Scaling Smart: How to Design a Self-Managing Business

INTRODUCTION

Hey there, fellow entrepreneurial spirit! We’re thrilled you’ve picked up this book, because it’s not just any book—it’s a road map to transforming your business from a time-sucking, stress-inducing monster into a well-oiled, income-generating machine. Picture it: more free time, more money, more impact. Sound too good to be true? Well, it’s not!

We’re Rich and Kathy Fettke, a husband-and-wife entrepreneur team, and we’re going to show you how it’s done.

Now, before you start thinking this is some kind of get-rich-quick scheme, you need to know this book isn’t about finding some magical unicorn of a business idea or riding the latest fad to a quick buck. No, this is about creating sustainable, passive income by building a business that can run on autopilot while still making a difference in the world.

It doesn’t matter what kind of business you run. Maybe you’re selling a service or product. Maybe you’re a broker, real estate investor, wholesaler, flipper, self-storage operator, owner of several mobile home parks, or syndicator of multifamily or commercial real estate deals.

What matters is that you are entrepreneurial—you want to build something great and have the money and the freedom to live life on your terms. You want to make a difference in the lives of your family and all the people your business serves. You don’t want to be told what to do or when to do it, or that you can’t do something.

We understand. As entrepreneurs, we think differently. We know what it’s like to be in the trenches, working long hours and feeling like you’re going to drown in a sea of never-ending tasks. Many entrepreneurs start out with a goal to create freedom, yet they end up spending every waking moment working in their business. Sometimes it seems they’ve left the 9-to-5 world only to find themselves in the 24/7 world!

Running a business is much more difficult than most people will tell you. It takes courage, faith, focus, effort, and sometimes pain. Some days, you’re feeling great; others, you consider throwing in the towel. However, if you stay in the fight and continue to learn and grow, the rewards are worth it. We are here to help you with that.

Since you’re reading this book, you probably want to expand your business. Maybe you have worked out a lot of the kinks and things are running more smoothly than when you started. But you’re feeling stagnant, like you’ve hit a ceiling. You want to grow your business, but before you do, you’ve got to make sure you have a solid foundation in place to handle growth.

We don’t want you to do what too many entrepreneurs do: try to grow too quickly. We’ve seen countless friends and colleagues get caught up in the narrative of explosive business growth, trying to 10x their business in a year. Often, the only explosions are the overwhelm, frustration, confusion, and meltdowns that happen with their employees and customers. They end up spending so much time and money trying to grow their business quickly that they end up growing themselves broke. According to the U.S. Bureau of Labor Statistics, 45 percent of businesses fail within five years, and 65 percent fail within ten years.¹ We don’t want you to become a statistic.

That’s why we wrote this book—to guide you, step by step, on automating your business the smart way, taking the right steps at the right time, and not growing yourself broke. We’ve been where you are, and that’s why we’re so excited to share our journey to business freedom with you.

KATHY’S STORY

I am a true entrepreneur: I have lots of business ideas, and I’m great at putting them into action. I get flooded with ideas for ways to make money on just about anything. If there’s a need, I want to fill it and profit from it.

I started my first business in the ’80s when I was in high school. My dad planted a garden that produced way more fruit and vegetables than we could eat. We decided to start a farm-to-table restaurant in our backyard, inviting neighbors and friends to $20 luncheons where they could also learn how to garden and cook. It was a great learning experience on how to market and sell a unique service. And more importantly, I learned that I had to count the cost of my time in addition to the business expenses. With the amount of time I was spending on this project, I realized I was ultimately working for free.

Later, during college, I had a job selling acting classes to aspiring actors and earned a nice percentage of each sale. But I soon found out I was working for a con artist, so I quit and decided to start my own acting school—a legitimate one, taught by the largest casting director in San Francisco. That led me to start a new business—a talent agency—so my students could land roles in commercials and TV shows.

What I didn’t learn in these ventures was how to grow my business beyond myself. I was the one running everything. I had no idea how to hire people to help me, and when I tried, it ended up creating more work for me. I had to start working at dawn and end late at night just to keep up.

Then I met Rich and it changed everything. When I had to cancel most of our dates to tend to my business, I realized it was time for me to find a way to have a life.

