Cutting v. Bulking

By the time I was 17, I was 360 pounds— I was a big kid.

One day, I realized I had enough, and I hired a personal trainer. Over the next 2 years, I would transform into being 170 pounds and able to bench press nearly 300 pounds.

_{By the way, I’m Scott Oldford— you signed up for Online Business Invest which is a newsletter designed for Entrepreneurs who are investing in businesses or want to invest in businesses as an asset class.}

The interesting part of that journey is that I didn’t just lose a lot of weight, I also added a lot of muscle, and part of that journey was something called “cycling”. While I haven’t done this in a very long time, during the time when I was looking to create a massive result, there were times where I would cycle through times where I would “cut” and times where I would “bulk”.

During the cutting times, there weren’t a lot of carbs, it was 4 hours at the gym, and most mornings I wanted to quit before it was 6 a.m. During bulking times, it would eat thousands of extra calories.

What I found out as my journey in business continued is that when you grow a business on a high growth curve, the same thing occurs.

Or at least, those Entrepreneurs that I’ve found to be the “smartest” do it this way.

Here’s what I mean: The growth of a business is depicted largely by the speed of failure and the size of failure.

The faster you “fail” (aka. collect data and information) and the faster you use that information, the easier it is to know what will work. This, combined with taking smaller bets (versus larger one’s), over time creates success due to elimination.

Simply put: You can only fail so many times until you figure out “the” path.

The common reason why I see Entrepreneurs have a difficult time growing quickly is because of this: They are so afraid of failing (and failing over and over again) that they can only grow slowly due to the lack of failure.

Entrepreneurs who grow quickly become really good at cutting and bulking…

Here’s what that means:

“Bulking” includes doubling down on new teams, systems, operations, marketing strategies, sales tactics, etc. and always innovating while running a very low margin.

“Cutting” includes letting go of what doesn’t work, now that you've bulked up and understand what works.

The result of bulking and cutting? You create muscle, and you’re lean.

Essentially, by bulking and cutting… you’re able to obtain momentum more quickly, and once you’re in momentum, it’s easier to keep momentum. Once you’re at a certain placeholder,” it’s easier to stay there.

Which is why I’m such a big believer in this model— because it allows you to obtain scale and growth much more quickly than a more conservative model of growth.

Most Entrepreneurs are afraid of doing this…

The reason is simple: It feels really scary to failure and it feels even more scary to feel as if you’re going to waste money.

However, if you look at the data… it makes a lot of sense:

Let’s compare two businesses, both generating $50,000/month with $20,000/mo in fixed expenses.

Business #A is reinvesting $20,000/mo into growth and in the bulking phase.

Business #B is reinvesting $5,000/mo into growth and taking the rest for profits.

Business #A after 1 year has invested $240,000 into growth and bulking and has $120,000 in profit.

Business #B has spent $60,000 in growth and has $240,000 in profit.

Due to making mistakes and finding what works after 1 year Business #A is generating $100,000/month. While Business #B is generating $60,000.

Let’s say that these businesses stay on the same path for another year…

In year #2: Business #A doubles down and invests $70,000/month in growth while Business #A invests the same $5,000/month.

Going into year #3:

Business #A has spent $840,000 on growth in Year #2 and and Business #B has spent $60,000.

Based on conservative numbers, let’s assume that going into Year 3:

Business #A Monthly Revenue: $200,000

Business #B Monthly Revenue: $75,000

I see businesses grow to this level all day in a range of niches and industries, and while these numbers don’t make sense in some industries, they ARE possible and not impossible.

So, let’s assume that Business #A goes into cutting phase and now that it knows what is working, it is ready to optimize and stay lean.

That business can quickly turn on "profit mode” and shoot up with 50-70% profit margins.

Why? Because bulk mode allows you to build muscle.

Systems. Operations. People. Offers. Marketing. Funnels. Traffic Sources. Audience

Things that Business #B couldn’t afford to do because it was taking a slower approach (and more conservative approach) to growth.

