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We’ve been talking to some retailers who are thinking about expansion. This isn’t the first time we’ve talked to clients in this position. The difference is that these folks seem to have a rare ability in the area of operations. The fact is, if you can’t operate profitably, there’s nothing marketing can do for you—except hurt you faster.

If you can’t make a profit with one store, with three employees, and with 1500 square feet, chances are you won’t be able to make a profit with two stores, six employees, and 3000 square feet. That’s not how the economies of scale work.

The better model is to figure out how to deliver your product with two employees and 1000 square feet, if you can’t make money with three employees and 1500 square feet. Once you have the “unit model” working at a positive margin (operations/accounting talk for “profit”), then you can scale it (expand to a larger space and more people as the demand grows) and port it (recreate the model in a new location. This is the art and craft of franchises.

One mistake mom-and-pops make is undervaluing the time, skills, commitment, and round-the-clock presence of mom and pop. This is a huge factor in the portability and scalability equation. If you ARE your business (as far as your customers are concerned), then you are only portable to the extent that you can be two places at once. I don’t have that down yet, but I’m working on it.

One of my favorite measures of productivity is a little index called MPMH (margin per man hour). You can run it across the board. You can run it per group or unit. You can run it per location. You can run it per product group. It can tell you a lot. It’s as close as I ever come to really “running numbers.”

I did know a guy who was a numbers runner in Wheeling, West Virgina, back in the 1950s. But that’s another story.

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