The 3 Systems You Need to Scale to $20 Million

Ryan Deiss

5,552 views • 2 days ago

Video Summary

Scaling a business to $20 million in revenue hinges on mastering three essential systems: leveraged sales, bankable profit, and transferable value. The video outlines how to implement these by first visualizing the customer journey with a "growth engine," then optimizing cash flow through a "cash flow waterfall," and finally establishing a "company operating system." This systemization moves a business from being founder-dependent to a scalable, profitable, and exit-ready entity. A key insight is that broken systems will inevitably break good people, emphasizing the necessity of building robust systems before hiring to fill them.

Short Highlights

Three core systems are crucial for scaling a business to $20 million in revenue: leveraged sales, bankable profit, and transferable value.
The "growth engine" system visualizes the customer journey from lead generation to conversion, enabling optimization.
The "cash flow waterfall" system ensures actual cash in the bank by prioritizing outflows and distributions, moving beyond P&L profit.
The "company operating system" (or scalable operating system) documents processes, assigns accountability, and systematizes execution and decision-making.
The video emphasizes that broken systems break good people, highlighting the importance of building systems first, then hiring to run them.

Key Details

The Three Pillars of Scaling: Sales, Profit, and Transferable Value [00:34]

Scaling a business effectively requires a focus on three critical components: leveraged sales, bankable profit, and transferable value.
Leveraged sales are predictable and don't start from zero each month, providing a consistent revenue stream.
Bankable profit refers to actual cash in the bank, not just P&L profit, as cash is the fuel for scaling.
Transferable value is the ability to transfer value creation components from the founder to others within and outside the company, essential for eventual sale or exit.
Having sales and profit creates momentum; sales and transferable value create scalability; and profit and transferable value provide options.

"And the third thing 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."

The Challenge of Scaling: The Personnel Gap [03:38]

At around $2 million in revenue, businesses often lack true C-suite executives like a CMO, CFO, or COO.
The cost of hiring these qualified individuals and their supporting teams can be prohibitive, creating a "chicken and egg" problem.
The solution lies in implementing systems that replace, augment, or support these critical roles until the business can afford the personnel.

"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,000 a year."

System 1: The Growth Engine [04:38]

A growth engine is a proven, largely automated process for generating an increasing flow of new leads and customers.
It visualizes the customer journey, answering the fundamental question: "How do customers happen?"
Visualization allows for optimization, preventing the fixing of non-existent issues and the wasting of resources on ineffective tactics.
The process begins with mapping out the current customer journey using sticky notes and whiteboards, documenting what is rather than what should be.
A "growth scorecard" then tracks key metrics at each stage of the growth engine, identifying areas that are "red" (behind target) and require optimization.
The implementation involves mapping the engine, designing a scorecard and dashboard, and executing a 90-day plan to turn red metrics green.

"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."

System 2: The Cash Flow Waterfall [09:51]

The cash flow waterfall is a system designed to improve cash management and maximize profit margins, addressing the critical need for bankable profit.
It differentiates between P&L profit and actual cash in the bank, as businesses can be P&L profitable but still run out of cash.
The system involves allocating cash from a primary operating account into specialized accounts for specific future uses.
Key accounts include one for monthly operating expenses, a tax savings account, and an emergency savings fund (aimed at 3 months of fixed operating expenses).
Surplus cash is then directed into specific "sinking funds" for future investments or acquisitions, or ultimately into a distribution account for stakeholders.
The metric for success is the growth of the distribution account month-over-month, indicating efficient operation and value generation.

"P&Ls can lie. But cash doesn't lie."

System 3: The Company Operating System [14:24]

An operating system is a business's single source of truth, documenting what the company does, how it does it, and its progress towards goals.
It transitions a business from a "you operating system," where the founder is the bottleneck, to a scalable system that can run without them.
This involves systemizing execution by mapping "value engines" (growth, fulfillment, innovation) and identifying who should be accountable for each step.
It also involves systemizing optimization by using scorecards and dashboards to track key metrics, assigning ownership for each metric, and setting clear targets.
Finally, it involves systemizing decision-making through tools like a "clarity compass" and a "12Q planning canvas" to align the team on mission, strategy, and objectives.
The ultimate goal is to have all business knowledge and processes accessible in a single dashboard, freeing the founder from day-to-day operations.