Ever wondered how the small retail shops in your locality can be scaled up like other businesses catering the same needs, such as Spencer, Big Bazar, and other departmental stores. Even in service industry how swiftly a matrimonial site (shadi.com) replaces traditional marriage brokers. These ventures quickly expand to a large segment of the audience and reach in every corner with their brand name.
Every budding entrepreneur wants to shift from “start-up mode” to “scaled-up mode”. Therefore, scalability of your idea and business model is crucial in describing sustainability of the venture.
IS YOUR BUSINESS SCALABLE?
The question here arises, whether “can the current business be taken to a major share of the total available market by tweaking the strategy and making tactical marketing changes, while retaining the same organizational structure and processes, with equal or perhaps greater profitability?”
What does scalability stand for? Scalability is the potential to grow across geographies. Every business has their own range and limits on which scalability depends. While expanding a business, the important thing is to scale-up everything, not just a single thing, which most entrepreneurs fail to understand. To extend, all the divisions and operations of the business has to be taken into consideration because while expanding, the impact associated with scaling the business, becomes greater when huge costs and resources are involved to make last minute changes in a business plan due to non- scalable conditions.
- The medium of distribution (online/chain/offline) – This factor is pivotal as every business has to have a cost-effective way through which it reaches its customers. Choosing the right distribution channel to scale-up depends on the type of the offering(nature of the product), customer segmentation, target audience and cost associated with that medium backed by your initial financial position.
- The incentive to the channel partners – A product’s marketability scales with the expansion of the channel it depends on, for its distribution. It is important to set up long-lasting business relations with the channel partners, which can be done with profit-sharing or scope for good margins.
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- USP (Unique Selling Proposition) – There are numerous products and services available in today’s market to cater to a problem. But how you optimize the way in which you solve a particular problem is the USP that you offer. It may be in form of a better pricing, customization or some type of personalization or the mental impact of the brand that you build around your product.
- Future demand (Product/service) – Businesses whose future demand tend to converge with the future trends are the ones which are truly scalable. An intense trend analysis, taking into account the parameters related to the product as well as the target segment needs to be done to determine the true scalability of a venture. These parameters can be the scope of further innovation, cross-industry application and repeat demand.
- Timing – The time of entry into the market is crucial and is based on the need and pain point issues that the product/service cures. Moreover, it is based on whether the apparent target segment wants to get the pain point cured, or will the ongoing trend in the market retain the pain point, which will further make that venture valid in long run, backed by continuous product development and innovation in the product lifecycle.
- Standardization – One of the core competency of products and services that cater in B2C and B2B segments is the standard of the quality that they offer. Since the consistency of the quality is a big reason which drives customers towards them, standardization of such products is an absolute necessity in order to scale appropriately if your offerings cater to the masses. But in extreme skill based offerings, a business can be scaled up by charging premiums based on exclusivity of the product/service.
- Human Resource – Use of personnel increases with the expansion of a business. Moreover, scalability can be done at a faster pace if the operations can be automated using machine learning, use of robotics and other automated systems which can bring efficiency in operations.
1. Capital Expenditure – Huge CapEx requirements add to the hindrances in the scaling of a business, as a large number of funds are required. Also, this Initial investment in heavy assets increases funding requirements. Moreover, the problem in scaling-up arises when these heavy assets incur high maintenance costs.
2. Cash conversion cycle – Entrepreneurs should try to minimize the length of their cash conversion cycles. Shorter payment cycles result in more liquidity and hence also helps in increasing turnover.
3. Operational profitability – In the case of positive cash flow from operations, external funds will be utilized for further expansion. However, if the cash flows are negative the funding amount will be used to fill the gap(break-even) and hence this will make the scaling process slow. For the latter business model, funding requirements will also increase.
As your startup grows, being only positive won’t serve you well. The business expansion will need funds and resources based on the business model for future sustainability. Determining scalability might differ according to the segment in which the business falls. But some standard parameters can be used to judge how and what type of scalability a venture can achieve.