A “scalable startup” takes an innovative idea and searches for a scalable and repeatable business model that will turn it into a high growth, profitable company. Not just big but huge. It does that by entering a large market and taking share away from incumbents or by creating a new market and growing it rapidly. Scalability is the capability of a system, network, or process to handle a growing amount of work, or its potential to be enlarged to accommodate that growth. Scalability is the capability of a system, network, or process to handle a growing amount of work, or its potential to be enlarged to accommodate that growth. … If the design or system fails when a quantity increases, it does not scale.
The Importance of Being Scalable. As a business grows, its main objective is to continue to meet market demands. … Scalability also matters because growth in business means you are working with more customers, data, and resources. Scalability: When it comes to any large distributed system, size is just one aspect of scale that needs to be considered. Just as important is the effort required to increase capacity to handle greater amounts of load, commonly referred to as the scalability of the system.
Scale up, Scale–up or scaleup may refer to Scalability, the ability to function with different amounts of required work, or to be readily adjusted to do so. Scale–up(chemical engineering) in chemical engineering, the migration of a process from the lab-scale to the pilot plant-scale or commercial scale. Scalability is the capability of a system, network, or process to handle a growing amount of work, or its potential to be enlarged to accommodate that growth. … It is a highly significant issue in electronics systems, databases, routers, and networking.
Here are some pragmatic tips on how to make your startup more scalable and investable:
If you need investors, start with a scalable idea. Just because all your buddies think an idea is cool, that doesn’t mean it is scalable. Investors like ideas based on market research from outside experts, like Gartner Research, proclaiming a billion dollar opportunity with a double-digit growth rate. These are more likely scalable and investable.
Build a business plan and model that is attractive to investors. I see too many business plans that are really product plans for customers, touting free services and long feature lists. It’s hard to build and scale a business on free high-support products. Scalable businesses have high margins (over 50%), low support, and minimum staffs.
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 pivots with real customers, before you get it right before you ask for investor money to scale.
Build a strong team to take yourself out of the critical path. If you are still spending most of your time working “in” your business, rather than “on” your business, then you are not yet ready to scale. Show that you have and can continue to hire the right people to run the scaled business without you being everywhere and making every decision.
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.
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.
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.
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 the exit, or financial analysts positioning you for the public stock sale. You will give up some control with investors, but their expertise and experience is usually more than worth the cost.
Consider all the 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.
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.
Let me make one thing clear – not everyone needs or wants investors or a highly scalable business. Ninety percent of small businesses today are family businesses, which can be very successful, satisfying, and small by design. It’s a strategic decision. If your passion is to change the world, or even dominate an industry, scalability is the only way to multiply your arms and legs, and the hours in your day. Are you feeling the need yet in your own startup?
Leadership During Scalability
Leadership is a quality that needs to be honed over time. At times, a leader may need to look at simple solutions to issues or uplift the team’s morale in order to keep them motivated. The Indian work culture is being reshaped with the advent of start-ups; access to funding the intrusion of technology; improvement in human capital and Government efforts to make the environment more conducive to doing business. Today’s leaders will create precedents and must maintain the highest standards of integrity and ethics if they really want to emerge as respectful change agents in society at large. Leaders must realize that while their responsibility increases with each passing day empowering team members is as crucial. Team members should be given freedom to experiment and innovate for organizations to witness progress. When team members are confident that their risk appetite to innovate will be encouraged and appreciated, organizations are one step closer to creating a conducive work culture fostering growth and development. Such a working environment plays a catalytic role in the scaling of an enterprise.
Building Capabilities Around Seven Key Drivers
A focused strategy which clearly defines the roadmap backed by good communication across functions can ease pressure in pursuit of scalability. In addition, it is crucial for entrepreneurs to stay committed to improvements and alignments in the seven key drivers of scalability outlined earlier. Investments in these seven areas form the cornerstone of a successful expansion strategy in today’s dynamic market scenario where consumers across age-groups are constantly evolving. First, entrepreneurs must analyze their level of influence or commitment in these areas and identify their pain points. Simply injecting funds to bring in new technology or hiring executives is often a commonly used tactic. However, that often leads to stunted growth – progress which seems exciting at the outset but later proves to be an expensive proposition with little or no returns.
The thumb rule of businesses across ages and spheres is to never stop progressing on your internal capabilities – whether it’s people, products, resources or a combination. These core areas constitute internal capabilities that need to be consistently sharpened to align and eventually exceed customer expectations. It is a safe bet to focus on areas where you already occupy a certain level of expertise. Switching industries or unrelated diversification is tougher than it seems and usually creates limitations towards growth. The way forward is to make sound investments in these drivers; some of which may require attention sooner than later. These drivers are inter-related where one influences the other. For example; if you seek loyal customers; you need to invest in technology to ensure you match their expectations. For that you need good leadership; to think on those lines and hence you may need people. So, in a way, these drivers are like forces that culminate into success.
Lastly, it is important to not lose sight of the firm’s original vision along this journey. While it is fine to periodically review the vision or set a new one if there is an acquisition; it should be followed as far as possible in order to avoid confusion and delays. Scalability is an exciting and challenging journey which calls for patience,
CREATING THE RIGHT STRUCTURES FOR COMMERCIAL GROWTH
When mapping out a business strategy, always remember to measure growth based on regular targets. The key here is getting what I like to call ‘incremental milestones’ that are attainable, rather than mammoth tasks that demand significant time, energy and resource. Not only do regular milestones boost company morale, but they also reduce the costs and risks involved should a startup be pursuing a particular objective that is unrealistic or unattainable.
It is important to remember that all decisions made by an entrepreneur are based on the assumption they will ultimately improve the business.
For example, an app developer might decide that they need to create an add-on feature in order to increase the number of customers willing to download and use their app. At this point, the developer has two options – immediately allocate a large number of resources to build this new feature or focus on improving the core USP of the app while simultaneously conducting tests to see whether there is actual customer demand for the add-on. Should the developer go with option one, there is a higher risk of this feature not delivering the desired effect, resulting in a huge sunk cost. Option two, however, mitigates the risk and allows the developer to test whether the add-on feature is actually needed.
In this example, the trade-off is clear. And in most startup cases where resources are limited, it is vital to reduce risk where possible and not overexpose the business to unnecessary hazards.
There’s no denying the wealth of opportunities that currently exist for entrepreneurs seeking to launch a business in the UK. The country has fostered a hospitable environment for startups, and there is a clear desire from the Government to ensure the country remains a hotbed for innovation and disruption. There are plenty of support structures currently in place, but this does not remove the need for a succinct business strategy that is guided by a product-need that is scalable, has a clear target audience, and can be measured through incremental milestones that are regular and achievable.
What You Need to Remember
Scalability is a mindset that’s all about having the systems and people in place to make your growth as seamless as possible. Here are some things to start thinking about now as you prepare to scale your startup.
- Figure out how to automate or outsource everything you possibly can, especially if it’s not directly related to your core competencies.
- Stay disciplined with your money. Don’t spend on new people or features until you’re absolutely ready to do so.
- Make sure your business is actually scalable. There’s nothing wrong with staying small and lean if the product or service demands it.