? Or 100,000? Is there anything this sandwich shop owner can do to sell more sandwiches in one day? Under his current structure, there isn't. He is limited in scale to his local trading area. He'll never sell a cold-cut combo to a man living in Australia, let alone the neighboring city. Scale is limited, causing this road to have a constricting speed limit, just like a Slowlane road.

To make matters worse, the other end of the equation is also limited: unit profit. What is the maximum unit profit on a sandwich and drink? Two bucks? Again, we are operating under a ceiling of low numbers. These numbers don't transcend wealth; they limit wealth.

Now let me clarify before you hammer me over the head: I'm not suggesting that a local restaurant owner can't get rich. In fact, I know a few restaurant owners who do quite well except that they operate a different class of restaurant-upscale establishments, where scale and magnitude have more reach. If your average dinner bill is $200 and you draw patrons from all over the city, not just the local neighborhood, you operate on a different scale. Unit profit isn't $2 per sandwich, but $40 per person, and with alcohol it climbs to $60.

Reach or Magnitude = Scale

To achieve scale, magnitude or reach must increase. Magnitude is naturally increased with price or cost. If you sell Lamborghinis over Hyundais, you have greater magnitude simply by the implicit price of Lamborghinis. You are near Effection (Lamborghini owners most likely exploit the Law of Effection). If you are a real estate agent for the rich and sell multimillion dollar estates, you achieve magnitude implicit by price. Higher prices and cost implicitly drive magnitude. If you successfully sell the most expensive apartment building in Manhattan, you have had an effect of magnitude and realize scale. If you are operating with magnitude, you are near or at Effection.

Reach, exclusive of magnitude, also achieves scale. Reach is massive numbers. The more people you reach, the greater scale potential. Who does your business serve? The local neighborhood? Or the world? The bigger your pool of play, the bigger your potential for wealth.

The guy stuck on Main Street selling sandwiches has no scale and no magnitude. Is there anything this guy can do to turn his $40,000-per-year profit into $400,000? Nope. He's done before he even started. He didn't buy a franchise; he bought a job. He will never get rich until he wakes up and realizes that scale is not reached selling one-buck-margin sandwiches to 100 people a day.

Scale Is Leverage!

The Commandment of Scale demands a business that maximizes the Fastlane wealth equation. Give the Law of Effection a chance! Give wealth a chance! How do you know if your business (or potential business) honors the Commandment of Scale? Ask:

• Can the net income of this business scale limitlessly, say, from $2,000 per month to $200,000?
• Can the asset value of this business scale into the millions?
• Can this business impact millions? Or does it impact hundreds? Is its customer pool the world or a small community in the city?
• Can this business be replicated and expanded beyond the local trading area by franchising, chaining, or additional units?
• Best-case scenario, what is the units-sold potential? One hundred or one hundred million?
• Best-case scenario, how pliable is unit profit? Does it have magnitude?

If you can't affirm these questions, you might be stuck in a restrictive business where wealth creation is stifled.

Tiny habitats create tiny wealth. Scale is large numbers. Think big, nationally, and globally. Big numbers, or scale, is the inroad to The Law of Effection. To make millions, you must affect millions. That doesn't happen in a small store on Main Street, but in hundreds of stores across the country.

Drive Effection's Neighborhood

A “wealth-seeking” friend of mine asked if I thought buying a coffee franchise was a good idea. I said, “No.” My answer shocked him because he played the “be your own boss” drum. I didn't like the idea because the gateway into the Law of Effection was barricaded.

The problem? His goal was financial freedom. If this was his goal, owning a coffee franchise in the local community wasn't going to do the trick. With a coffee shop, he has no access to the Law of Effection. Selling 100 lattes a day simply won't make an impact in either scale or magnitude. And since he didn't want to own 20 of these franchises, but just one, he was barricading himself from the Law. Road closed.

If you can't access the Law of Effection, you won't get rich. The conduit to all wealth is via the Law of Effection. For the Slowlaner, the LOE has to be hit by massive intrinsic value explosion: Sing in front of millions, entertain millions, play ball in front of millions. For the Fastlaner, the LOE is leveraged by scale or asset value explosion: Sell millions, help millions, serve millions, impact millions.

Law of Effection Barricades

There are three barricades that prevent entrepreneurs from realizing the Law of Effection: Scale, Magnitude, and Source.

