How to Scale a Business
Leading a business is always exciting.
Navigating the opportunities and challenges is the core of what business leaders think about on a daily basis. Today, with advances in technology, having a scalable business model is Increasingly necessary to compete and profit.
A scalable business is one that can maintain or improve profitability when the volume of sales increases. It’s important to first understand what being scalable means.
The Importance of Exponential Growth
Most businesses experience linear growth. For example for every one input you spend, you receive a slight return above that input. Most companies receive growth from 0-10% a year and revenue growth can be more stable at larger companies.
For service-based businesses experiencing linear growth, returns can be constrained by the number of staff. So, one project may need one project manager. Working harder is often promoted as a way to boost performance.
However, exponential growth is what bankers, investors and shareholders want. Scalable businesses emphasize exponential growth. For every one input, you receive significantly higher gains that compound. With this model, the growth rate of your business grows more rapidly as its size increases. These businesses often have “Network Effects”, where additional users of a product has a much more significant impact on the value of that product to others, and the value of the product increases more because there are more users. This growth model emphasizes the importance of working smarter, rather than harder.
Creating a Scalable Business
To achieve scalability, business leaders often must think about eliminating, raising, reducing, and creating certain features. Often referred to as Digital Disruption, Business Model Innovation or Digital Transformation, these activities to create a scalable business transform how businesses work and provide uncommon value to customers. Below are ways to create scalable business models.
1. Increase knowledge sharing in your company
Information and expertise is often lost, neglected and underleveraged. Buried in emails and silos, valuable information can be used for growth. Sharing information is one way of becoming more scalable.
Consider the following opportunities from boosting knowledge sharing within an organization:
- Using data to identify new opportunities and new products/services
- Sharing Information among employees for faster, better decision-making
- Reducing waste, redundancy and inefficiency
Information portals such as SharePoint and Honey, can immediately boost information sharing across geographies and even within offices. Employees can better track milestones and assign task. Documents and shared resources can help the company rapidly provide sales materials and materials that boost productivity. Some large companies even have alumni portals where alumni can share expertise.
The reason behind this approach is simple. Sending emails all the time makes things very hard to track and leverage in the future. Working in silos limits what the organization can leverage. With cloud collaboration tools like Slack, work and communication becomes faster and easier. You can create groups for every team, see files and communication history. Teams that share knowledge rapidly can boost their performance. Known as synergy, a high performing company that shares knowledge across all departments can often outperform individuals and groups working in silos.
2. Automate processes
Automation can reduce manual and time-consume tasks that provide low value. Often, manual processes create bottlenecks that limit the broader company and impact customers. To automate, first, you need to identify each business process. You then have to figure out where the bottlenecks are and what are the underperforming and low value parts of your offering. Once those problem processes are identified, you can evaluate whether automation can address the bottlenecks.
Automation helps save employees’ time so they can focus on more important strategic priorities that create wealth for the company. Also, since automation is software-based, you can always update it as your company grows.
To automate, you can use third party software. To achieve even more substantial gains, your business can use data science, machine learning, artificial intelligence, and proprietary algorithms. While hiring data science professionals can be expensive, it can achieve exponential gains in productivity, and performance. It can also achieve competitive advantage and prevent new entrants from entering your market.
3. Outsource manual or very repetitive tasks
When you want to focus on growth, one of the main things to avoid is spending tons of time on menial tasks. A scalable business should always be ready to outsource repetitive tasks when needed. Outsourcing may be able to provide an immediate boost to scalability through lower costs and larger volume. Although outsourcing can boost profitability, it’s important to note that it may not always achieve exponential growth. It may just provide linear reductions to cost structure. Identifying paradigm shifting outsourcing opportunities today are an opportunity, but can be more challenging to sustain.
4. Re-sequence Activities
Processes can be limited by bottlenecks, inefficiencies and risks. A slow department, laborious approval processes, machines that breakdown, shipping times and natural disasters for example can severely impact a company. Changing the order of activities can boost productivity. Moving one activity earlier in a process can for example reduce inefficiencies later on in a process. An example is having a resource already available early on in the process can reduce lead time or waiting time later on in a process.
5. Standardize processes
This may go against conventional norms, where Mass-Customization is emphasized today. Standardizing processes can simplify production and lower costs.
Process standardization can reduce the number of staff needed and can reduce risk. Some companies use standardization with some customization in a phenomenon known as Modularization where the base product is standard but some features are customizable.
6. Reduce Risk
Reducing risk can make a business more scalable. By outsourcing risky activities, a company can avoid challenges that it cannot easily address. Accumulating excess inventory can be a risk in many industries. Some companies use Just-in-Time Inventory management to produce or receive resources only when an order is placed. Companies like Zara and Dell Computers have created paradigm shifting business models that avoid excess inventory and that create advantages that competitors cannot easily replicate.
7. Create a Platform
Many companies operate on a project-by-project basis, particularly in service-based businesses. This can lead to situations where companies are not fully utilizing what they produced. Data sources, information, and products are less able to be leveraged for other customers. Creating a platform solves this. The company can produce a data source or service and then sell that to a much larger audience. That allows companies to lower the marginal costs of production and distribute the service to a larger number of customers. That is the definition of scalability. Examples of successful platforms are IBM Watson and Netflix.
8. Turn a Product into a Subscription
In the media industry, following the decline of CDs and DVDs, Apple led one of the largest transformations in media. Apple created itunes so customers could download what they wanted whenever they wanted, avoiding the hassle and extra costs of going to CD stores. This paradigm shift gave Apple a scalable advantage where it transformed the way consumers listened to music. After some time, however, this scalable advantage eroded as other competitors entered the market.
