Design Your Organization to Scale Profitably: Business Perspective
Updated: May 25, 2021
There is a common misconception that just because my business top line is growing that I am also scaling my business. Truly scaled businesses actually have a different DNA.
Let's discuss the important difference between business growth & business scaling. Business growth occurs when your revenue goes up but your cost to service that revenue goes up in an equal or almost equal percentage. E.g. the business has acquired a new customer now to service that customer you modified / customised the product or service offering so both cost & revenue increased at almost the same rate. Or you hired a new team to manage this new account, revenue & cost both go up incrementally. Business scaling occurs when your revenue goes up exponentially but the cost to service that revenue goes up only marginally. E.g. there is no change in the product or service being offered to every new customer. Or team expansion is at an incremental rate as compared to rapid high addition of revenue from new customers. There is often a belief that you have to keep adding cost to get higher revenue growth, to build barriers to entry or to create a new industry. All are facts but only for a finite time & not always applicable universally. If profitable scaling is your business objective then the organization needs to be designed for it at its core. There is a method to it; it has to be planned whether from an overall business perspective, people perspective or operational execution perspective.
There are certain aspects to keep in mind when preparing your organization for scaling from an overall business perspective.
CLARITY This is hardly surprising; you need to commit to building a business that will scale profitability. The clarity in strategy ensures that you say ‘yes’ to the right things & move away from anything that takes you away from scaling even if lucrative in the immediate term. The narrative & pitch has to be clear; write down your 1-page with goals, vision, business & financial milestones, customer strategy & the like once you have completed the initial testing stage. If you have completed the initial stage accurately then when scaling there should be no sudden moves. Scaling requires commitment to the laid path & the ability to say no to customers that take you away from the goal. The ambition to scale also gets stymied if not clearly planned for from an overall point of view. There are several companies that grow to a level & then plateau. This is often because what got you to this top line will not get you to the next. Again here I am referring to businesses that wish to scale profitably not by buying market share. This is a roadmap for you, not your investor or your other stakeholders. There is also a clear reality that not all businesses will scale to the dizzying heights we read about in papers. However, the principle is the same. You need to look at your business through the lens of rapid growth of revenue with incremental rise in cost.
UNIVERSALITY Simple business models scale the most easily, that is just a fact. This implies that you must think through on your product or service from a consistency & modular lens. When designing your product or service, plan for clear & limited offerings. Do your testing of market, price points & service validation but once you are ready to scale, limit options. The foundation once set, should be strong and the experience has to be ‘universal’ else the scaling effort will result in limited success. It is important to understand that ‘universal experience’ implies that every customer will get the same experience; it is process-led. Customization gets in the way of scaling; it slows it down most of the time. You could have different alternatives for customers as long as they are finite in number & process-led.
CORE STRENGTH What is your core competence; what is it that you are really offering? This has to be articulated from the customer’s point of view. Most of the time I hear people wax eloquently about their strength with little regard whether it even matters or is valued by the customer with the same regard! Defining your offering from the customer’s point of view is not adequate, it now needs to be correlated with your competitor & your internal strengths & deficiencies. You would believe that something so basic would be universally done but almost 1 in 5 companies will vigorously insist that they are so unique that no one is competing with them! Even if you are indeed creating an innovative, never-done-before product, there will always be competition – from the current established way of fulfilling that need. And even if there is no immediate competition in your industry; a competitor will come up often within a few months of your launch, probably learning from your mistakes and offering a better version of your product or service. So without setting the correct context, you will float & floating gets in the way of scaling.