The strongest barricade to Effection is scale. If you can't serve millions, you won't make millions. Returning to my friend's coffee shop, his “units sold” variable within the Fastlane wealth equation is restricted because his cafe is confined to a local community. His sales are mathematically caged to a stiff number-scale is absent. He will never sell coffee to someone in New Zealand. A business that lacks scale acts like a car with a speed governor that prevents acceleration.

My friend's only option to break scale would be to purchase more franchises in more locations. If he owned 29 franchises across the state, he suddenly would be serving 6,000 coffees per day. Scale becomes prevalent, and attached to scale is the Law of Effection. Of course, the optimum Fastlane strategy is not buying franchises, but selling them.

If my friend doesn't want to own multiple franchises he can't break the barricade of scale. Without scale (units sold) or magnitude (high unit profit) he drives a business that will produce a weak asset value. His wealth equation becomes retarded and the Law of Effection quarantined, remanding him to a middle-class work-life existence. With a middle-class income and a weak asset valuation, he defects to a wealth equation emblematic of the Slowlane.

The other barricade to Effection is Magnitude. Because our coffee shop owner is restricted in scale, his other option is scale by magnitude. Unfortunately, the magnitude road is also closed. Unit profit cannot be manipulated. Every sale won't generate a profit of greater than a few bucks and raising prices reduces units sold. A $100,000 profit on each coffee sold is impossible.

While direct access to the Law of Effection is a foolproof road to wealth, indirect access isn't so clear, since Effection always trickles up to owners and producers, not down to employees or consumers. For example, if you work as a doctor at a private-care facility, you could argue that you have magnitude and therefore, you should be rich. In fact, all doctors should be rich since they have magnitude, right? Not exactly. The fault in this presumption is that the Law of Effection honors only those in control.

That private health-care facility? The facility's owner receives the full benefit of Effection, not the doctors he hired. The doctors on staff aren't guaranteed access to Effection, because they don't control the system. Can they be rich anyway? Sure, but that decision is left to intrinsic value evaluations to be made by the owner of the system. Doctors who own practices and hire other doctors get full access to Effection and get rich.

Effection always is biased toward the architect of the system.

How to Access the Law

If you want access to the Law of Effection, drive a road that can break through scale or magnitude while controlling its source. If you can't be the source, serve the source. Thankfully, you can easily determine which roads run parallel to the Law of Effection. Whatever your road, regardless of roadmap, can it directly scale to impact millions (scale)? Can it tremendously impact a few (magnitude)?

• If you invent a gadget that millions can use, you have direct scale and the law is accessible. Fast wealth is a possible.
• If you are chosen as a finalist for American Idol, you have direct scale and the law is accessible. Fast wealth is possible.
• If you build a Web site that serves single moms, you have direct scale and the law is accessible. Fast wealth is possible.
• If you are two management positions away from a CFO position at a Fortune 100 Company, you have indirect scale and the law is accessible. Fast wealth is possible.
• If you are an attorney and take cases that involve wrongful deaths, you have indirect magnitude and the law is accessible. Fast wealth is possible.
• If you create a successful retail store and franchise it to 300 entrepreneurs around the country, you have both scale and magnitude and the law is accessible. Fast wealth is possible.
• If you invent a machine that detects skin cancer, you have magnitude and scale and the law is accessible. Fast wealth is possible.

Think big, but think scale and/or magnitude. Analyze your Fastlane equation and examine the variables. What are your maximum units sold and maximum profit per unit? What is the size of your customer pool? For example, as an author, I have scale, and with scale, the Law of Effection is accessible. Who is my audience? The whole English-speaking world, tens of millions of people! I'm reminded of scale any time this book is ordered from Australia or New Zealand. My upper limit is the world. My road has no speed limit and that grants access to the Law of Effection.

Chapter Summary: Fastlane Distinctions

• Your total pool of customers determines your habitat. The larger the habitat, the greater the potential for wealth.
• A business can be a singles or a home-run-based business. Its strength is determined by scale, which is derived by habitat.
• The Fastlane wealth equation is disarmed when you violate the Commandment of Scale. Scale is achieved in reach (units sold) and/or magnitude (unit profit).
• The Law of Effection is the primary conduit to wealth, which can be road blocked by scale, magnitude, or source.
• Effection consequences trickle up to owners and producers. Breaking scale or magnitude indirectly in an uncontrolled entity is not a guarantee of wealth.
• To gain access to Effection, you have to break the barrier of scale or magnitude in an entity you control.
• Scale, magnitude, or source deficiencies create governors on the speed of wealth creation.