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Sunday, June 12, 2011

Business lessons from a paper route: Managing growth

When I became a paperboy, I had between 30 and 40 customers on my route. That was a manageable number. I usually could put all of my papers in my bag or in my bicycle’s baskets. When the weather was good and the papers were small, I could finish my route in under an hour. Bigger papers required several trips, and on the days when the papers were larger, the route took longer. When the weather was bad, the route did not take longer, but it seemed longer.

One of the things I learned fairly quickly as a paperboy was that my income was limited by the number of papers that I delivered. I did my best to get the papers to customers on time and delivered where they wanted them. Paying attention to whether the paper went on the porch or behind the screen door or under the mat made a big difference in how big a tip customers added when I collected. However, I was still limited. It did not take me long to figure out how to make more money. I had to grow.

Now that I know something about business, I know that the two main ways to grow a business are:
  • Organic growth
  • Acquisition
Then I knew that my options were to hustle for new customers or to take over another route. I knew that some of the older paperboys had 70 or 80 or more customers. I was already busy selling subscriptions to new customers. I started planning how to get a new route. Paperboy turnover was fairly high, so I knew that I would get an opportunity.

As luck would have it, the next available route was the one adjacent to mine. I would be able to add 30 or so customers simply by agreeing to add them to my route. I had just learned my first lesson in growing a business. Acquisition is faster than organic growth. Unfortunately, that was not my only lesson in growth. I was about to learn about capacity, customer management, and ultimately failure.

As it turns out, one of the reasons that the older paperboys had larger routes is that they were bigger and stronger. They could carry more papers, and they could travel longer distances with heavier loads. Once I added extra customers, I could rarely finish the route without making two trips, and it often took me three. I was rarely able to finish the route in less than two hours. It took me so long to deliver the paper when I was collecting payments each week that I had to separate my collections into two days.

These problems with the route quickly became customer service problems. When I could deliver the paper in an hour, it was easy to deliver the paper on time. Once the delivery time crept up to two and three hours, the papers were late. Another thing that happened is that I began losing track of customers. It was easy to manage 30 or 40 customers. I had a simple card system, and since I saw each customer once a week when I collected, I could make notes about starting and stopping the paper or other requests. It was much more difficult to manage the process with 70 customers. I began learning ways to manage larger numbers of customers. Sadly, I did not do a very good job, so I also began learning how to work with unhappy customers.

Finally, I learned about failure. While I wanted to have a larger route so that I could earn more, I was not able to manage it. The result was unhappy customers. Unhappy customers meant fewer tips. Since tips were a large part of my income, I actually found myself working more than twice as hard and making just a little more money. The next thing to happen was that customers started complaining to the paper or canceling their subscriptions. In the end, I gave up most of my new customers, and it was not too very long before I gave up my paper route. (I started working a new route for a different paper, but that is another lesson.)

So what lessons about managing growth can a modern business person learn from a paperboy? The first is to have a clear understanding of your objectives and plan accordingly. What do you want to do? Do you want to grow slowly and steadily? Do you prefer rapid growth? Consider the two paths: Organic growth which builds an organization slowly or acquisition which can build an organization faster. I thought that acquiring an additional route would be faster and easier than growing by adding customers one at a time.

The next lesson is to understand capacity. Companies that grow organically generally increase their capacity as they increase the number of customers they serve. They may still be limited by capacity constraints, however. Companies that grow by acquisition should pay close attention to capacity. While they may think that systems are compatible, they may find that they have a larger customer base that they cannot serve because they are limited by their capacity.

Another lesson is to pay attention to logistics. While I was able to take over the route next to mine, part of the route was on the other side of a busy street. When I took over the new route, I had to figure out a way to make deliveries without crossing that street. I also had to figure out how to carry more papers over longer distances because my new customers were further away from the paper drop off.

What this means to you
If you are looking for ways to grow your business, take a moment to think about your objectives and how you might accomplish them. When you are planning, be sure to think about how you want to grow. Consider your capacity and logistics and how you might increase your capacity as you build your business.

It has been a long time since I was 14 and riding a bike with baskets full of newspapers or walking down the street with a canvas sack full of the day’s news. However, the more I learn about business the more I realize that I learned important lessons on that paper route. Who knows? Maybe the next time you hire someone to manage your business, instead of asking where they got their MBA, you should ask them about their paper route.

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