Does it scale? It’s the kind of question, that gets tossed about by people who aren’t a hundred percent sure what they are talking about. But, the problem is that as the owner of a small business (even a really small business), you need to know how to answer that question if you want to still be running that business a few years from now.
Defining Scale in Your Small Business
If you are running a business with fewer than 25 employees, then I want you to put aside anything that you may have already heard about scalability. When you are dealing with big enterprises, the term scale can have several different meanings and nuances, usually accompanied by a hearty helping of corporate speak. I think it’s a big reason why there is so much confusion surrounding the concept. Typically, there is also a lot of emphasis on a business’ potential to grow its revenue base significantly faster than its cost base. Realize that this is an operational objective pushed by investors who would like to see a nice return on their money. For the business itself, that shouldn’t necessarily be the main goal. In fact, quite the opposite, countless smaller companies have failed precisely because they pursued sky-rocketing profits instead of investing in stable, albeit slower, growth.
From the standpoint of a small company (where outside investors aren’t getting in the way), things become much simpler. What scale means in the most practical terms is that you have a clear path to healthy and sustainable growth. In other words, as more customers pay for your products and services and as your offerings expand, you have the systems and resources in place to comfortably and profitably accommodate that growth.
How Can You Tell if Your Business Model is Scalable?
Many of the answers you’ll get to this question will be pretty irrelevant to the smallest of companies. I’ve seen countless experts bring examples like, “what would you do if you suddenly got a thousand extra customers tomorrow?” It’s a pretty ridiculous question when your daily average is only 5 to 10. Not only is that not realistic, it’s completely missing the point. Scalability should be thought of as a fluid, almost organic process. It’s not about those one in a million shots (though you do have to keep some “what-if” scenarios in mind and prepare for them even if they are unlikely to happen). It’s about being in touch with the upper and lower limits of your market demand, making sound projections for the future, and then creating systems that will efficiently cull your available resources to meet that demand.
In other words, if you want to know if your small business scales, then you have to consider three things:
The Market. How big is your target market? Is there real potential for a growth in demand either from new customers or by expanding your current product/service offerings? When you look at your business from the perspective of scalability, demand is the driving factor, and your success is defined by how well you can align your systems and resources around its ebb and flow. So, if you suddenly experienced a peak in demand, you’d not only be able to fill it, but you’d do so profitably.
Your Systems. Your systems are the processes and procedures by which everything in your business runs. They include things like customer service, sales, marketing, product/service development, production, purchasing, invoicing, and outsourcing. By breaking down each aspect of your business into different processes and systems, it will be much easier to isolate those areas that need improvement and in general help to streamline the way your business operates. Having such a breakdown is also particularly useful when you go about either outsourcing certain functions or hiring employees to carry out specific jobs since you will already be focused on the unique challenges and opportunities each area presents.
In a business that scales, systems are designed to not only operate efficiently, but have the flexibility and capacity to handle an increase in sales.
Your Available Resources. What resources do you have at your disposal? This includes employees, current and potential contractors, physical assets, such as equipment, supplies, and product inventory, and soft assets, such as proprietary software and SAAS platforms. In a business that scales, your resource pool is wide enough and deep enough to handle an increase in demand without eating up revenues through increased costs.
In short, for the smallest of businesses, scalability is about positioning your business in the most efficient and effective ways and charting a path to sustainable and profitable growth.