What do you get in the following two years?: With a lot of assumptions…

Business #A can generate a profit of $3-3.5 million and be sold for $5 million or more.

Business #B can generate a profit of $1-1.5 million and be sold for $2 million or more.

What does this look like in reality? Inside our portfolio of companies, I wanted to nail a specific marketing strategy that I believed would be massively successful.

I hired five different people/solutions to solve the same problem. Simply put, within 60 days, I wanted to know if this was possible and who would be the best fit.

This obviously costs five times what you would normally pay. and perhaps a bit more with the amount of time to do it this way. However, in less than 2 months, we were able to find the solution, monetize it, and let go of 3 of the 5 solutions, so now we’ve solved a problem in 2 months instead of 6 months.

Here’s another example: When building a company, I will generally put the entire company through a bulking and a cutting phase. This means that in a specific time period, I’m looking for a margin that is less than 20%, and then I switch to 40%.

This switch allows me to cut the things that are no longer good for the business, are no longer aligned, or aren’t winners. By saving some of the capital, it allows me to redeploy that capital on the next set of growth experiments and double down on what’s working.

Then, during a stabilization period, when it’s time to enter full profit mode, I will scale back innovation, experiments, and growth for a period of 2–3 years. Generally, this is a long enough period to reap the benefits of building the systems, while not being so long that the market will have evaporated and it requires massive innovation or pivoting to be able to continue to maintain its stability.

In short, bulking and cutting allow you to grow, make mistakes, understand what works, build momentum, cut what doesn’t work, and move quickly.

It builds a better business— it’s a smart move and allows you to build a business that can become stable for the long-term (and is exitable) in the future.

However, it comes with major risks…

They are pretty obvious, and it makes sense why most Entrepreneurs and Investors won’t go with this option.

The first major risk is that this approach takes time, and when you're running a business with a low margin, a bad month can totally take you out.

The second major risk is your own mindset— if you don’t see the big picture 3-5 years into the future, it’ll be impossible to follow-through.

The third major risk is that the hard days are more difficult— because you might end up asking yourself… “why am I doing this?”

The fourth major risk is that most Entrepreneurs aren’t good at bulking or cutting. They simply don’t know how to strategically spend money, nor do they know how to cut easily and effectively— they freeze.

I could list another dozen risks because this model of “cycling” the cutting and bulking isn’t used often.

When you do this, it makes what you do appear to be magic. You’re able to build momentum and a solid business in what would take another 10 years.

I run my portfolio of companies and in doing so you can take this method a step further…

When you own multiple companies you can decide which companies are inside of the cycle.

If all businesses are in bulk mode, you’re going to burn cash. If businesses are in the cutting and lean or profit phase, you’re going to print money.

However, if you are able to predict and create a series of businesses that are at different phases, you get the benefit of high growth and momentum, along with high profitability.

When one business is in bulk mode, you’re using the capital from a business in stability mode— in general, this gives you the advantage of being able to create more scale, while building more baseline stability by decreasing the risk of a single business and failure point.

When I discovered this pattern years ago, it deeply excited me and when I first saw the vision for the portfolio of businesses we own, it got me even more excited.

Who knew the lessons I learned while transforming my entire body, would so deeply impact my business and wealth creation?

From here, when I mentor and advise Entrepreneurs around this… as a starting point I simply tell them to start observing how this could impact their business.

How would you grow differently?

How would you solve problems differently?

How would you spend money differently?

Are you ready for a different version of growth in your business, or is the traditional “safe” route the one for you?

Remember… this is just a version of growth and scale… there isn’t a right or wrong one… just the one for you.

- Scott

P.S. I’m currently looking for a few perfect fit mentorship/advisory clients. If your business is generating at least $50K/mo and you’re looking for massive scale, hit reply. I’d love to see if it’s a fit.