Would You Make It on Shark Tank? The Importance of Scalable Business Models

What is scalability in business?

Scalability in business refers to an organization’s ability to grow to meet increased demand. A scalable business doesn’t wilt in the face of an increasing workload. Instead, it continues to grow and boost efficiency by relying on the following preset factors: 

• Flexible systems: A scalable business typically has flexible systems that can withstand both sudden and sustained increases in growth over time.
• Talented teams: No one can scale a business alone, so scalable businesses usually have a strong team of employees with various skill sets who contribute their talent and expertise to help the business grow. 
• Documented processes: Scalable businesses have documented processes that others can replicate. A documented process makes it easier to train new employees and helps the company operate more efficiently. 

Why is scalability crucial for businesses?

Scalability is an important factor in a company’s success because it allows a business to grow and generate revenue without being held back by its structure or lack of resources. As a scalable company’s sales volume increases, it can maintain or boost its efficiency instead of imploding. Here are a few reasons why building a scalable business is crucial:

• A scalable business can save you money. In some cases, scaling your business may require an upfront investment in systems, products or people. However, your initial investment in scalability can result in significant cost savings over the long run because you’ll improve your company’s efficiency.
• A scalable business can boost revenue. Scaling allows your business to take on more customers and find additional revenue streams, resulting in increased revenue and a stronger overall business model.
• A scalable business creates a better customer experience. Scalable businesses have implemented processes and procedures that help them grow customer relationships by reducing wait times, offering superior products and services, and providing efficient customer service. These tangible improvements will improve the customer experience and increase customer loyalty.
• A scalable business is flexible. The market can change quickly as customers’ interests and priorities shift, and a scalable business has the flexibility to adjust and meet changing market demands. 

How to scale your business 

Whether your business is in the startup phase or you want to make your current company more scalable, take the following steps: 

1. Determine the market’s need for your products or services.

When considering scalability, you must first determine some essential factors about your business:

• Does your business solve a problem?
• What is the potential market for your product or service? 

The answers to these questions often go hand in hand because if enough people experience a particular problem, many would likely benefit from your solution. When there are potential customers who will benefit from your offering, demand exists. You have a potentially robust target audience and can effectively create your own market. 

Similarly, if a large enough market for a product or service already exists, there are likely inefficiencies in the quality or delivery of the product to customers. This represents opportunity.

You must identify your total addressable market because one key indicator investors look at is market size and the company’s ability to scale up or down easily in response to market variations. 

2. Create systems to support your business as it grows.

Before scaling, you must create systems and processes to support your growing business. Without these systems and processes, your business may not be able to handle the increased demand that comes with growth.

Fortunately, technology has made it easier than ever to support a growing business. Consider the following systems: 

• Automated data management: Data management is essential for growing businesses because it helps you understand the troves of customer, product and market data you’ll collect so you can make the best decisions. Investigate the best customer relationship management (CRM) software for your needs. Make sure it works with one of the best accounting software solutions and, if applicable, the best point-of-sale (POS) systems. Gathering, organizing and analyzing all of this data is essential for scalability.
• Content marketing: Email marketing and social media marketing are effective and efficient ways to generate leads, and tech tools can help you automate these processes. Evaluate the best email marketing services and digital marketing strategies to support your growing business.
• Cloud solutions: The cloud can help you grow your business and meet surging needs. For example, software-as-a-service offerings (including many top CRM systems) and cloud storage providers give you access to massive storage and computing power. 

Creating systems to support scalability may require an upfront investment in time and money, but it will be worth it in the long run as you increase your capacity to handle business upsurges.

3. Identify what you can delegate and outsource.

No matter how talented they are, most entrepreneurs can’t do it all. They must learn to share responsibilities so their organizations aren’t bottlenecked and stunted. Set up crucial support by building a sales team, administrative department and customer service team to handle these specific functions. Empower your employees by delegating responsibilities and trusting them to make decisions. You’ll build a leadership team that frees you to focus on the high-level work needed to grow the company.

Some businesses may not be ready to hire but still need expert help. In this case, outsourcing can help you grow your business by offloading key functions to reputable partners. For example, consider outsourcing customer service to a call center or outsourcing human resources functions to a professional employer organization or human resources outsourcing provider.

Components of a scalable business model

A scalable business model looks different for every organization. You may have a stand-alone product or service that can easily operate remotely. Or, you may have a business model with a low barrier to entry. For example, a business like Uber can exist as long as customers need rides and people are willing to drive those riders. 

No matter your specific business, a scalable business model should include these three components:

1. Standardization

All businesses benefit from the ability to get to market quickly. Creating a standardized process is vital to completing quality work efficiently and on time. Standardization also allows you to work with many partners or customers in different cities. 

2. Consistent management 

People are your company’s biggest assets, and growing employees is key to business growth. Training and managing your team consistently is crucial because it makes it easier to move talented team members to areas of the business where they’re needed most. 

Consider corporations with expansive franchise business models, like Dunkin’ and McDonald’s. The products and business operations are remarkably consistent from one location to the next. If they have a superstar general manager, moving them to a location that’s struggling with revenue or profitability is seamless. (It’s also important to monitor product quality across locations to measure consistency and improvement.)

Enterprise Rent-A-Car is another example. Its products and services are the same regardless of the location, and the company is known for moving team members to different branches as part of its management training program. As a result, these businesses can easily open stores in new locations — the essence of scalability.

3. Use of existing assets

A business model that effectively leverages existing assets will likely get your business into new markets sooner than a business model that requires everything to be built again from scratch. 

Airbnb is an excellent example. Rather than building places for people to stay when traveling, the company utilizes existing assets that members provide. The platform works for a loft in New York, a house in London or an apartment in Tokyo. 

Examples of businesses that demonstrated scalability

Companies across various industries have experienced the benefits of scalability. Here are four examples to consider:

• Shopify: Shopify is best known as an e-commerce platform. However, it expanded into payment processing, marketing and shipping services. By scaling, Shopify can help more businesses of all sizes.
• Zoom: Zoom’s profile soared in 2020 as the pandemic forced many employees to work from home and video conferencing became vital. Because of its virtual nature, Zoom met increased demand instantly, becoming one of the fastest-growing platforms during the pandemic.
• DoorDash: DoorDash is another company that surged during the pandemic and continues enjoying success today. Its business model allows it to scale up or down as circumstances dictate. Uber Eats and Grubhub are similar services that can scale up or down to respond to the environment.
• Spotify: Spotify and its competitors typically have a “freemium” offering that users can upgrade to an enhanced paid plan anytime. Most users who enjoy the service will upgrade. Spotify’s digital infrastructure allows it to scale up or down as necessary. 

Scalability as an engine for growth

A scalable business model serves as an engine of growth for your company and positions it well to handle that growth with the proper systems in place. A company’s growth potential and corresponding scalability are two significant factors in a business’s valuation.

Once you’ve considered your market situation and total addressable market, you can begin implementing systems and processes that work toward creating a company built to grow.