One of the most challenging elements in business model innovation is the concept of scalability. When the team and I evaluate new business model ideas, one of the parameters on which we evaluate them is scalability. Scalability is the term attached to how easily the business grows up as its inflow grows.
As a general rule, service-intensive companies are tougher to scale up. An example of a service-intensive company may be one, for example, that is contingent on the individual talent / professional knowledge of some core team member such that replicating that position in the business model is difficult. Specific examples include a law firm, physician’s office, or an architectural drafting company. When the initial team member, let’s say a physician in this case, becomes busier with administrative tasks as the company grows, it is difficult to replicate that physician’s participation in providing the actual service that the company is meant to do. So, issues with scalability arise.
Said differently, it is much harder to scale businesses that are services in part owing to the reason that an individual team member’s talent provides the core for the business. Usually when we find a business model where scalability is a challenge or when we design a new business model that is a service, we focus, intentionally, on ways to make the business more scalable. Some of these include planning for the volume of business at which we will add employees or independent contractors to be able to provide the service as the initial team member becomes progressively busier with administrative work. It can become very difficult if we wait for a team member to be overloaded before offloading tasks from them, and so a clear discussion about how to scale up, at the onset of the business, is useful.
We usually say that an issue with scaling up is one of the “good problems to have” because it indicates the business is growing and the model is likely reaching a customer need / market. So when we perceive issues with scaling we try to remind ourselves that this set of issues is better than the set of issues where no one is buying the product or service.
Non-service business opportunities maybe much more easily scalable. A model that sells an online info product, for example, may be much easier to scale. A recent online search for examples of highly scalable models revealed www.providerlifestyleexperts.com as a nice example. Startups that focus on a website for sales are often contingent on band width, server speed and other issues such as those. Where scalability is more dependent on technology things maybe scaled easier. This is not to say that it is straightforward to scale business models that have inventory associated with them.
Business models where an object is built or an object has value added to it and is then sold can also be very challenging. CEO’s such as Tim Cook from Apple and Jeff Bezos from Amazon are masters at logistics and this highlights the importance of those functions in a modern business model that wants to scale up.
When you have an idea for a new business it should be fairly clear by now that much more goes into a successful idea than having a good idea. A good idea is key to success but there is much more around it that makes the idea move forward in a sustainable fashion. In later posts we will discuss more on typical factors that are associated with the business success or failure. (FYI The “we” seems to be creeping into the blog a lot. That is because sometimes, here, I’m speaking for our team of investors and “startup mechanics”.) Interestingly there is a great deal of research, much of which is statistically rigorous, about what makes successful startups across multiple different industries. These have always been a personal interest of mine and I look forward to sharing those with you in future blog post.