As an entrepreneur or small business owner, you may have jumped in with both feet or fallen into your business, starting with a couple of freelance contracts. Freelancing, though, is not entrepreneurial. Why? Because it’s not scalable. That idea got me thinking about a recent post I read by Mike Kappel. He has founded  5 companies, and has a formula for what makes a successful business. Take a look.

My perfect business had to be significantly difficult. Why would I want to do something that was hard? Easy — to reduce potential competition. I wanted as narrow a playing field as possible, so the business had to be hard enough that the competition would be scared off from trying to repeat my success. A business that met my difficulty standard would discourage weaker contenders from the start.

Takeaway: No matter what kind of business you have, figure out how you can be outstanding (and blow the competition out of the water.) If your town has a Mexican restaurant on every corner, yours had better be the one with the fantastic mariachi band that draws a huge crowd Friday nights, or the secret recipe for black bean soup that is no one else in town can get right. Make it really hard for anyone to match your quality or your service.

My perfect business must have unlimited potential for earnings. I wasn’t interested in a business model that was limited by an hourly rate. (After all, there are only so many hours in a day.) I wanted my business to earn as much as it could.

Takeaway: If your success depends upon your labor alone, figure out how to maximize your time and streamline your operations. For example, if you spend an hour each workday running errands or answering the phone, ask yourself: Could someone else be doing this? Is there a better way to spend my time? When you figure out how to work smarter and not harder, you could recover that lost hour and earn more profit every day. That adds up!

My perfect business also must have a means for steady cash flow and recurring revenue, such as a subscription model or a way to earn monthly rent. I didn’t want to have to reinvent the wheel every day; I needed a business that was repeatable, sustainable, and measurable. It would take a lot of effort to get started, but once it got rolling, it would keep moving forward and gaining momentum, with less and less effort.

Takeaway: Even a seasonal business can develop a system for recurring revenue to offset the slow months. Think: What small service can you provide that someone would pay you to perform on a recurring basis? A lawn company could offer a subscription plan for snow plowing to offset the down times. This snow-plowing program can improve cash flow for the business at the time you need it most. ( And then you’re in a much better position when your busy season really kicks in!)

My Three Criteria for a Perfect Business have served me well over the years, giving me a sense of the direction that I wanted to take for my business. They’ve kept me from flailing around in the dark or chasing after some business idea that won’t be profitable, and they help me make ongoing decisions to this day!

Read the full post and more of Mike Kappel’s business posts here.