Operational Scalability: Joseph Drups of Drups Ventures On How To Set Up Systems, Procedures, And…

Posted on

Operational Scalability: Joseph Drups of Drups Ventures On How To Set Up Systems, Procedures, And People To Prepare A Business To Scale

Excellence in the Small Things: Go for excellence and high quality in people, processes, products and services. If you do a lot of things a little better than your competitors, that slight edge could give you a massive pay-off in the marketplace. I operate in ecommerce and oftentimes the difference between success and failure is a slightly better image or title. Once you’ve established best practices that’s better than your competitors, mass produce it through process. As the Bible says, Be faithful in the small things, and you will be a ruler over much (paraphrase, Luke 16:10).

In today’s fast-paced business environment, scalability is not just a buzzword; it’s a necessity. Entrepreneurs often get trapped in the daily grind of running their businesses, neglecting to put in place the systems, procedures, and people needed for sustainable growth. Without this foundation, companies hit bottlenecks, suffer inefficiencies, and face the risk of stalling or failing. This series aims to delve deep into the intricacies of operational scalability. How do you set up a framework that can adapt to growing customer demands? What are the crucial procedures that can streamline business operations? How do you build a team that can take on increasing responsibilities while maintaining a high standard of performance?

In this interview series, we are talking to CEOs, Founders, Operations Managers Consultants, Academics, Tech leaders & HR professionals, who share lessons from their experience about “How To Set Up Systems, Procedures, And People To Prepare A Business To Scale”. As part of this series, we had the pleasure of interviewing Joseph Drups.

Joseph Drups specializes in acquiring and turning small businesses into passive cash flow machines. With this strategy, he incubates high return, cash flow portfolios for investors.

Joseph’s primary experience is in acquiring, merging, and managing 12 businesses from early start-ups to mature businesses over the last 10 years. This includes his Drups Ventures holding company that he scaled from $0 to $8+ Million in revenue in 6 years. His experience focuses on ecommerce, product development, digital marketing, and operations.

This experience includes passiv-FI-ing 6+ small businesses, and leading Drups Ventures to the Inc 5000 list of fastest growing companies in the U.S. multiple years.

Learn more about Joseph’s Origin Story, or connect with him on LinkedIn.

Thank you so much for your time! I know that you are a very busy person. Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?

Throughout college and my job as an engineer in the Air Force, I spent 2 hrs a day working toward building a business, learning marketing, and teaching myself about website development, coding, and other useful skills. I tried a whole series of ventures that ended up going nowhere. After my time in the USAF, I decided I never wanted to work for anyone again, and I took the plunge into entrepreneurship full time.

Initially, I did marketing and operations consulting for small businesses. I grew my marketing business through sheer hustle and pounding the pavement. After getting my start, I reinvested everything I had earned into purchasing ecommerce shops.

My first large acquisition was oddly a colored sand business. That was definitely a product I’d never imagined selling. Fast forward a decade, and I’ve acquired, ran, and merged 12 businesses, from startups to mature entities. A highlight of my entrepreneurial journey was growing Drups Ventures from $0 to over $8 million in revenue in six years earning a spot on the Inc 5000 list multiple times. I see myself as a continual learner, and I have a desire to grow beyond everything I’ve done before and achieve new heights of success.

It has been said that our mistakes can be our greatest teachers. Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?

I tend to learn by doing. The best way I can wrap my head around something is by getting into the middle of it and learning by doing. This mentality leads me to continually put my products out in the marketplace and fail rapidly in order to learn as much as I can.

I can’t think of any funny mistakes since I view failure as a continual process of learning, but my entrepreneurial journey has led me into some funny places. One of my first large brands I purchased was a colored sand business. You can say I got my start in colored sand for unity sand ceremonies which isn’t a product most people know (me included, before this acquisition) even exists. It certainly is not one I thought I would ever be selling. Later in 2020, I purchased a rave company having never been to a rave. Rave culture is about the furthest from my family man, straight-laced business operations world that you could imagine the culture shock of leading a business full of Ravers. The world has thrown some funny curve balls my way.

What do you think makes your company stand out? Can you share a story?

