June 2, 2016

Is Your Business Scalable? True Tales Of Category Creators & Category Killers

Whether you are still planning to launch your next business idea or planning the next growth stage of your successful small business, one question you are likely considering is ‘scalability.’

Scalability typically means that your business has the potential to multiply revenue while reducing incremental costs as it expands.

Here are some pragmatic tips on how to make your business more scalable:

  1. Start with a scalable idea in a sizable market. Solve a problem encountered by a large number of consumers.
  2. Build a business plan and model that is tied to actual revenue. Too many business plans are really product plans, touting free services and feature lists.
  3. Use a minimum viable product (MVP) to validate the model. No product, even with a large opportunity, is ready to scale until you can show it working, with multiple customers paying the full price, to validate the business model. Count on multiple changes with real customers, before you get it right and before you look for money to scale up.
  4. Build a strong team to take yourself out of working “in” the business, rather than “on” the business. Show that you can hire the right people to run the business without you in the driver’s seat.
  5. Outsource what is non-strategic to optimize leverage. Smart entrepreneurs never outsource their core competency, and never rely on intellectual property they don’t own. They also don’t try to do everything in-house, since growing all the expertise you need is slow and expensive. Scaling requires leveraging outside resources.
  6. Focus on marketing and indirect channels to get the message out quickly. Direct marketing is generally not scalable, especially on low-cost high-volume products. These days, heavy marketing is always required to make your startup visible and scalable amid the flood of information from all sources to all customers. Word-of-mouth does not scale.
  7. Automate to the max. A startup that is labor intensive and staff intensive is not scalable. Start early looking at production automation, proven process technologies, and minimum staff approaches, before you begin scaling. Document processes and build online training videos so new people can come online quickly and consistently.
  8. Attract and relish investor funding. Organic growth (reinvesting profits only) will not allow you to build the “hockey stick” growth curve desired by premium buyers at exit, or financial analysts positioning you for public stock sale. You will give up some control with investors, but their expertise and experience is usually more than worth the cost.
  9. Consider all possibilities for licensing and franchising. Many markets already have major players, so figuring out how to make them partners is much more effective for scaling than trying to out-market them. In other areas, once you have a documented and proven model, franchising will let you scale much faster than managing every location.
  10. Define a business that is open-ended and continuously improving. If your startup sounds like a one-trick pony, it won’t be perceived as scalable. Don’t try to solve every customer problem at the same time, but build a strategy and plan that shows continuous innovation, leading to follow-on complementary solutions well into the future.

But maybe you’re aiming to be among the 90% of small businesses today that are successful, satisfying, and small by design. It’s a strategic decision. Is your passion to create a new category or to totally dominate one?

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