If you’ve seen the television show Shark Tank, you know that the Sharks look for revenue growth, customer acquisition costs and scalability above all else when evaluating companies.
Scalability allows you to create a profitable business with strong growth potential. We’ll explore the components of a scalable business model and how to get started.
Why is scalability crucial for businesses?
Scalability allows a business to grow and generate revenue without being held back by its structure or lack of resources. As a company’s sales volume increases, it can maintain or boost its efficiency.
Technology has made it possible for more businesses to scale, thanks to software that allows companies to acquire more customers and automate tasks, such as email automation.
How to scale your business
Here are three steps you can take to begin scaling your business.
1. Determine the market’s need for your products or services.
When thinking about scalability, you’ll first need to 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 are experiencing a particular problem, some people would benefit from a solution to it. This represents demand and means there’s a potentially massive target audience for your business, thus allowing you to 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 need to identify your total addressable market because one of the key indicators investors look at is the 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 you can scale, you need to create systems and processes to support your business as it grows. Without these systems and processes, your business may not be able to handle the increased demand that comes with growth.
Fortunately, technology allows you to automate data and financial management tasks, content marketing and human resources. There may be an upfront cost for investing in technology, but it will be worth it in the long run. [Here are some content marketing tasks you should automate.]
Human resources software can be useful for automating tasks as your business grows. See our picks for the best HR software.
3. Identify what you can outsource.
As a business owner, it’s essential to identify what you do best and outsource everything else. You can’t do everything on your own, so it’s important to build a strong sales team, admin team and customer service department to support your business. Begin empowering your team to make decisions and take on leadership roles within the company. That way, you can continue to focus on the high-level work needed to grow the company.
Identify which services you can outsource to other companies. For example, consider outsourcing customer service to a call center; see our picks for the best call center services. You can also outsource human resources. We’ve compiled a list of the best HR outsourcing services.
Bring on a team of freelancers to support your business as it grows. LinkedIn reports that up to 70% of small businesses rely on freelancers.
Components of a scalable business model
A scalable business model looks different for everyone. For some, it’s a stand-alone product or service that can easily operate remotely. For others, it’s a business model with a low barrier to entry, like Uber, which can exist as long as customers need rides and people are willing to drive those riders.
Here are three components of a scalable business model and how to apply them.
Any business benefits 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 working with many partners or customers in different cities.
2. Consistent management
People are your company’s biggest assets. You’ve made it easier to run your company if you can move them into different parts of your organization because of effective management systems. If you have all the pieces in place and every asset or branch of your business is managed consistently, identifying areas where your most talented team members are needed is straightforward and the transitions are seamless.
Think of corporations with expansive franchise business models, like Starbucks and McDonald’s. The product and business operations are remarkably consistent from one location to the next. If they have a superstar general manager, it’s easy to move that employee to a location that’s struggling with revenue or profitability. It’s important to monitor quality assurance to measure consistency and improvement.
Another example is Enterprise Rent-A-Car. The product and services at Enterprise are the same regardless of location, and the company is known for moving people around to different branches as a 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. Take Airbnb, for example. It doesn’t build places for people to stay when traveling; it utilizes existing assets members provide. The platform works for a loft in New York, a house in London or an apartment in Tokyo.
Companies with a subscription business model benefit from inherent scalability. These organizations can scale easily according to demand, and customers can scale according to their own needs.
Examples of businesses that demonstrated scalability
Here are three examples of companies that demonstrated their scalability. In these instances, the pandemic fueled near-immediate growth, but these companies can scale up or down as necessary.
- Zoom took off in 2020 after many employees began working remotely and video conferencing software became a must. Zoom was able to meet increased demand instantly because of its virtual nature, becoming one of the fastest-growing apps during the pandemic. The company saw its revenue increase 53% year over year in 2021.
- DoorDash struggled before the pandemic and lost money in 2019 but saw its services pick up once restaurants were forced to close. The company faced some challenges as restaurants began reopening, but its business continues to grow. Its business model allows it to scale up or down as circumstances dictate. Uber Eats and Grubhub are similar services that grew during the pandemic and can scale up or down as necessary.
- Snowflake provides cloud database technology, which became crucial for many companies during the pandemic. The company went public in 2020 and continues to do well, though its revenue growth slowed in 2022.
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 drivers of a business’s valuation.
Once you’ve considered your market situation and your total addressable market, you can begin implementing systems and processes that work toward creating a company built to grow.
Steve Juong contributed to the writing and research in this article.