- Delna Avari
Design your organization to scale profitably: Business Perspective
Updated: May 8
There is a common misconception that just because your business's top line is growing, it implies you are also scaling your business. In fact, the reality is that truly scaled businesses have a different DNA.
Businesses believe that you have to keep adding costs to: get a higher revenue growth rate, build barriers to entry or create a new industry. While this may be true in the beginning, these factors are only in play for a finite time, and are not always universally applicable. If profitable scaling is your business objective then the organisation 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.
Let's discuss the important difference between business growth and business scaling.
Business growth occurs when your revenue goes up, and your cost to service that revenue also goes up in an equal or near equal percentage. For example, suppose the business has acquired a new customer. To service that customer, you’ve modified and customised the product or service offering, and both cost and revenue have increased at about the same rate. Or, you have hired a new team to manage this new account. In both cases, revenue growth rate and cost go up incrementally.
Business scaling occurs when your revenue goes up exponentially, but the cost to service that revenue goes up only marginally. In our example scenario, this means that either 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 revenue growth rate.
There are certain aspects to keep in mind when preparing your business for scaling from an organisational perspective.
This is hardly surprising; you need to commit to building a business that will scale profitability. The clarity in business strategy planning ensures that you say ‘yes’ to the right decisions and move away from anything that takes you away from business scaling, even if lucrative in the immediate term.
The narrative and pitch have to be clear. Once you have completed the initial testing stage, write down your simple 1-page business model with goals, vision, customer strategy and business and financial milestones. If you have completed the initial stage accurately, there should be no sudden moves when scaling.
Business scaling requires commitment to the set path and 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 small-scale businesses that grow to a certain level and then plateau. This is often because what got them to one top line will not get them to the next. Again, here I am referring to businesses that wish to scale profitably, not just 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 small-scale 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.
Simple business models scale the most easily, that is just a fact. This implies that you must think through your product or service from a consistent and modular lens. When designing your product or service, plan for clear and limited offerings. Do your testing of market, price points and service validation but once you are ready to scale, limit your 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. Customisation gets in the way of scaling; it slows it down most of the time. You can have different alternatives for customers as long as they are finite in number and process-led.
3. 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 for whether it even matters or is valued by the customer!
Defining your offering from the customer’s point of view is not adequate, it now needs to be correlated with your competitor and your internal strengths and deficiencies.
You would think 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 often come up 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, and floating gets in the way of scaling.
Understanding these 3 aspects of business scaling can take you a long way in reimagining your business model and achieving sustainable scaling.