The Key to Explosive Growth Could Start With Shrinking
A strategy that brands like Instagram and McDonald’s used which allowed them to gain explosive growth. Learn how to use it for your business!
According to Bloomberg, Instagram is worth close to $100 Billion today and according to Forbes, McDonald’s is worth close to $130 Billion. So what do pictures and the golden arches have in common? Well right before the two launched onto their monumental growths, they both followed one very important concept.
Hey folks, stick around for the next few minutes as we walk you through the concept I called “business pruning”. We’ll explain what it is, how companies like McDonald’s and Instagram credit it as a reason for their successes, and most importantly, how your business can start applying it today!
Instagram Story
Before Instagram was created, Kevin Systrom, a Stanford Fellow, created an app called Burbn, a location-based app that essentially allowed users to announce that they were at a place and see who’s around them. Unfortunately, the app didn’t catch on, but lucky for Systrom, it had one very excited user, Mike Krieger. Together, the two of them decided to “prune” Burbn into the key aspect that people were actually using, they idea of being able to share their photos and they decided to launch Instagram.
So What Is Pruning?
Plants: cut away the dead parts to allow the strong parts room to grow
Business: cutting away all the parts that don’t work and focusing on growing what does
McDonald’s Story
When the McDonald brothers opened the original restaurant, they followed the typical model of the day where people would drive up to menu board, like a gas station, place an order with waiters and waitresses that came to your car in rollerblades. What made McDonald’s different was when they noticed that sales had leveled off so they looked to innovate. Their solution?
Close the restaurant for months to redesign the whole process. One of the most important things they did was simplify or “prune” their menu. They went from offering all the things other places did like fried chicken to offering soda, a 27 item menu to only offering 3 items: soda, hamburgers, and fries because 87% of their business was from there. Because of this, they were able to redesign their kitchen and thus lead to their revolutionary speed-e system.
How can you do it?
Identify your initial core business and your core audience. It’s usually very easy for businesses to move across multiple industries like a local deli will offer to take passport photos. But, just because it has a section for passport photos, doesn’t mean their core business is passport photography unless that part makes more than 50% of their business.
Collect data
What is selling? What isn’t selling?
Where are your biggest expenses?
Where is your best ROI % coming from? ROI is return on investment, here you’ll calculate how much it costs you to run a certain part of your business and how much money is that generating. Say you spend $100 on a facebook ad and the customers that came because of that ad bought $1100 worth of merchandise, your ROI is your investment/money made-investment*100%. So 100/(1100–100) * 100 = 10. So for every dollar spent, you’re making 10. Look for the parts of your business that have an ROI less than 1 or a negative.
Compare your data to your answers in question 1.
Identify your position on the growth cycle
Look for periods of leveling off
Do not make drastic changes during periods of growth
When growth is occuring, you need to be taking more risks
Test one thing at a time
Make sure to keep your customers in the loop, do not risk cutting something off without either having an alternative or adjustment period for your customers
Continue to collect data
Example
Jim is an artist who started a small business designing ads for local companies. Within a year, the business grew to 50-ish clients, now helps businesses with cartoon-designs, flyers, and animation videos for their products, and has 5 employees. Sales began to level off and most the clients are now looking for maintenance rather than new designs.
Jim began to see that his business is stagnating and so he consults the data. He realized that the reason they can’t get more clients is that his reps are too busy managing the current ones. Looking deeper he found that restaurants only bringing in about 7% of his revenue but taking up over 25% of his employees’ time between the constant edits any multiple trips that his salesperson has to make at odd hours due to the hectic schedule of restaurant owners.
Looking at this, if other variables are kept constant, Jim can decide to tell his salesperson to stop reaching out to restaurants and rather focus on a larger market. This might take away 7% of their revenue in the short term, but the 25% freed up time will allow Jim’s employees to focus on reaching newer markets which more ROI.
Summary
While McDonald’s and Instagram probably didn’t call their movements “business pruning”, the concept remains and it’s something that you and your businesses can start implementing right away.