However, a great business idea does not automatically translate into a scalable one. Take a hard look at the scalability of your idea before plunging into business. In the words of Guy Kawasaki “Remember that the execution of a great idea is what separates great companies from great ideas”.
The Importance of scalability
Scalability is a very important factor to consider, especially in the context of small businesses. Scalability is the ability of a micro enterprise to increase the volume of product/service lines by duplicating processes without affecting quality of service and profitability.
Working on a scalable model means turnover increases are targeted first and then the entrepreneur seeks to increase profit margins.
The good news is that startups are generally more prone to good scalability potential than established corporations. One of the reasons for this is that startups are agile and do not have rigid processes (as opposed to long running businesses).
You have the ability to make decisions fast and test things in a small way with no permission needed from “management”. Use this to your advantage.
The characteristics of a scalable startup
A scalable start up is one that starts with a unique innovative idea backed by a business model designed to convert the venture into a high growth company. Scalable startups generally apply one of the following three strategies.
The first one is to enter an existing large market with comparatively less players. Where demand is greater than supply, scalability is easy.
The second way is to take share away from competitors. For this, you will have to work really hard on differentiating your product/service offerings. Unless your customers feel that you are offering them something extra/different they won’t flock to you.
The third and the most dramatic way is to create a market. Apple is the best example of this strategy. Apple is known for being the most innovative player in the market.
There is also a class of entrepreneurs who specialize in creating “buyable start ups”. Buyable start ups are scalable ventures, which are created with the goal of being sold eventually to a large corporation. Entrepreneurs make a huge profit while the corporation acquires a great business model and a talented team.
4 questions that will determine scalability
What are your fixed costs?
In other words, how much time and effort does your business need to start generating revenues that cover operating costs?
What components are there in your operating costs?
How incremental are your operating costs? To what degree will they increase with the expansion of your customer base?
What is your end goal and what will the financials of your business look like when you reach there?
Actually this is a very difficult question to answer so you will probably have to take the help of some free financial projection software available online.
How do you plan to achieve scalability?
What are the average number of customers and approximate revenue number for achieving your breakeven point? When can you expect a significant cash inflow from your customers
Important thoughts for scalability
The journey from being a startup to a large company is a long one and fraught with successes and failures. There are a number of things you need to do in the beginning that will help you grow your business:
Focus on cash flow. In the beginning to need to get cash in the business. This means doing whatever you can to get in revenue and keep costs to a minimum. Don’t go after the big sales that may take 12 months, focus on short term revenue.
If you are producing a product then concentrate on getting out into the market as fast as possible. Reid Hoffman, founder of LinkedIn, says: “if you are not embarrassed by the first version of your product, you’ve launched too late”. Get the product out and start testing what you need to make it better.
Hiring the right people. Once you start to scale you will need to hire more people. Hire slow, only when you absolutely need to, and always make sure you hire based on experience and skills not a “gut feel”. Focus on hiring people that will help you get more customers or get more from existing customers. You need to be very focused on revenue generation with your first hires.
Watch your supply chain. As you grow, the gap between initial enquiry and product/service delivered will get bigger, more bloated and harder to control. Always keep a focus on delighting the customers and change the supply chain deliberately to do this. Don’t let it grow naturally.
Use a good business software
As your business grows you need to ensure that you spend your time on generating revenue and not on admin activites. Reduce your admin activities to a minimum by using a strong business software such as Zoostr. Wether its creating prrice quotations, invoices, meeting notes, or sms marketing campaigns use a software to minimise the time spent doing them.
You can use a SaaS (software-as-a-service) on a PC, tablet or smartphone enabling you to work on the go between meetings for example, when coming back from a meeting with a client you can issue a quotation on your mobile phone.
For a free to use Zoostr account click here