I sold the talent agency for a pittance. Had I created systems and structures, I could have kept it or sold it for a large sum. Nobody wants to buy a one-person show; they want to buy a business that runs on its own. Case in point: The casting director, who had become a good friend of mine, was a master of delegation. His company was so well-run and systematized, he was freed up to work on ways to improve it. At the time, casting directors had filing cabinets full of actors’ headshots, which had to had to be reviewed manually. He developed the first online portal to make the selection process easier, and he sold that company for millions of dollars. I watched him build it in just a few years, and I even lent him the $4,000 he needed to get it started. (I should have asked for an equity position!)

After walking away from my talent agency for practically nothing, I followed my dream of being in the news business and went to work at ABC, Fox, and CNN. After working for myself, I was craving regular work hours. But I soon found out I had no control over my schedule; my hours were long and varied wildly.

By that point, Rich and I were married, and I soon became pregnant. Rich’s career in business coaching had taken off, and there was plenty of money, so I was able to be a stay-at-home mom.

Life was blissful—until the day Rich received a fatal skin cancer diagnosis and was told he had maybe six months to live. Despite the emotional shock of this news, I decided it was time to get back to work, so Rich could focus on his health. But I wanted to work from home, so I could be with my family during this difficult time.

I’d heard about passive income yet had no idea how to make it. I didn’t know any wealthy people or anyone who was earning passive income, so I started reading books about it.

Luckily, I had continued hosting a weekend radio show for fun and to keep myself connected to the industry. I began interviewing the authors of my favorite books, along with other millionaires, so I could learn their secrets about money. I noticed a common theme: They had all amassed great wealth through owning businesses that essentially ran themselves. They would take the profits from their businesses and invest them in more cash-flowing assets, like real estate.

To help with our cash flow needs during this challenging time, I found a mortgage broker who agreed to sponsor the show. To keep it interesting, I decided to interview his clients to see what they were doing with those loans. That’s when both my audience and I learned the power of leverage in building a real estate portfolio: basically using very little of one’s own money to acquire cash-flowing assets. The show took off, and our phones started ringing off the hook with people who wanted a mortgage to buy an income-producing property. The response was more than my sponsor could handle, so he urged me to get my real estate license and join his firm. I soon became one of the busiest mortgage brokers in the San Francisco Bay Area.

Then, a miracle happened: It turned out the skin cancer had not spread to Rich’s liver, as the doctor originally thought. Hallelujah! He was able to get it all removed and could get back to speaking and coaching.

We took what I was learning from all those real estate millionaires on my show and began to invest in rental properties. When I spoke about our investments on the radio show, our phones started ringing off the hook again with people who wanted to do the same.

In addition to getting loans from me, my listeners wanted to know who I was using for my real estate broker, property management, insurance, asset protection, and taxes. Soon, it became clear that there was a great need for a real estate investment company to help people build rental portfolios in the fastest-growing cities in the country. That’s when the RealWealth network was born. We helped hundreds of our members buy properties out of state through our network of experts.

Word got out about the great returns we were getting outside of California, so I started to get invited to speak at local real estate investor associations (REIAs). All the while, my Real Wealth Show audience continued to grow. I felt like I was in a fast car that I didn’t know how to drive, and I didn’t know how to slow down. It was exciting and I loved it, but it was also scary and exhausting.

I didn’t know how to hire help, so instead I took on a partner to help me. Unfortunately, I didn’t require that he buy in; I just gave him half the business and thought he’d take on half the work. This was not the case. Instead, I found myself working harder while having to split the company’s income.

By 2008, the Great Recession was starting, and I was ready to give up. Banks were failing. Property values were tanking. Foreclosures were ticking up into the millions, and builders were going bankrupt. Few people wanted to buy property, and that translated to low demand for mortgages. Business came to a sudden halt.

On top of that, a builder we worked with went bankrupt, leaving dozens of our investors facing the potential loss of their earnest money deposits. I promised them I’d find a way to make it right. At the same time, my business partner and I decided to split. I bought him out for $5,000. And I was left with the expenses that had piled up. Now I was left with a company that could barely pay its bills and no real prospects for bringing in new business.

