3 Fundamentals for Building a Scalable Business

In the modern era, scalability must be core to any business model. As no one tries to grow a Douglas Fir in a closet, no entrepreneur wants to build a company just to find out there is a cap to its growth especially when we are living in an age where everyone around the globe is a potential customer. Understanding how to build a scalable company with today’s technology is a precursor for success.

What is Scalability and Why is it Important?

Historically, businesses could only reach a small audience. Popular methods of advertising included billboards, flyers, or local newspaper spots. Accordingly, companies only needed to be equipped to monetize a limited number of customers.

Now, businesses can reach a global audience via website advertising, automated email marketing, and digital loyalty solutions. Modern day companies, especially in technology, need to be equipped to monetize an increasingly larger number of customers. However, economic theories suggest that profit margins lower as sales increase, and more sales eventually cause load issues for the company. In other words, mo’ money mo’ problems.

A company’s ability to maintain or boost profit margins as sales increase is its scalability. Without scalability, a company runs into problems when it receives more customers and growth is inevitably stifled. Emerging technologies that connect businesses to millions of potential customers are being commoditized and are therefore making scalability imperative.

Building a Scalable Business

Before pouring capital into today’s powerful marketing tools, it is important to ensure your business scales. If a business is not ready to scale, or has high churn rates, putting capital towards marketing is akin to pouring water into a bucket riddled with holes.

There are many tools to add scalability to a company, but in my experience a business will only ever truly scale if it is scalable to its core. The three fundamentals to building a scalable business are:

1. a keen focus on your core competencies,

2. a comprehensive vision of the future, and

3. a willingness to invest in technology.

1. Core Competencies

Core competencies are those special skills, experiences, or resources that give your company a competitive edge in the market. Think McDonalds’ speedy food preparation, Facebook’s vast collection of data, or Steph Curry’s 3-point shot. The first step to building a scalable business is to identify, cultivate, and exploit its core competencies. What differentiates your product or service from your competitors? A common pitfall can be defining these factors too broadly, so keep it narrow.

Next, you need to cultivate your core competencies by improving adjacent operational efficiencies. What tedious tasks are your employees spending time on that could be more efficiently done by formalizing a process or even automation? It is important to keep these developments in-house as much as possible. However, it is equally important to offload or outsource any tasks that are distracting you, or your staff, from building on your company’s core competencies.

Now that resources are effectively being deployed, you must determine the unique ways you can exploit your core competencies to give you a competitive advantage. Do they allow you to offer your product for an order of magnitude cheaper? Do they allow you deliver a product quicker and at a higher quality? Do they allow you to create value where there was previously none? Find these exploitations and match them with monetization strategies to grow your business.

2. Be a Visionary

I believe that scale does not come naturally to humans due to us being innately finite. So, to truly build a scalable business, you must have a comprehensive vision of the future. It is essential you develop a picture of how your company will grow, reveal potential problems, and find operational optimizations.

Though growth itself is not covered in this paper, visualizing how a company changes as it grows is a vital skill. As companies grow, they do many things different, including brand management, hiring, and customer outreach. In other words, how you obtain your first customer will be radically different from how you obtain your millionth.

If your company truly scales, any small potential problems can be greatly exacerbated; therefore, it is important to de-risk your company now. Is there a technical bottleneck in your software delivery strategy? Rapid growth will end up causing negative backlash and will hurt your trajectory. Visualization can go a long way in preventing this.

Entrepreneurs need to constantly be looking for operational optimizations to remain lean and focus on core competencies. Visualize the tasks that your employees do today that will become exceedingly cumbersome in the future. Find ways to install systems or create playbooks that optimize their efforts.

3. Invest in Technology

The last fundamental is a culmination of the above. To build a scalable business, you must focus on your core competencies, believe in your vision, and then invest in the technology that will make it a reality. If you have clearly and correctly defined your core competencies, any capital committed to them will likely be an efficient investment. People water plants because they know they will grow, and you must have the same confidence in your vision.

Believing in your vision helps shift your perception of return on investment from short term to long term. A scalable business will have high returns in the long run, but it may demand higher fixed costs up front. Make your projections and base your technological investments on how they will help the business scale. Remaining lean while investing in the technology that helps your vision become a reality can be a razor thin line to walk, but an important line nonetheless.

Staying lean is important, but do not shy away from spending on technology that offloads non-core competency tasks so that your staff are not spending hours on them. Are your employees spending two hours a day boxing your products and shipping? Find a local third-party that specializes in this and recapture your staff’s time. Your in-house personnel need to spend most of their hours working on optimizing and improving your core competencies. Any distractions from this goal will yield a low ROI.

Final Thoughts

Technology has advanced to a point where anyone can get their product in front of millions of people which necessitates that profit margins be maintained or even increased as sales grow. This characteristic is the scalability of a company. To build a scalable company you must identify, cultivate, and exploit your core competencies, visualize a future bigger than the current reality, and effectively invest in technology.

However, keep in mind that typically building a company that scales is expensive and requires more upfront fixed cost than its unscalable counterparts. So, deploy lean methodologies and do not rush growth early on. Make sure you are ready to scale before you do so, and your success will be limitless.