What we’ve really specialized in is process innovation. I’m big on executing processes and operations well. This leads to a mindset of continual improvement and growth. Every quarter we push our processes to a new level and improve our group of sister businesses. That mentality has allowed our company to grow from $0 to $8.4 Million in sales in 6 years.

Processes don’t often make sexy stories, but I will share one example that I published a recent Inc.com article on: Secrets of a Frugal Small Business: How I saved $47,923 in my business with one process change.

Basically, I overhauled my cost accounting process at the beginning of 2023. I set up a spreadsheet and software solution for auditing all costs in the business. Then, I stood up a process where my assistant reviewed every cost that came into all our businesses. We have a budgeting process we go through each year, but typically the previous year’s expenses get pushed through without too much scrutiny. However, after a few years of doing this method of approving budgets, I wondered how much I could save if I deep dived on every expense. Fast forward 12 months and we saw an estimated $47,923 dollars of savings. You can read the above article for the tips on how I did it, but excellence in executing operations and designing processes were the key ingredients.

Since we purchase businesses and integrate them into our operations, our specialty is improving operations.

You are a successful business leader. Which three character traits do you think were most instrumental to your success? Can you please share a story or example for each?

  1. Experimentation toward a Massive Vision: Every successful business has to begin with a vision of what might be. The way I’ve succeeded is by keeping that ideal vision in mind, then experimenting toward it until my team succeeds. I began my marketing & operations consulting business in December of 2014. Initially, I went door to door and sold website packages, but I hated it. This is how I got my start in business, and I learned a lot. However, my dreams were much larger, and my skillsets weren’t largely in sales. That meant, I established a baseline of success, then experimented with a game changer. First, I went from selling websites to packaging marketing, websites, and operations consulting. This allowed me to deep dive a full client’s business and maximize each client relationship. Then I took my knowledge of operations, ecommerce, and marketing that I learned while running my client’s businesses to go acquire an ecommerce business. When this was successful, I automated the processes and freed myself up to acquire a larger ecommerce business. Once I found this vein of gold I repeated it over and over, each time improving the process and going after a new game changing concept. At each stage of success, I had to simplify, delegate, and perform at a higher level to free up the time for the next experiment toward my larger vision.
  2. Deliberate Improvement: K. Anders Ericsson developed a body of research showing that it takes approximately 10,000 hrs to achieve mastery across many domains of human endeavor (Chess, ballet, sports, …etc). The 10,000 hours didn’t correlate with a person’s time in the field of study since a lot of people with greater than 10,000 hours of experience never achieve the high levels of performance. Instead, the time required what he called deliberate practice: 1) Time spent on the edge of one’s abilities to improve them. 2) Direct feedback to allow for successful improvement. 3) 10,000 hours of that deliberate improvement over about a 10 year period. What I’ve found is that a consistent, disciplined focus of 3+ hours a day on deliberate improvement of one’s self and one’s business gradually moves you toward mastery of the area that you operate in. This is the routine that I’ve had for many years. I spend 1 hour each morning working toward my dream project, and 2 hours each day on my top priorities to improve my business capabilities. At first, this process caused me to master various skills personally, then I began to build those skills into the processes of my business, and now I stretch the capabilities of my business to high value-added areas of competency. This continual process of pushing toward improvement is a key character trait that has allowed me to succeed.
  3. Operational Excellence: There are many things that are outside of one’s control. However, operational excellence takes what’s in your control and makes sure you do it to the best of your ability. We can’t decide how the market will behave this year or next. We can’t force customers to keep using our service. However, we execute each task we do with excellence. Excellence raises the bar of performance and allows us to bring a package of superior processes and a high level of execution to new acquisitions and new growth areas. One example of excellence in operations was when we purchased an early ecommerce shop. We audited all their processes and found that the previous owner was continually letting their products go out of stock or low stock resulting in lost sales. We setup KPIs to drive down the lost sales from low inventory to zero, and our manager has successfully managed that metric for years. There are probably a dozen key metrics that are tracked for each of our businesses, assigned to the correct person to manage it, then they’re held accountable to hit those goals.

Leadership often entails making difficult decisions or hard choices between two apparently good paths. Can you share a story with us about a hard decision or choice you had to make as a leader? I’m curious to understand how these challenges have shaped your leadership.