It would be easy to blame my struggles on the mortgage meltdown or my business partner. The real story is that I didn’t know how to run a business. If I had, I wouldn’t have taken on a partner and given him 50 percent of my profits without significant capital buy-in. I would have hired people with the specific skills I needed. I would have had better systems for vetting vendors and plenty of reserves set aside for economic downturns.

Then I had a sudden realization: My husband had a business degree, had run several successful businesses, and was a highly sought-after business coach, author, and speaker. Could Rich be my new business partner? Could we get along as business partners? Or would this be unsuccessful too, and I’d have to sell my business for practically nothing—again?

RICH’S STORY

I grew up thinking I’d never amount to anything. When I was 8 years old, the doctor diagnosed me with hyperkinetic disorder (today’s ADHD). I was prescribed Ritalin and was put in classes for the learning disabled at school.

I had a hard time focusing and despised school. Some of my deficiency reports had a checkbox marked next to Lacks what it takes to succeed. I even found out late in my senior year that I had to return for summer school if I wanted to get my high school diploma. Believing in myself was not my reality.

I also had to deal with a high school bully who continually beat me up. I decided to protect myself by learning martial arts and lifting weights. This taught me discipline. That discipline started to pay off, and I enrolled in community college and finally learned how to focus, study, and learn.

At age 23, I decided to open a health club in my home state of Massachusetts, with two good friends as business partners and my parents cosigning on the business loan and equipment lease. The first six months were very difficult. Like most new entrepreneurs, we were overly optimistic about our projections. We didn’t sign up members as fast as we thought we would, and we still had a lot of operating expenses to cover. I remember the stack of unpaid bills on my desk staring at me, telling me I was going to fail.

About that time, my uncle gave me my first business book, called The E-Myth. After that, I grew obsessed with business, goals, sales, and personal growth and started learning from classic mentors like Brian Tracy, Stephen Covey, Tony Robbins, and Zig Ziglar. I began to apply their lessons, and our business went from a pile of unpaid bills to consistently improving profits. We hired more people and trained them on our systems and processes.

Once I completed my associate’s degree, I enrolled in business college and learned about accounting, business law, marketing, and how to create a solid business plan with projections, market analysis, and more. After running the health club for seven years and going from three to twenty-four employees, I sold my ownership in the business and moved to California.

About six months later, I met Kathy, and we were married a year and a half later. Over the next several years, I built a thriving coaching business, made big bucks giving keynote speeches at conferences, and signed a six-figure book deal with Simon & Schuster. We had two young daughters and owned a great home that we turned into a triplex by converting the lower level of the home into two small apartments, each with their own entrance. At the same time, the property was rising in value by about $100,000 a year. I felt on top of my game.

That’s when my doctor delivered my fatal cancer diagnosis, and I had to step back. Way back.

For the next five years, I helped Kathy with marketing, technology, and much more; she called me her Chief Support Guy. Meanwhile, I had surgeries to remove the melanoma, and later it turned out my diagnosis wasn’t fatal after all. I’d received a false diagnosis, or what the doctors called a false positive. They thought the melanoma had spread to my liver, but I was cancer free.

The curse of the wrong diagnosis was actually the blessing that inspired Kathy to become a mortgage broker with a focus on real estate investing to make ends meet in case I did die. And in 2008, when Kathy and her business partner split, she asked me if I would be willing to partner with her in the business. I said yes.

THE TURNING POINT

We started to focus on building systems, processes, and hiring the right people to help us. It worked for a while, and we were thrilled that our small business broke into the rare $1-million-in-annual-revenue club. But then we got stuck: We hit a plateau of just over $1 million in revenue for the next two years.

Even though Rich already had his bachelor’s degree in business, we decided it was time to invest in more business education. We attended a rather expensive weekend workshop for business owners and entrepreneurs, but we knew it would be worth it. And it certainly was. We began to think bigger and operate smarter. We became obsessed with creating a business with an empowered team aligned around our purpose, mission, vision, and values.

In the year after the workshop, we had huge growth as a company, both in how we ran the business and in revenue. RealWealth Network (later shortened to RealWealth) ended up making the Inc. 5000 list that year—and the next two years as well!

