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The Importance of a Scalable Business Model

Going from idea to product to company is one of the biggest challenges to an entrepreneur. Many busScalability!inesses start with a great idea but are soon gobbled up by competition or lack of financing. Business models should be built around a long-term perspective with profits steadily growing over time while keeping costs down. Utah seems to have an abundance of ideas that never turn into large companies for multiple reasons, but a lack of scalability is a significant one.

You should ask yourself a series of questions to gauge the scalability of your model. How much will costs rise as revenue rises? How much capital will be needed to grow? What is your total accessible market? When will it be necessary to hire more employees? Really, anything that affects your bottom line should be considered.

Linearity

Linearity refers to how your sales grow in relation to your costs. The more your costs need to grow to support sales, the more linear your model is. Exponential growth is characterized by sales that grow at a disproportionately higher rate as compared to costs, which should be your goal.

Consider a business wherein new employees must be hired every time sales grow, or a high amount of assets are required as you grow. This correlation will affect long-term growth prospects, as you will have to continually hire new employees and invest capital at a rate nearly as high as sales.

Businesses that are scalable do not require as much capital and are attractive to investors. Many tech businesses have mastered the scalable model. Software and other tech products require a larger amount of capital up front, but once they are engineered, they can sign as many customers as they want without having costs increase substantially.  Often their only major cost increase is in marketing and sales.

Tweaking Your Current Model

Although your business may not be there right now, you can make adjustments to improve it. Look for lack of efficiency in every aspect. Can any processes be automated or improved? Can you work with a supplier to assume a large part of the process without giving up your strategic advantage? If they can, you can be more scalable. Software can make one of the biggest differences in this area, such as programs that assist in data entry or scheduling that don’t require a person doing everything. There are many software developers whose livelihood is based off making your business run more smoothly by automating day-to-day activities. Tap into this and use it. There are many apps and programs designed to assist both small and large businesses.

You may want to consider working with a professional who can help you identify those areas of your business model that consume large amounts of capital as you grow, and work to implement changes that would lower that dependency on capital.  This is one of the keys to scalability.

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