For most businesses, scalability is a key growth factor and crucial for the ability to meet expanding demand. A business model that’s not able to scale efficiently will find growth and expansion plans to be severely limited.
But what is a scalable business model exactly? A business model that facilitates scalability isn’t only able to expand and meet market demands, but it can also lower costs in the process due to economies of scale that help bring down per-unit costs. Often, the ability to scale efficiently has more impact on a business's long-term value than most other factors, which is why scaling needs to be a critical aspect of any business model.
So, what does scalable mean in business? In this article, we’ll dig deeper into business scalability and how it can be incorporated into various business models.
So, what is scalability and why is it so important? The scalable definition in business refers to the ability of an organization to quickly grow to either meet demand or expand market share in an efficient manner that ultimately drives down costs. So a business that is scalable, meaning it can grow efficiently, will be one that does not incur increased negative cost pressures as it expands to meet demand or takes over market share.
For example, having a great business model that initially attracts attention, investors, and customers can be great. But if that model doesn't allow for rapid and efficient expansion that drives down costs, it may soon stall out. This allows for other similar businesses that have accounted for growth to come in and steal the spotlight and market share, even though they were late to market.
This is why being first to market doesn't always lead to long-term success. Being able to expand quickly is what creates dominance in a market — not just being the first out of the gate.
To help you gain a deeper understanding, let’s look at the various components that make up business scalability. These may vary slightly from business to business and also by industry. But overall, business scalability will include the following key components:
A highly scalable business model will include processes at every level that are standardized to ensure they have the lowest overhead possible, both in dollars and manpower. Standardizing processes across the business as often as possible can free up resources for other tasks more involved in growth. It also facilitates growth much easier as tasks can just be expanded without creating and managing entirely new processes.
Automating processes that are currently handled manually is another critical aspect of a highly scalable business model. Automating can include software or other technology that allows for tasks to be completed faster and without recurring costs, such as can be the case with adding more labor.
One example of modern automation is the use of software to manage HR operations such as recruiting and onboarding. Many options are available to highly automate this process, leaving only the final decisions to be made by qualified staff.
Using what is already available is crucial — whether it be owned by the company or even just existing infrastructure that is available in the market. A perfect example of this is the business model used by ride-share companies like Uber in their early phases of extreme growth. Instead of having to buy or lease inventories of cars like a traditional cab company, they instead used existing inventories of cars already owned by drivers.
This allowed for the rapid growth they experienced because hardly any new inventory needed to be acquired. This aspect was baked into the business model, and it was one of the key reasons for their historic growth and market dominance.
When it comes to scalability, business models are the source. Building a scalable business really starts from the moment the business model is created. The earlier in the process that scalability is incorporated into the overall business, the higher chance of success that business has of achieving maximum growth.
Here’s how you can build a scalable business.
One key tip for building scalability in business is to seek efficiencies everywhere. We've all heard the stories of how successful growth companies (like large online retailers such as Amazon) are constantly seeking out efficiencies or automation wherever possible, even where one may not think. This can include customer-facing areas as well as operations within the company.
Often, it might seem easy to just throw money at a problem to fix it. However, this isn’t scalable in the long run. Let’s look at low productivity or poorly trained workers as an example. You may think that hiring more people is the answer. However, hiring more people and placing them into a non-standardized work environment wastes resources and doesn’t solve the problem.
Instead, look for systems that solve a problem and can also be applied to other areas of the business. This type of standardization reduces costs and is also highly scalable.
Scalability in business is a key factor when it comes to successful growth. A company that isn’t growing isn’t just stagnant — it’s falling behind.
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