Today, we’ve helped investors acquire more than 7,000 rental properties and over $1.3 billion in assets, and we’ve syndicated more than a dozen residential developments. We also operate on the principles of conscious capitalism—we donate 10 percent of our profits (we’re now up to almost $1 million in total donations) to charitable organizations that change the world.

We’ve kept our company small but nimble and effective. We have had as many as twenty-seven employees and another dozen independent contractors. Today, our company is made up of about twenty employees, and we work with eighteen different property teams around the country, each with an average of about fifteen employees.

We’re not claiming to have scaled billion-dollar businesses. We’re simply partners who have learned, bootstrapped, succeeded, failed, picked ourselves up again, learned some more, and built a solid business with a purpose and an amazing team. We’re at a place where we have the freedom to trust our team to run things while we travel, focus on passion projects, and spend more time with the people we love.

WHY SCALING SMART?

This book is not called Scaling Fast. It’s also not called Scaling Big. The title is Scaling Smart for a reason.

Think of your smartphone, smart home, or smart car. These things are all built to be customizable to your individual needs, saving you time, money, and energy. You can put your clothes in a smart washer, and it knows how much water to use based on the size of the load. When you get into your smart car, it knows how you like to sit, when the windshield wipers should go on, and even warns you if you are driving recklessly. And smartphones—well, we all know how those have changed our lives. It’s like having a personal assistant, a doctor, a librarian, a scientist … honestly, anything you need, at your fingertips.

Can you imagine what it would be like to have a smart company, customized to serve your schedule, your specific needs, your lifestyle? What if it was smart enough to know how to make decisions that grow the business while also saving you money, time, and energy? What if you could count on it to be consistent like clockwork and have the ability to sense what needs improvement, always aware and learning how to be better and more competitive?

That’s what happens to your business when you scale smart. And we’ll teach you how to do it.

Important note: If you are just starting your business, you should not be focused on scaling yet. You need to first create a business plan that outlines the objectives, strategies, market analysis, financial projections, and operational framework for starting and operating your business. The plan details how your business intends to achieve its goals, including product or service offerings, who your target market is, competitive analysis, marketing and sales strategies, and a detailed financial plan covering revenue projections, budgeting, and cash flow. It will help you evaluate the viability and potential profitability of your business idea before committing money or time. There’s a multitude of books and courses on how to create a solid business plan.

This book is for you if you’re an entrepreneur who has been through some start-up challenges and is now operating a business, serving customers or clients, and making a profit—and is ready to scale into something that will increase your wealth while freeing up your time to focus more on what you’re great at and what you love doing.

THE GOAL OF THIS BOOK

We’ve written this book to share our knowledge with you. It can be difficult to apply the lessons from billion-dollar businesses to a small, growing business. Over the past twenty-plus years, we have created a system that can help any entrepreneur turn their existing company into a self-managing, profitable business. Since our business focus has been real estate investing, we will share several specific examples in this book that can help you scale your real estate business the smart way. However, this system can be applied to any type of company that is ready to scale.

We’ve also tapped into our network of entrepreneur friends and experts for their pearls of wisdom. The result is a comprehensive guide that covers everything from purpose-driven leadership and effective communication to building self-managing teams and creating systems that set you free.

We’ve divided this book into four parts. Part I is focused on you. Just like any smart product needs to know user preferences to function well, you have to know what you want from your business (why you want to scale it) so that it can perform optimally. We’ll start by discussing why growth and scaling are important for your business, then do a deep dive on you—defining your why, your idea of wealth, and your personal vision. You’ll also get clear on your purpose, mission, and vision for your business.

Part II is focused on your business. What is it really about? What is its core service? The clearer we are on our business purpose, the less likely we are to try to make it do something it wasn’t built to do. We’ll discuss business structures, systems, and specialists, including topics like organizational charts and outsourcing.

Part III will look at the people part of your business: your company’s culture, vibe, and values; leadership, training, managing, and inspiring people; and working with partners.

Finally, Part IV is about how to operate your smart business so it becomes so automated you don’t have to think about it. It knows what to do and how to do it while continuing to grow and improve. You’ ll discover how to use technology and other tools to scale your organization and put your business on autopilot.

This book will help you:

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