Does Your Business Scale?

July 1, 2013 10:45 pm Published by

It takes more than a great idea to make a great business. There are some business ideas that truly are things of wonder—but the problem is that they only work in a “one-off” situation. That may work if your business is providing custom, one-off solutions and you charge accordingly. But that doesn’t work for most businesses that are looking to grow their customer base significantly.

For example, a software company might spend a ton of time and money developing the prototype of a product that works well and meets a very specific need in the marketplace. But it’s not practical for that software company to re-create the software, put it on a disc, and send it out to every single user. They wouldn’t have the capacity (time) and they’d go broke. That model isn’t “scaleable.”

However, if that same company developed the software and then allowed businesses and individuals to download identical copies of it for a fee, they could reach a huge audience. It wouldn’t matter if 10 individuals downloaded it—or 10,000. The costs are the same. I realize this is a bit over-simplified. A company might have to invest in more computing capacity and they might have increased customer service costs, etc. But you get the general idea.

Of course not every business can scale like that. There are some businesses that require additional staffing and resources as revenues increase. What about your business? Doe your business scale? If you’re looking to grow your business, here are five questions to consider.

1. Do you have a consistent strategic planning and development process that addresses your 3-year+ strategy? Growth doesn’t have to happen all at once. As a matter of fact, a lot of businesses go under because they try to grow too fast and don’t have the resources (financial or personnel) to sustain fast growth. Just how fast do you want to grow and how fast can you grow?  Remember, it’s not just about increasing revenues. Make sure you have the big picture.

2. How sustainable is your current business model and what’s the lifespan of the products/services you’re offering? Too many times, businesses assume that things will keep going as they are indefinitely. Most products and services have a life cycle. Sometimes that life cycle can be extended with upgrades and revisions. But you can’t assume that because revenues grew 10 percent last year that they’ll grow 10 percent next year. You have to be aware of what’s changing around you—and be brutally honest with yourself.

3. What is your current business model and what would you need to change to allow your business to scale? Sometimes businesses fall into the trap of thinking that growth simply means doing more of what they’re already doing—and doing it the same way. That may work for a little while, but generally there are significant changes required if you want to scale a business. The cash requirements for a much bigger company are dramatically different than those of a small business. So is the staffing. Your business model may work well for a $1 million business, but will it work for a business with $5 million or $10 million in revenues?

4. Do you have the people and the processes to scale your current business model? This question is somewhat similar to the previous one, but is more “people-oriented.” You may have an employee who is great at leading a team of 3-4 people. Can he or she make the jump to leading a team of 20? It’s a different skill set. It’s the same with your processes. You may be well equipped to produce 500 widgets a day for a local or regional market. Will those same processes work when you’re producing 5,000 widgets a day for a national market?

5. Are your target markets growing to support your business growth? You may want to grow your business, but is the demand there to sustain the kind of growth you want? How well do you really know your target market? Are there changes in technology or demand that will reduce demand for what you do? Or is there an opportunity to grow the market by doing things a bit differently (innovation)?

Let me reiterate something, because it’s important. Growth isn’t necessarily doing more of the same thing in the same way. Profitable growth requires looking at your market to make sure it will support and sustain your planned growth, and it means looking at your company to make sure it has the resources and adaptability to handle growth. Bigger isn’t always better. Smarter almost always is!

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This post was written by Chuck Kocher