Leadership is a continual parade of hard decisions. From strategic decisions that set the success or failure of your company to people decisions that can massively impact people’s lives, leadership requires the character to bear the burden of responsibility. The most difficult decisions for me are often the decisions that require me to narrow down the infinitude of projects I could do to one project I will do. I run into a similar issue when I’m deciding what business to acquire, products to launch, and websites to develop. The more successful you become, the more opportunities present themselves.

In order to address this, I try to continually increase my standards through applying stronger filters. Each business I buy, I want to be a better investment case than the last one. Each product I launch, I want to give it a better chance of success. Each platform I launch, I want to improve. I can dramatically cut down on the opportunities that present themselves by taking what I’ve done successfully in the past, and grading new opportunities by it. I also set a longer term 10x growth goal that focuses me into a specific way of thinking that leads to game changing projects. If a project is only going to allow me to grow 2x, then I discard it.

For new acquisitions, I do this by scoring a new business on more than a dozen attributes. Then, I compare it to previous acquisitions. I can follow a similar path for products, platforms and other projects. Ultimately, setting a strong filter for projects I tackle, and aligning those projects with my intrinsic highest contribution allows me to narrow down my options to the best choice.

Thank you for all that. Let’s now turn to the main focus of our discussion about Operational Scalability. In order to make sure that we are all on the same page, let’s begin with a simple definition. What does Operational Scalability mean to you?

Operational Scalability to me means targeting a big opportunity with product market fit found through experimentation. Then find the right people to go in the right seats, and finally develop processes that scale.

Which types of business can most benefit from investing in Operational Scalability?

Any business with a big opportunity can gain from operational scalability. However, some opportunities are larger than others.

I operate in the private equity space where we purchase businesses utilizing scalable processes, and mass produce our best processes across many businesses utilizing leverage and capital.

Since there is a trillion-dollar opportunity over the next decade with the largest transfer of wealth from the baby boomers to the next generation in the history of the United States, we’re in a long term buyers market in small businesses. With more entrepreneurs retiring then there are people to acquire and run their businesses, it gives us the opportunity to take operational scalability within our owned businesses and align it with a massive opportunity in the market.

Why is it so important for a business to invest time, energy, and resources into Operational Scalability?

In today’s fast paced world you’re either growing or dying. Operational scalability allows you to grow.

In contrast, what happens to a business that does not invest time, energy, and resources into Operational Scalability?

Building scalable processes is fundamental to any business. Small business owners who don’t invest in operational scalability either don’t grow and limit their success or they end up with everything in a business falling back on them. This oftentimes leads to a business owner who’s greatest value is freedom being chained to a business that steals all their freedom from them.

Can you please share a story from your experience about how a business grew dramatically when they worked on their Operational Scalability?

When we packaged all our processes and found the right blend of operational scalability we were able to replicate our acquisition process 7 times and grow from $0 to over $8.4 million in revenue over 6 years.

Here is the primary question of our discussion. Based on your experience and success, what are the “Five Most Important Things A Business Leader Should Do To Set Up Systems, Procedures, And People To Prepare A Business To Scale”? If you can, please share a story or an example for each.

1 . Excellence in the Small Things: Go for excellence and high quality in people, processes, products and services. If you do a lot of things a little better than your competitors, that slight edge could give you a massive pay-off in the marketplace. I operate in ecommerce and oftentimes the difference between success and failure is a slightly better image or title. Once you’ve established best practices that’s better than your competitors, mass produce it through process. As the Bible says, Be faithful in the small things, and you will be a ruler over much (paraphrase, Luke 16:10).

2 . Topgrading Approach: Utilize a topgrading approach to maximize your collection of information in an interview, and always hire the top 10% of people who are applying for a job. Good people accelerate progress, and bad people can considerably harm your business and team. When I first bought one of my businesses, the warehouse manager was in over his head. I gave him some leash, and he strangled himself. He hired poor people, reflected responsibility, and made everything worse. Ultimately, poor performance falls back on me, the owner, to address. I had to let him go, and then hired a strong executive in his place. Over about a 6 month period, everything improved while it took even less effort on my side then managing the poor performer had taken while achieving much better results. The right person in the right seat can change everything.