For example, Spotify found a way to turn a product (Music singles) into a subscription where people pay a low monthly fee to get unlimited songs in one single apple. This provided recurrent revenue streams rather than one time purchase on iTunes.
Subscriptions are a powerful way to achieve scalability and profitability. However, with these examples, it is important to note that even after a major business model innovation and large initial gains, competitors are likely to enter your market in the long run. Continued innovation and customer insights are necessary for sustained scalability.
9. Increase the productivity of resources
You can boost productivity by doing more with the same resources. Examples include increasing utilization. You can also boost productivity by doing the same things with fewer resources. You can adjust process through Continuous Improvement and by constantly reducing inefficiencies. Process improvement and reducing bottlenecks can lead to increasing productivity.
10. Go upstream or increase volume
You can become more scalable by increasing volume. If you discovered an efficient way to produce more with less you may be able to sell more at lower prices. The key is to ensure that you are profitable, by maximizing profit. Building Volume leads to lower costs or higher Willingness to Pay.
11. Match supply and demand better
Matching supply and demand can be challenging in many businesses. It can be feast or famine for some companies, particularly those with high seasonality. Improving forecasts can be a challenge in some markets. The Bullwhip effect is a phenomenon when forecasts yield supply chain inefficiencies.
Some disruptive companies has sought to address this. Examples of digital tools that can help companies better manage increasing demand include 99designs.com and Fiverr. Other examples include call center BPO companies that can rapidly scale up and handle high call volumes on a moment’s notice during a weather emergency.
12. Eliminate the Middleman
Intermediaries know as the “Middle Man” can be capturing value in your market. By disintermediating them, you can do the same tasks at a lower cost. Think about the travel agents of the past. They have largely been replaced by Online Travel Agencies (OTAs) like Expedia and Booking.com. Be cautious though in thinking that digital disruption is always cutting out middle man, who bring some value to the table. Travel agents still exist, but far fewer of them. Brokers still form a large part of financial services. Real estate agents are often preferred in many countries. Be cautious to take into account the intangible value that some middlemen can provide such as trust, face-to-face interaction and other social dynamics of some professions.
13. Change the Value Proposition
You can become more scalable by changing your value proposition. You can change how business is done, and in some cases, simplify it. Examples include changing processes, the payments, the exchange of value, the redistribution of risk, the management of operations, etc.
Uber was able to increase scale. Its technology at the time was actually not a major breakthrough, using existing geopositioning technology, existing mobile payment technology and customers’ own smartphones. But, Uber transformed the customer value proposition. It combined mobile payments, customer reviews, a real time marketplace between buyers and sellers, existing GPS technology already available on mobile phones and leveraged a transformative rise of the gig economy and independent contractor model.
By building scale, Uber was able to match supply and demand to allow customers to get a ride at any time for a price. It disrupted the taxi model, and provided customer value improvements. These value proposition improvements included a better ride, reduced anxiety for tipping, reduced need for cash in your wallet, safety, and a better overall experience.
14. Build partnerships with influencers
With smartphone technology and social media, the world has seen an uptick in the rise of influencers. Using their social influence can propel your brand above others and create scale. One influencer can efficiently share your brand with thousands and millions of people. With influencers, you can create “Positive Feedback Loops” and “Network Effects,” where success breeds success. In other words, more brand awareness fro influencers boosts demand of your product, which boosts sales volume, which can lower costs, attracting even more demand. Creating “Win-Win” partnerships with suppliers and other companies can also create these positive feedback loops in an ecosystem. Affiliate marketing can also help boost your scalability.
15. Build an ecosystem and a complement market
You can boost scale by creating an ecosystem. Produce more products around your core product. Or you can have an open source technology and encourage other developers to work with your technology. Apple and Google each have built an enviable ecosystems with new products, devices, hardware, software and cloud-based services. Complements are products whose demand increases demand for your product. For example, hot Barbecue sauce is a complement of chicken.
You can also become scalable is by boosting your complements, or having complements emphasize you. An example is the “Intel Inside” sticker on many computers sold today. Computer manufacturers allowed Intel to include the “Intel Inside” sticker on all computers. By building the complement market, the computer companies developed branding advantages.
16. Launch a “Blue Ocean” Strategy
Blue Ocean Strategy focuses on bringing something new to the market. It’s often about game changing disruptions that change the value proposition. Blue Ocean strategy focuses on boosting Willingness to Pay (Price) and reducing costs. It’s called Blue Ocean, as opposed to Red Ocean, where competition is fierce and there is figuratively blood in the water.
These strategies include transformative innovations. Examples include changing the way people travel, such as Autonomous Vehicles that transport you to work. Or, Apple creating iTunes and changing the way an entire generation of consumers listen to music. To achieve Blue Ocean, you can lower costs and prices, delight your customers, and change the ways customers consume your product.
You can think about Eliminating, Reducing, Raising, and Creating features that delight your customers. You can change the game and eliminate the tradeoffs that conventional wisdom has taught.
About Scalable Business Market Research
Market Research identifies your opportunities and challenges so that you can identify ways to become more scalable. Research can identify ways to lower costs and boost your customers’ Willingness to Pay.
- Qualitative Research: Identifies deep customer insights into what they value, what they need and how they behave
- Quantitative Research: Identifies ideal price points for customers
- Strategy Research: Identifies competitor insights, market opportunities and Business Model Innovations
- Agile Market Research: Tests ads, websites and products through Agile Sprints for rapid product development.
- Non-Customer Research: Identifies why customers will not buy from you, new product opportunity, and new segments of customers
Achieving Exponential growth requires insight, analysis and working smart. Contact us to support your scalability and business growth needs.