When a company plans to scale up, scale is sometimes confused with growth—but there’s a crucial difference.
Signing a new client who purchases $20,000 of goods from your company sounds great. But if it costs you $22,000 to fulfill that demand, it’s financially a net negative.
Did the company grow? Sure. Did it scale? Not even close.
Consider a business that sells online courses. The company spends lots of time and money developing the courses. Once done, it can sell the same course to more and more customers without incurring much, if any, additional cost. That’s scaling.Here’s what to know about scalable business models and why scale is so important for long-term success.
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What is a scalable business model?
A scalable business model is one that can handle growth, high demand, and increased workloads without sacrificing performance or efficiency.
Scalability is a company’s ability to drive profitable and sustainable growth. Scalable business model design means structuring your business so that even as growth leads to increased volumes and higher revenue, the cost of resources and production doesn’t rise proportionally. To ensure sustainable growth, scalable companies are designed to adapt and expand—so even as systems are tested by additional demand, the business doesn’t fall apart or incur profit-killing expenses.
4 drivers of scalability
- Technology and automation
- Strategic hiring and structure
- Standardized processes
- Leveraging external resources
How do businesses scale successfully? Details can vary by industry and company, but there are several common characteristics of scalable business model design across people, processes, and technology. They include:
1. Technology and automation
Modern companies have lots of available resources to get things done faster or more efficiently at scale—tools for automating processes, streamlining operations, and improving communications.
Automation frees you and your team from routine and repetitive tasks, so you get more time to focus on more productive work. For example, chatbots can be the first line of response or handle all customer questions, cutting down on the volume of phone calls or emails your team has to make or send.
Other types of digital business bots can help automate social media shares, offer discounts when a customer abandons a shopping cart, carry out email campaigns, and much more. Automated invoicing software can programmatically nudge customers whose payments are overdue. Advances in artificial intelligence have made natural language processing possible, unlocking automated data entry, project management tasks, client follow-up emails, and workflow automation.
Automation can also help streamline physical tasks. For example, Amazon leverages 750,000 robots to help pick and move inventory from warehouses for shipping to customers, making fulfillment tasks faster for the humans they work alongside. It’s a key part of Amazon’s scale.
2. Strategic hiring and structure
Attracting and retaining skilled employees and leaders who can drive scalable growth is crucial. Successful businesses focus on investing in the areas most important for their individual needs to scale over time. Maybe it’s a marketing leader who deeply understands a desirable target market and can unlock greater customer acquisition. It could be a procurement chief with a professional network who can ink better supplier deals.
Scalable businesses not only require the right talent, but the right organizational structures for employees to do their best work. As a company expands, communication and collaboration can become more challenging and siloed teams can hinder scale. Successfully scaled businesses recognize that cultural and organizational shifts are needed to grow. This includes new workflows, processes, communication practices, and decision making frameworks.
3. Standardized processes
It’s easier to expand a business when processes are standardized, and easily replicated—rather than having to reinvent operations from the ground up multiple times as you grow.
The specifics of standardization can vary depending on the business and industry. At a manufacturing company, standardized processes may include a well-defined research and development method, a structured quality assurance program, and a proven distribution strategy.
4. Leveraging external resources
You don’t have to have your internal team fulfill every function. Sometimes, leveraging external resources like consulting firms and strategic partnerships can help you get further, faster.
Outsourcing certain tasks can help streamline your business and your workload. Public relations firms, for example, have expertise and industry connections that may be able to help you secure more press coverage than you could on your own. Virtual assistants can help executives manage their calendar. If you’re overwhelmed with packing and shipping a flood of purchase orders, order fulfillment resources like fulfillment networks can do the heavy lifting—literally.
Business advisers or investors may be able to make introductions to sourcing and manufacturing solutions, contacts in a country you’re considering expanding to, and others who can help.
For an example of a scalable business model that combines these factors, consider a baker who makes artisanal bread by hand and sells to local customers from a storefront. A social media influencer touts the delicious baked goods, and suddenly clients from other states are asking how they can get their hands on some. With their manual process, small oven, and lack of shipping capabilities, it’s impossible for the baker to meet demand.
To take advantage of this big and growing market they can develop a scalable model. This might involve investing in modern baking equipment to make larger quantities of bread and benefit from economies of scale with the per-unit production costs declining as they sell more. A marketing agency can help them leverage social buzz and a staff member can handle customer experience with the help of tools like chatbots. An ecommerce site and fulfillment partner will let them manage orders from other locations.
What challenges do businesses face when trying to scale?
Scalability isn’t a single process and often isn’t easy. Here are a few common challenges:
A growing business means more complexity: managing more workers and equipment, increased production and product lines, additional store locations, and multiple distribution channels. All can pose challenges for existing processes and for leadership.
Scalability isn’t just about keeping low operating overhead. Your business can achieve successful growth only if you continue to attract and retain customers. If staff, equipment, or processes are stretched thin, it can be more difficult to ensure the same consistently high quality of your products, services, or customer service.
If your company is able to scale properly and grow rapidly, you can bet existing and new competition will take notice of that exponential growth. Staying ahead means staying innovative and being ready to adapt.
Outdated equipment and software can hinder your ability to scale. Implementing new tech might require production downtime or software training sessions for employees, so minimizing disruption and ensuring smooth transitions can be tough.
A rapid growth cycle can change things fast: new product lines, additional services, and novel customer segments. Scaling might mean changes to internal mission statements and external brand messaging as the company evolves.
Cash flow management
Successful scaling requires balance. You’ll likely need to make capital investments, but a stable financial foundation and access to outside capital can help avoid cash flow shortfalls.
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Scalable business models FAQ
How do you know if a business model is scalable?
A scalable company is one that can significantly expand and do so sustainably—that is, without a proportionate increase in expenses or compromise in performance. Moving into new markets or product lines doesn’t crumple the business or incur profit-killing expenses. Replicable processes and scalable operations make the hurdles manageable.
Can scalability be achieved without leveraging technology?
Yes, though for many successful businesses, technology often plays a central role in scalability by automating tasks, streamlining operations, and improving communications. But it’s not the only method. Scalability can also be achieved through standardizing operations, strategic hiring and partnerships, outsourcing, and efficient use of resources.
Can any type of business be transformed into a scalable model?
Many companies have the potential to adopt a scalable model, but there’s a spectrum for what’s possible. For example, a service business like in-home caregiving might be limited in scalability compared to a product-based company. That’s because a product-based company can automate many tasks and leverage product development lessons or intellectual property across multiple product lines. With strategic thinking, many businesses can find ways to achieve scalability.
Does a scalable business model typically result in higher valuations?
Yes. Scalability is generally considered a key driver in determining a company’s valuation. When putting money into a company, investors and lenders are betting the business has growth potential. They want that growth to be economically justifiable and sustainable, with overhead costs staying in check as the company multiplies revenue and serves more paying customers. Business model scalability isn’t the only factor in valuation, but focusing on key drivers is a best practice.