Not that long ago, we had several clients which had grown to almost $10 million in annual revenues and were netting nice profits. One was selling an innovative travel pillow, and his business was being run mostly by family and friends. Another was in the event marketing business. His challenge was that most of his “product” was in human capital and talent, and there only seemed to be so much to go around.
Both were struggling with limits to growth without scalability. The pillow manufacturer could push more product, but without a better system in place, he was not able to expand into online markets or increase repeat sales. The event marketer could pitch more big accounts, but had trouble getting the talent to get those events completed.
What both of them needed was a new perspective. Growth without scalability was limiting their growth.
Scaling for Growth
With the many technological innovations of the past decade changing the way we do business, it has become increasingly apparent that the path to success isn't all about growth but about scaling for growth. The majority of today's most profitable companies have learned how to develop business models that can quickly and easily generate revenues without adding massive amounts of costs and resources in the process.
Take Google, Airbnb, PayPal or eBay—multi-billion dollar companies that share common elements in their respective business models that have allowed them to grow at scale. Each of them thought of their business not as a product to push out but rather, a scalable platform that could connect something of value to those who needed that something.
Are you an aspiring business owner or entrepreneur? You might benefit from implementing these growth strategies into your plans, and thinking beyond the great product you have to the platform which you can create.
The key is to recognize the difference between creating scalable models and simply adding growth. That's what I'd like to talk about here.
Scaling vs. Growing
It's not uncommon for business owners to use these terms interchangeably, which is precisely why many companies have difficulty scaling for growth. So, what's the difference between growth and scaling?
In a nutshell, growing a business means that you are adding resources at the same rate that you're generating revenue. You see this particularly in professional services business models, where a company gains a client and then hires more people to service that client. The company adds revenue at the same rate at which it increases its costs. It has technically grown, but it hasn't scaled.
Scaling, on the other hand, is about adding revenue at an exponential rate while resources accumulate at an incremental rate. Google is a perfect example. It has added new customers at a rapid pace while keeping additional resources at a minimum, which is why it was able to increase its margin in just a matter of years.
Reducing Costs for Incremental Sales
To identify which aspects of your business model are scalable, you must first determine which part of your business can be replicated quickly and in a cost-effective manner. If every new sale requires just as much time, resources and effort as the one before it, your business model is not scalable.
Software companies, for example, have truly scalable models. Once the development stage is complete (the costliest part), a company can sell many copies of its product at a very minimal incremental cost. This is what scalability is all about. Now, granted, not every company out there is in the software business, but the principle remains the same.
So if you're a business owner, you really need to think about which components of your product delivery can be automated to enable you to produce faster and cheaper with each additional customer. The more efficient your mass-production mechanism is, the more scalable your company becomes.
To think about this from another perspective, look at what eBay has managed to do. Its founders understood how to replicate the value of their solution on a scale. Before eBay, people were selling stuff out of their garages just fine. But once eBay came on the scene, people saw that it was a faster and cheaper way of moving their goods. Almost overnight, this innovative startup was a sensation.
Expedia.com has a similar story in the way that it changed the travel industry. Before, people had to choose between handling their travel and accommodations on their own or using a travel agent. Both were slow and inefficient processes. Seeing an opportunity, Expedia automated the entire process so that customers could self-service without having to pay a travel agent. Even better, Expedia can service one customer as efficiently as a million.
As these two examples illustrate, the key to scalability is looking for all the ways you can automate the delivery process of your goods or services. This is how you scale for growth.
Joining Product Management With Services Delivery
By combining product management and product delivery under the same umbrella, companies can focus on building revenue, while at the same time, keeping customer experience at the center of their operation.
This strategy provides not only more scalable services offerings but a more scalable end product. During the early and growth stages of a company, product managers will be able to observe firsthand how their product is being deployed, integrated and optimized. They will then be in a much better position to productize the company's capabilities.
Scaling Culture...Crucial for Growth
Another essential aspect of scaling for growth is the culture you create. A company will only be as good as its people, and their character will have a major impact on the ultimate success or failure of the business. That's why, when recruiting new employees, it's best to spend some extra time screening for the right type of character.
Skills can be learned, but it's much harder to cultivate the right kind of attitude and personality. "Hire for attitude, train for skill" has been Southwest Airlines' mantra for over 40 years, which has helped it maintain its status of a purpose-driven company.
Going back to those clients who were growing but stalling, we realized that they hired people who could do tasks, not create opportunities. Their cultures were hierarchical, with a great deal depending on the rules and directions provided by the owners-leaders of the organizations. Employees were wary of taking risks. Their leaders were entrepreneurs but the culture was not entrepreneurial at all. Sure, it's estimated that 80% of new ideas often come from employees, not just CEOs or department heads, but for this to happen, there has to be a culture in which their ideas are encouraged, accepted and tested. As culture change experts, we've written extensively about how to change your company's culture, which you can access here.
Remember: compromising on the talent you bring into your organization, especially those in pivotal roles, is a sure way of short-circuiting your culture and your long-term performance. Instead, helping people achieve their full potential will help you scale your culture at the same time that you're working for growth.
To learn more about successfully growing your business, check out these blogs and podcasts:
- Two Crucial Lessons For Growing A Business: Numbers And Instincts
- 6 Management Traits That Successful Leaders Share
- Lean Startup: Building From The Customer Backwards
- Andy Simon—Confessions of a Successful Entrepreneur
- Michelle Turman—Positive Changes Needed To Keep Your Business Growing
- Ask Andi series—Finding and Keeping Great Employees
Ready to Scale? Give Us a Call.
Without a doubt, scaling for growth will help you get where you want to go. If you have a $10 million company and want to take it to $100 million, you need to rethink the way you're organized for scalability. Without introducing scaling into the process, you limit your future growth. And companies that find ways to grow their offerings exponentially will outmaneuver their competitors, every time. Don't let this happen to you!
At Simon Associates Management Consultants, we specialize in helping entrepreneurs large and small develop a business strategy, realign their company culture, find startup capital, launch their venture, capture customers and grow market share. Perhaps we can help you with your business? Please contact us. We look forward to having a conversation with you.
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