3 . Scorecards — WIGs, and KPIs: Establish quarterly WIGs (Wildly Important Goals) and KPIs (Key Performance Indicators) for each part of the business. Make sure every person knows what their most important goal is (WIG) and what KPIs they’re responsible for. Push those metrics throughout the organization by creating a weekly scorecard that grades the success toward the quarterly or annual goal. Performance reviews should also take into account team members WIG and KPIs. By going over KPIs and WIGs in team meetings you get peer accountability as well as supervisor accountability. By setting up performance reviews, raises, and goals to line up with the company metrics you align the whole team. This also makes it easy to see when someone is underperforming, and gives you a standard to grade them off of.

Example: 20% growth goal is one of our company’s WIGs. We didn’t hit it last year, but by assigning the WIG to a manager it encourages that manager to make that critical priority their own. By rolling out that WIG, I saw a significant amount of ownership over the growth goals of the company, whereas before I was the only one with the goal in mind, now that key manager has become the primary person to push that goal forward.

4 . Integrator & Visionary: Most entrepreneurs, like me, are wired to be visionaries. That means we don’t enjoy being the person who is working in the operations of a company to refine all the processes of a business. This is where an integrator comes into play. Creating an integrator role allows for the entrepreneur to play the key role of working on the business according to their unique strengths. Everything else is managed by the integrator. Implementing this over the past two years in my various businesses has allowed me to step out of the day-to-day business operations and focus on big strategic moves.

5. 80/20 Applied to Hours in a Workday: Everyone has tasks they work on in a business that have different opportunity costs. Many administrative tasks can be done by an assistant working at $15/hr or less. Other tasks might be worth $50/hr, $100/hr or $1000/hr. I take weeks within each month to track the emails, tasks, and activities I do throughout a week with a fine tooth comb, then I look for the lower-value tasks and delegate those out while trying to shift my time to higher and higher-value tasks. For me, acquiring a new business is likely a $1000/hr task. Managing managers is closer to $50-$75/hr, and doing financial audits is around $100/hr. By bringing on fractional executives to delegate key tasks like financial auditing, I can replace that time with higher value activities like acquiring new businesses. As in most things, 20% of your activity produces 80% of the value that you do. If you can continually refine your time to that 20% of your highest contribution, then a new 20% opens up with even higher valued tasks. I try to instill this perspective in my team and create a high performing team where everyone is operating in their highest place of contribution.

What are some common misconceptions businesses have about scaling? Can you please explain?

Scaling larger doesn’t have to be harder. A 10x mindset can be easier than a 2x growth mindset because there is a lot of competition with small, incremental improvements, but not many people who are attempting to do massively transformative projects.

Oftentimes greater quality can be done at a lower price through better filters. Most people think you pay for what you get, which is often the case. However, there are a lot of situations where you pay more for the same or inferior services or products because you didn’t explore the space thoroughly. Always get 5+ quotes, and understand the space you operate to maximize the value you get and give.

How do you keep your team motivated during periods of rapid growth or change?

The most important thing with team members is to find the right team member for the role who matches the values of your company. If your company values growth, finding team members with a growth mindset will go much further than trying to train someone without those values to imitate them.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

The thoughts you think become the words you say become the actions you do.

I am a strong believer in self improvement. That begins in organizing one’s schedule and adopting the right narratives that will empower you to succeed in life. At every stage of my success, I’ve pushed my life forward by first identifying my goals and values, writing them down, and repeating them to myself every day.

You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂

I aspire to influence people toward taking on the responsibilities of their community and becoming a servant leader who exemplifies a heroic journey to the next generation. If I could inspire 100 people in my life to adopt that mindset and give them a set of exponential tools to accomplish it, then I would have replicated myself 100x.

How can our readers further follow your work online?

Check me out at DrupsInvesting.com where we have free resources to accelerate your investing through building a portfolio of small business investments.

Thank you so much for sharing these important insights. We wish you continued success and good health!

Operational Scalability: Joseph Drups of Drups Ventures On How To Set Up Systems, Procedures, And… was originally published in Authority Magazine on Medium, where people are continuing the conversation by highlighting and responding to this story.