Scalable Business Model

What Is A Scalable Business?

It refers to your business’s capacity to cope with a period of unpredictable growth. Scalability is a company’s ability to grow without being hampered by its structure or available resources when faced with increased production. Simply, a scalable business can keep providing quality products and services in higher demand, maintaining or even improving customer experience, and its business model allows it to grow through new markets – and geographies.

Scalability is a characteristic of a system, that describes its capability to cope with an increased or expanding workload. A system that scales well will be able to maintain or increase its level of performance when tested by larger demands.

Features of Scalable Business

1. Efficient use of resources: scalable businesses can get the most out of their assets, whether physical, financial, or human. When there is rapid growth, there is no waste.
2. Endurance under pressure: scalable businesses are not protected against inefficiencies while growing, but they are strong enough to survive under higher pressure.
3. Network effects thriving: for some companies, growth can also promote the development of a more valuable product for the customers – network effects. Network effects are the gear of most SNS media. The more users these platforms get, the more interesting they become to the whole community of users.

Growing & Scaling

Growing means investing in resources to have productivity and revenues increases. Scalability is about having productivity and, consequently, revenues, increased, without having investments and costs proportionally elevated. More output, with the same previous input.

Drivers of Scalability

1. Light asset base: the lighter the assets, the lighter the investment. On the other hand, light investments, like a website, lead to higher scalability.
2. Automated process: this process is another way to reduce investments. The more you can automatize, the more you reduce costs and, consequently, the more scalable the business gets. Sales and logistics, are areas where you can easily implement automation.
3. Low-cost labor: some business models must rely on higher-cost HR, such as consulting. But other ventures may rely on low-cost labor, such as Uber & drivers. Low-cost labor will also influence scalability.
4. Prepare for replication: when it comes to scalability, the business model must be able to be replicated in other geographies and markets, regardless of culture and local regulations.

Patterns of Business Model Scalability

1. Operating with multiple distributor channels: varied channels help businesses reach new clients and reveal new opportunities.
2. Eliminating typical capacity limitations: successful scalable businesses can overcome capacity limitations, whether physical or not (manpower, investment, storage, tech, etc.). Those barriers tend to prevent several sectors from growing and, above that, scaling.
3. Outsourcing capital investments to partners: scalable business models usually create open platforms to allow them to shift expenditures to strategic partners.
4. Allowing customers and partners to assume multiple roles in the business: scalable businesses will also work together with their strategic partners and customers. They may collaborate through complex joint ventures or maybe through more informal mechanisms.
5. Creating platform models: some top scalable businesses build platform business models, to turn rivals into partners.

Internal vs External Scalability

Internal scalability is about the business model design, with all its resources and partners, and it describes how capable the enterprise is to expanding customer base and sales rapidly, at a low cost.

External scalability, concerns the business environment, with all the customers, markets, and regulations. Therefore, it will describe how the business environment is welcoming for expansion.

Strategies to Improve Internal Scalability

1. Leverage External Resources: some of the most successful business models nowadays leverage external resources. The use of other producers & resources reduces overhead costs. This is the case of Uber, with cards & drivers.
2. Digitize and Automate: Digitize & automation are probably the biggest drivers for scalability. Automation in manufacturing is actually the reason for economies of scale.
3. Develop and Monitor a Growth Cycle: a business model designed to be scalable depends on a virtuous cycle of growth ( called flywheel), composed of positive feedback loops. These feedback loops happen when you improve your offer in a way that benefits your customers while enhancing your revenues.
4. Find the Right People to Scale: having the right team to work with you is imperative for scaling. The best option for scalable business is to rely on experienced people, with the proper mindset to scale.

Strategies to Improve External Scalability

1. Pick a Big & Growing Market: a growing market will allow you to raise funds to grow along with it. It is worth highlighting that a small market can also be fine, as long as it is a niche market, within a bigger one, with possibilities for expansion.
2. Target the Right Customers the Right Way: develop a solution that fits your customers’ habits, preferences, and lifestyles; target a market with a good amount of early adopters, who are eager to try out novelties; in a 2-sided platform, aim to find consumers on one side who can become producers on the other side; try to turn your customers into your sales force, to promote your biz.
3. Look for Market Constraints: no matter how big and growing your market must look, it will always face some barriers, such as language, cultural differences, geography, regulations, taxes, etc. You should always think about how to overcome limitations to expand your market.
4. Do Something Relevant: if you want to scale really big, you need a higher purpose. It brings something relevant to the world, more than just profit for your business. It will give you direction and keep you motivated even when you face scary challenges.
5. Always Think About Both Sides: the differences between internal & external scalability are, in fact, complementary. The potential growth will be limited if any of the sides are weak, no matter how strong the other one is.

Tips to Build a Scalable Business

1. Build a business model that is attractive to investors: if you need investors, keep in mind they like based-on-research ideas, which are likely scalable and, thus, investable. It must be clear in your business plan, with high margins, low support, and minimum staff.
2. Validate your business model with an MVP: your business is only ready for scaling when it has a product working and being sold. Reply on an MVP and multiple pivots with real customers before calling for investors to scale.
3. Build a strong team: hire people you can rely on, experienced HR who will be able to support the venture and follow up the vision. Empower them with decision-making abilities to prevent you from making every decision on your own.
4. Outsource for optimization: don’t try to do everything inside, which will be slow and expensive. 3rd parties may serve you better results as they have the relevant staff and system to handle a specific function efficiently.
5. Focus on marketing: direct marketing is usually NOT scalable. Local promotions & ad campaigns restrict your reach, that’s why you should invest in heavy indirect marketing to make your brand visible and scalable. Start with a loyal customer community through digital marketing and SNS promotions, then spread the news by attending business conferences, etc. to make acquaintances with investors and business experts.
6. Invest in technology & automation: the business is NOT scalable when heavily relying on its staff. Before scaling, aim for automatizing production and process, so you can focus on growth-related activities.
7. Consider licensing and franchising: when it comes to markets that already have major players, it is interesting to make partnerships with companies whose customer base is similar to yours, since you can form mutually beneficial goals. Another option is to franchise your business to scale faster, mainly geographically, whenever you have a proven model.
8. Improve your business continuously: if the business is completely done right in the beginning, maybe it will not be open for scaling. Instead, build up a plan that allows continuous innovation and complementary solutions in the future, which may foster growth.