How Scalable Is Your Small Business?
Whether or not you’re looking for investors, a key factor in judging the future potential of any small business is “will it scale?” This is a shorthand way of asking whether your business has the potential to get a lot bigger in a short period of time.
Sometimes the answer is obvious, as when your business depends on your delivering personal services, one-on-one to individual clients. This business can’t scale because there’s only one of you, and your ability to service clients the way you do is strictly limited by – if nothing else – the number of hours in the day.
When the answer isn’t so obvious, however, you can consider these factors to help you evaluate the likelihood you can supersize your business:
How Big Is The Business Opportunity?
Define the characteristics of your likely customers, and count up the size of the potential market. For example, if you’re selling toothpaste, it’s everyone who brushes their teeth. If you’re selling rattlesnake skin wallpaper, it’s considerably fewer.
If you’re already reaching out to most of this potential market, that leaves little opportunity for additional growth. However, if you’ve barely tapped into the desire for your product, there’s still plenty of room to scale.
But you need them both: a large potential market that is relatively untapped to have hopes your business will scale.
How Strong Is Your Team?
Businesses run on people. For your business to scale, it’s going to need a team of strong performers that is large enough to handle the additional work you'd like to have pouring in.
If you’re working alone, or with only a few family members, rapid growth will probably overwhelm your team’s management capabilities.
But if you’ve assembled a group who understand your business and your niche, and who have proven their ability to deliver high quality results in high pressure situations, then your personal time and abilities will not limit your company’s ability to scale.
How Thoroughly Have You Leveraged Outside Resources?
When you step back and consider your business, you’ll see that is has a few special areas of unique expertise. This is the kernel that helps make it successful. Nearly everything else your business does can be replaced, revised, or repurchased from outside vendors without materially degrading what you offer.
Businesses that can scale nearly always utilize outside vendors for these non-essential tasks as much possible.
This is because finding, hiring, nurturing, and supporting people who have all the necessary expertise to operate a successful business takes a great deal of time and energy. If you want your business to grow fast, you must be able to obtain the non-essential elements of your business at reasonable prices in the open market.
How Small Is Your Payroll?
Even within your business’s core competencies, if your operation is labor- and staff-intensive, you’ll have a hard time growing the business quickly.
A more scalable strategy is to automate production, simplify processes, and minimize staffing needs. Assuming you have to double your staff to double your company’s volume and profits, just think how much easier this will be when your company numbers ten rather than 20. The more you can do with fewer workers, the more scalable the business will be.
What Are the Opportunities For Licensing and Franchising?
It’s easier and faster to scale your business when you can get others building it for you through licensing and franchising. These opportunities allow you to quickly multiply the number of people finding and servicing customers, building your brand, and generating revenue.
Licensing and franchising also:
- Generate immediate revenues and limit spending for growth.
- Bring new, self-motivated talent into your organization, so you don’t have to supply it.
- Allow you to convert potential competitors into partners, many of which may already own large market shares to which they can expose your products and services.
How Much Room Exists For New Products, Services, and Processes?
A business with limited room for evolution and improvement clearly faces a finite limit to its market potential.
On the other hand, a business that contains opportunities for follow-on products and services, expansion into new markets, and overall innovation is inherently more likely to scale.