EP 63: The 7 Levers Business Scaling System with Pete Williams

You got off the tools. You read the books, you stopped doing every job yourself and you cleared Monday afternoon to work on the business. Then you sat down and realised nobody ever told you what to actually work on. Marketing? Pricing? Hiring? There are a hundred things you could do and no way to tell which one moves the needle.

Pete Williams has spent twenty years answering that question with the same seven numbers. His 7 levers framework says every dollar of profit in any business, a hairdresser or a software company, comes from seven places. Get clear on all seven, improve each by ten per cent, and the maths does something most owners do not believe until they see it. In this episode he walks through the framework and the four-step health check that puts real numbers against it.

In This Episode

• 02:46  Why knowing your craft is not the same as running the business
• 05:15  What to actually work on once you are off the tools
• 07:30  Start at the bottom line, then the three profit drivers above it
• 08:15  Suspects, prospects and conversions, and why owners merge them
• 08:45  The Athlete's Foot micro commitment and the Netflix free trial
• 11:00  Front-end revenue: average item price and average items per sale
• 12:40  Back-end revenue: repeat transactions and profit margin
• 15:45  How seven small wins double a $16,500 period
• 18:40  The four-step health check: clarify, capture, calculate, correct
• 23:15  Defining an item, and the maths that breaks when you get it wrong
• 33:45  The AdWords nobody turned back on, and a $10,000 sequence that stopped
• 40:15  Putting a system on the ten per cent wins, one lever a month

👤 Today's Guest, Pete Williams

Pete Williams is an entrepreneur, advisor and marketer who Forbes called "one entrepreneur today that every marketer should be modelling", while Inc. describes him as "a savvy marketing strategist". He is a Southern Region Finalist in the Ernst & Young Entrepreneur of the Year Program, a Small Business ICON (Best-in-Class) Recipient and an Australian Business Award Winner for Marketing Excellence, and he has co-founded businesses across industries from telecommunications to e-commerce.

Media here have called him "Australia's Richard Branson". He first made a name for himself at twenty-one, when he sold Australia's version of Yankee Stadium, the Melbourne Cricket Ground, for under $500, a story he tells in his first book, How to Turn Your Million-Dollar Idea Into a Reality (2007). His latest book, Cadence, came out of the 7 levers framework developed inside the Preneur Group projects and consulting clients. Pete is also a Professor of Practice at Deakin University.

Website: preneurgroup.com

📋 The 7 Levers Framework, and the Health Check Behind It

Based on the interview with Pete Williams, author of Cadence and co-founder of Preneur Group.

Pete's starting point is a gap every owner knows. You are good at the thing. You are a great plumber, a great hairdresser, a great consultant. Running a great plumbing business is a different job, and nobody hands you the instructions for it when you put the tools down.

“Okay, now I'm off the tools, what do I actually focus on? What are the things I should be doing when I'm working on my business?”
Pete Williams, 05:15

That is the question the 7 levers framework answers. Seven numbers, the same seven in every business, and each one can be worked on by itself.

Start at the bottom line and work up

Pete builds the canvas from the bottom. You are in business to make a profit, so profit goes at the bottom and everything above it is what drives it. Three categories sit above the bottom line: your sales funnel, your front-end revenue and your back-end revenue, the repeat business. Mike Michalowicz made the same case for starting with profit on his Profit First episode, and Pete is an open advocate for it.

Break those three categories open and you get the seven levers. Nothing about them is magical. What is unusual is how rarely an owner sits down and works out what each one actually is in their own business.

The seven levers, one at a time

Ask an owner how they plan to grow and almost all of them reach for the first lever. More traffic, more enquiries, more leads. It is the most crowded and most expensive lever on the board, and it is one of seven.

“And they only really think about affecting one lever to grow their business, when in fact, there's really seven.”
Pete Williams, 12:30

The micro commitment most businesses cannot name

The lever Pete spends longest on is the one in the middle of the funnel. Most owners keep a single bucket called leads, with customers at the other end and nothing in between. There is always something in between, and it is usually small.

When Pete worked at Athlete's Foot during university, the rule drummed into the staff was not to sell anybody shoes. It was to get them to sit down and try a pair on. That is the micro commitment. Netflix does it with a seven-day trial before they ever ask for a card. In Pete's telco business a suspect is someone who gets on a call with the sales team, and they become a prospect the moment they accept a quote. For an e-commerce store it is the add-to-cart button. For an information business it is the lead magnet download.

Name that step and you have three decisions to work with instead of one: do I talk to this company, do I take the next step, do I buy. Each one is a different conversation in the customer's head, so each one can be marketed to on its own. That is also where documented systems start to pay, because every one of those steps is something a team member repeats.

What seven small wins do to your profit

Here is the part that changes how owners look at the canvas. Take the worked example: 17,000 visits, 5% taking the trial, 45% of those converting, $90 an item, one purchase a quarter, 40% margin. That business is making roughly $16,500 a period.

Now improve every lever by ten per cent. Not double anything. The conversion rate goes from 45% to 49.5%, and the other six move by the same modest amount.

“The actual bottom line change is doubling of the profit.”
Pete Williams, 17:25

Seven ten per cent wins compound into roughly twice the profit. Ten per cent on one number is a reasonable month's work for a small team. Doubling the business is not. The framework turns an impossible goal into seven ordinary ones, which is exactly the sort of goal a team will actually chase.

The levers also map onto the departments you already have. Marketing owns suspects and prospects. Sales owns conversions and, usually, items per sale. Operations owns margin, because margin is delivery time, rework and how much your team gets done. Underneath each lever sits a set of systems, which is why Pete's canvas and a systems approach fit together so neatly.

