What does scaling really mean?
Imagine a novice entrepreneur who is taking the first steps in the IT industry. Web developers running their own business and creating websites for other companies in the local market is not an example of a business with scaling potential. Regardless of the number of orders, the main limitation in this type of business will be the time that the owner can devote to creating websites. Other than the benefits of tax returns, one-person business activities are no different from working for a company. If our hero created an innovative web development training platform and sold it to clients both in Poland and abroad, then we could talk about a startup that can be scaled.
In an article published in the Harvard Business Review, the concept of scaling in business was summarized as the ‘problem of more’: in other words, when developing the scope of a business, increasing market share and brand recognition, the main challenge is the management of change and the dimension of activities to maintain the profitability of the project. How does this general definition translate into concrete actions? In my opinion, there are several key aspects whose addressing will significantly increase the chances of successfully scaling a startup.
Get to know the market and adapt the product to it
Before deciding to enter a new market, first, you have to go over the product’s specs and compare them to the competition in the new environment. Understanding demand, consumer behavior and competitive offers enables you to build a market entry strategy and adapt your own business model to market requirements. Take time for an in-depth analysis, especially now that you have access to advanced tools such as Google Trends, Google AdWords, WatchCount on eBay and Sales Rank Express on Amazon that will provide you with a wealth of quantitative information on customer preferences and sales statistics of similar products.
Ensure the correct composition of the team and a simple organizational structure
It is difficult to imagine a dynamic company without a board of experienced managers, experts in the areas of strategy, finance and human resources. Listed companies pay their executives a quota to provide growth and gain an additional percentage of market share. With a startup, you shouldn’t rush to hire highly qualified specialists (CFO, PR experts, project management directors) - if sales do not grow at a steady pace, high salaries of executives will significantly increase costs and lower profitability of the venture. In order to optimize business scaling, you need to focus on building a team of product makers who are dedicated to delivering value to the end customer. By maintaining a single or two-tier organizational structure, you make it easy to manage the company and retain transparency of information exchange.
Create a transparent business model
Alexander Osterwalder, author of Business Model Canvas, describes the business model as a way in which an organization creates value and ensures to reap the benefits of that value. The key point at this stage of company strategy planning is to identify the unique features of our product that will attract customers. In addition, we need to think about how we will achieve and maintain a competitive advantage. One of the key elements of any company's strategy is the price of the product. Startups by nature generate lower costs than large corporations, so it can afford to lower prices with profitability. A tailor-made business model is the most important bargaining chip in conversations with prospective investors.
Take care of the business development funds
Statistics show that neglecting the financial aspects of a business can be fatal: about 29% of startups end up with no money before they fully develop their business plan, and 75% of new businesses have trouble maintaining profitability . Scalability and a good business model are the key features of startups sought by investors . Even in industries such as online services where you can start a business without an injection of capital, further expansion of that business may require a large investment of cash. In this situation, the entrepreneur may ask for cooperation with venture capital funds, which might invest in the early stages of development of innovative companies without an intent to buy them out, purchasing no more than 50% of the shares. This method of financing is very attractive for beginner entrepreneurs, but in order to acquire venture capital, you need to present a well thought out and innovative business model.
Although, statistically only half of startups survive on the market for more than four years; responsible planning and sustainable financial policies will increase the chances of success. A tailor-made business model and carefully thought out strategy will facilitate responsible scaling of the business.