Scalability describes how easy it is to expand a business model and grow its revenues significantly with minimal incremental cost. A software product like Microsoft Windows or Office is a classic example of a scalable product since it costs a lot of money to build the first copy but unlimited additional copies cost almost nothing.
By contrast, service businesses are not typically considered scalable models because they rely on the personal output of staff (costs) in order to increase revenues. While there is nothing wrong with starting a successful accounting practice, your revenue growth will be limited by time and staffing resources. The key for a service-based business is to find the processes that can be automated, or to find a value-added way to generate supplemental revenue without adding labour hours.
Strategies to make a business more scalable:
- Review the current business model to determine whether it is actually scalable. Web and software-based businesses tend to be more naturally scalable than offline businesses.
- If the business is scalable build a business plan and model that demonstrates the business is scalable. Scalable businesses have high margins (over 50%), low support, and minimum staff.
- No product is ready to scale until the business model is proven to work with multiple customers paying the full price.
- The owner needs to be working “on” their business, not “in” the business.
- Outsource what is non-strategic to optimize leverage.
- Focus on marketing to make the business visible.
- Automate everything. Labour intensive businesses are not scalable.
- Continuously improve the business.