Building depth vs. width

There’s two core strategies when building businesses as an Entrepreneur.

The first, is what most Entrepreneurs do, which is to build depth. What this means is that you’re increasing the revenue, profit along with the infrastructure of a single business. This is the Entrepreneur who builds, perhaps an 8-figure business which generally takes years and year of work.

The second, is a more width approach of Entrepreneurship. This is where you would have multiple businesses (as the lead or as an investor/advisor), where you have a structure and framework of how businesses should be built and instead of putting all your eggs (and focus) in one basket, you spread them out.

There is no wrong way, on this and for most Entrepreneurs until they have a business generating substantial profits automatically each year, the depth approach makes a lot of sense.

In 2018-2019, I went all in on the depth approach

In doing so, I built a business that generated over 8-figures that at one point even had an 8-figure buy-out offer.

In doing so, I found something very important. There are limits to the depth approach and further, I didn’t enjoy it.

I find that many Entrepreneurs are creatives— we love building things and thus, most of the time, our personalities are based on the width approach— building more things.

And thus, after this time, I decided that I would take the “width” approach of building businesses.

Building many businesses based on a specific framework that I’ve come to understand, within the metrics that I know work.

In my portfolio of companies, I have a 1/10 ratio

Every 9 of my 10 companies that I own, are businesses that fit a specific mold and almost none of them will likely generate much more than 8-figures a year, even at their highest capacity.

Why? There are very specific “limits” when building and growing a business. For example, if you want to jump from the $3-5M/year mark to $10M/yr+ the amount of required infrastructure, is massive. This means, that normally, the amount of pain required to build the depth of an 8-figure business (online, not eCommerce) is difficult.

So, instead, I decided that I would have many $1-5M/year/revenue businesses with a target margin of 40-50%.

That, then leaves a small (10%~) of my portfolio, as I grow for more of the unicorns— the companies that have the ability to potentially even be a 9-figure business.

What does this do for me as an investor? It makes it, so I have cashflow, I have a repeatable model and I’m not trying to get 500% YoY growth.

It also means, that I’m not going to need to raise $100M to fund the growth of these businesses.

After years of building businesses and having helped 100’s scale past 7+ figures, I truly saw what worked and didn’t.

The amount of work, effort, pain and blood that goes into an 8-figure+ company is massive, so when I built my investment model, it was based on owning many smaller businesses, that produced a lot of impact and help, along with profit, that together would create the “web” effect, so that as we had a new customer, each business, was able to help that customer more.

For example: I just bought a camping newsletter (I believe more people will camp during a recession), alongside of a Camping Software that helps Campsites and RV parks sell their spots, alongside of a Camping Website/Blog.

Each of these businesses can operate by themselves and have their own revenue generators, however, by cross pollinating, I’m able to make it so that every email subscriber, makes the group, more revenue and I’m able to solve issues for those that are looking to have a good time.

Thus, my approach of “width” driven investing, makes a lot of sense for me.

Again, if you’re not already having great profits, likely of $500-1M/yr, this is probably a terrible piece of advice for you.

Why?

Because, when you don’t have moment, the compound interest of focus is very important. However, as you scale and grow, the compound interest decreases and instead switches to the compound interest of the “web” or “moat” (as Buffet talks about) effect.

For me, that’s my game.

Plus, I never get bored. Every day there’s something “new” I get to advise and help on.

And for me? That’s amazing.

- Scott

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