The Four-Step Business Health Check

Pete's second system is how you get from a blank canvas to real numbers. Print the canvas on A3 or draw it on the boardroom whiteboard, get the team in with a packet of Post-it Notes, and work through four steps in order.

1 Clarify

Before any maths, define what each of the seven levers means in your business. The framework maps onto every company. The definitions do not. A prospect at Athlete's Foot is someone in the chair trying shoes on. In an online store it is an add to cart.

“First thing, we're not even doing any math right now. We're just trying to figure out what the heck it is.”
Pete Williams, 21:15

The hardest definition is usually the item. Pete walks through subscriptions to show why. If you call your item a twelve-month subscription, a customer buys it once a year however many times you charge the card. If your item is a monthly subscription, one customer transacts twelve times in a year and another who stays three months transacts three. Neither is wrong. Picking one and staying consistent is what matters, because that definition flows into average item price, items per sale and transactions all at once.

Pete's check is simple arithmetic. Average item price times items per sale times transactions in the period should equal your revenue for that period. If it does not, you have defined something wrong and the rest of the health check will inherit the error.

2 Capture

Next, write down what you are currently doing to move each lever, and stick it on the canvas. AdWords, SEO, the A-frame out the front, the proposal template, the follow-up call. Not what you intend to do. What is running today.

The value here is in the empty squares. Athlete's Foot ran the suspect to prospect step beautifully, yet had nothing at all driving repeat transactions. They hoped people came back. The fix was not clever: capture an email address with the receipt, then send running tips to people who bought running shoes. Pete's point is that an empty square is not a failure, it is the cheapest growth available to you, and bringing old customers back is often the fastest of the lot. Reviving dormant leads works on exactly this lever.

3 Calculate

Now put a number on each lever. Most businesses know their traffic, their overall conversion rate and their profit figure. Far fewer can tell you their average items per sale, or how many suspects became prospects last quarter.

This is the step that turns up the uncomfortable discoveries. Pete's own e-commerce business paused its AdWords over a long weekend and forgot to switch the campaign back on. They caught it four days later, and only because they sat down regularly to recalculate each lever against target. He tells a second story about a business owner proud of a $10,000 email sequence written to bring customers back. Asked for the numbers, the office manager came back ten minutes later to say the sequence had not run in four months. The credit card on the account had expired and the person who managed it had left.

Both businesses would have passed the capture step with flying colours. They had the campaign, they had the beautifully written emails printed out. Nothing was running.

4 Correct

The last step is to fix what the first three turned up, before you go anywhere near a new growth idea. Switch the ads back on. Update the expired card. Start counting the people who walk into the change room. Pete's analogy is a doctor who stops the bleeding before writing you a gym program.

By the end you have a canvas colour coded by what you know: one colour for how each lever is defined, another for what you are currently doing about it and a third for the number it is sitting at. The gaps are visible from across the room, which is the whole point of doing it on a wall rather than in a spreadsheet.

Then put a system on the ten per cent wins

The health check gives you a baseline. The growth comes from the rhythm you run afterwards. Pete's version is a standing session, say the first Monday of the month: pull the team together, pick one lever, work out what you could do differently, choose one idea and then build the system that makes it happen every month without anybody remembering to.

Next month, a different lever. If you work in quarterly sprints, pick three levers for the quarter and go after a ten per cent win in each. The emphasis is on the system rather than the campaign. A campaign gives you a spike in conversions. A system holds the new number in place, which is what compounds into the doubling.

Where this leaves you

Working on your business is a nice idea until Monday afternoon arrives and you have no map. Seven levers is a map. It tells you what you are looking at, what to count and which single number you are improving this month.

My own take is that the levers and the systems are the same conversation. Every lever on Pete's canvas is a set of repeatable steps somebody in your business performs, and a lever only stays improved once that way of working is written down. Pick the lever with the biggest hole in it, find your ten per cent, then make it a system so the gain is still there next quarter without you.

Frequently Asked Questions

What are the 7 levers of business growth?
Suspects, prospects, conversions, average item price, average items per sale, transactions per customer and profit margin. Pete Williams groups them under three drivers sitting above the bottom line: the sales funnel, front-end revenue and back-end revenue. Every business has all seven, whatever it sells.

What is the difference between a suspect and a prospect?
A suspect has found you. A prospect has taken one small step towards buying. At Athlete's Foot that step was trying a pair of shoes on, at Netflix it is the free trial, in Pete's telco business it is accepting a quote and in an online store it is adding to the cart. Most owners lump both groups together as leads and lose the chance to market to each one separately.

How does improving each lever by ten per cent double profit?
Because the levers multiply rather than add. In Pete's example a business running 17,000 visits, a 5% opt-in, a 45% conversion rate, a $90 item, one purchase a quarter and a 40% margin makes about $16,500 a period. Lift all seven by ten per cent, so conversions go from 45% to 49.5% and so on, and the bottom line roughly doubles.

What are the four steps of the business health check?
Clarify, capture, calculate, correct. Clarify what each lever means in your business, capture what you are currently doing about each one, calculate the actual number each is sitting at, then correct whatever those three steps show to be broken before you add anything new.

How do I define an item in a subscription business?
Either way works as long as you are consistent. Call the item a twelve-month subscription and the customer buys one a year. Call it a monthly subscription and that same customer transacts twelve times. Pete's test: average item price times items per sale times transactions should equal your revenue for the period. If it does not, the definition is wrong.

Where should I start if I have never measured any of this?
Do the health check once, by hand, on a whiteboard with the team and a packet of Post-it Notes. Getting a baseline against all seven levers is worth more than a perfect number on one. The gaps, the levers with nothing written in them at all, are usually the cheapest growth in the business.