In the business realm, there is no one generally accepted standard definition of scalability. However, the primary definition seems to be strongly related to the growth potential of a company, that will increase profits and grow revenue while avoiding cost increases. For example, if a business requires hiring more employees every time sales need to increase, then the business model may not scalable. Yes, some additional staff will be required to grow, but the ratio of new employees to new sales revenue should not be equal.
For most businesses, start-up costs may be high. Consider Google or Apple and the money that they needed to create their product. That initial cost was high, but once they developed the product they could add additional users or sign up new customers without significant additional costs. While your business may not be the next Google or Apple, consider the following steps for creating a scalable business according to Peter Cohan.
Winning the first customers
Customers play a crucial role in any business. Your business will need to meet the needs and solve the problems that your customers are experiencing. How will you define your product and how it differentiates your business from other competitors? You will need to get in the mindset of why a customer would want your product/service over your competitors. Figure that out, and you’ll start finding your first customers.
Building a scalable business model
You will want to set up your business plan for growth but also be prepared for potential setbacks. Do you foresee any bottlenecks? What type of technology will you need to expand? And what type of employees will you hire? Will you need automation to keep growing? Being thoughtful about potential growth will help you focus on creating a business that grows and is profitable while learning to readjust as necessary.
Sprinting to liquidity
Plan on building your business as if you are going to sell it or go public. According to Cohan, “to raise enough capital to make the sprint to liquidity, investors will seek compelling evidence that your startup has the following attributes.” He lists large market share, great product, experienced leadership team, and high customer satisfaction as what draws investors. Even if you plan on staying private, this mindset will help set your company up for success.
Running a marathon
In this stage of your company development, you want to keep the company growing rapidly after it goes public. (Or reach the status that you predetermined.) How will you do this? Create growth trajectories that are BHAGs. You need to create ambitious goals to maintain your current growth rate. This may mean raising more capital, creating a formalized value structure, and setting milestones for key activities. You will also need to create cross-functional teams that flow into the role of hiring exceptional employees and providing feedback. Aiming for that long-term goal will keep you focused on sustaining your business.
These strategies and methods are perhaps overwhelming to the startup, but at any stage in any business, it is always important to evaluate where you are going and what direction you are taking. With businesses, it is no longer a matter of big companies outperforming smaller start-ups. The businesses which grow fast and are responsive to change are winning the game.
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