No matter how much entrepreneurial enthusiasm you have or how much energy you are willing to commit to it, there is always one brick wall that you are going to find yourself coming up against time and time again –you are only human. Even with the best will in the world, you cannot be in two or more places at once, you cannot travel through time, and you cannot work indefi\nitely without stopping at least once in a while for sleep and food. Is your business scalable to match up with your ambition and go beyond you?
You must have scalability. In its simplest form, scalability means that your business can continue to function effectively as its size increases (as you become the business traveller expanding across the world). In practice, this means that the business must be able to function without you actually being there to do the thing that makes the money.
If your business provides a product or service that other people – or a computer – can be trained to provide, for example, an e-commerce store or a bottling plant, and there are no resourcing limitations, then you have a scalable business.
Scalability means that your business can be expanded, potentially without limit. And that spells the difference between creating a business that will provide you with a modest living and one that could be sold for millions. That’s a very big difference.
How to make sure your idea is a scalable business
Every entrepreneur should test their business idea by asking these questions of it:
1. Is the business based on a particular skill that you have?
If yes, is this a skill that could be taught to other people? If the core of the business is centred around your particular skill – making beautiful intricate stained glass windows, for example, or illustrating children’s’ books, then you might be in trouble due to:
a) The business will never be able to grow beyond what you physically can do yourself, which in turn is limited by the fact that there are only 24 hours in a day and by your own personal stamina.
b) A prospective buyer will only want to buy the business if you come along with it. Prospective buyers try to avoid ‘key man risk’ scenarios, and if the business relies upon the founder, then a sale is made much harder.
2. As you sell more products, will the operating cost per unit rise, fall or stay the same?
Attractive opportunities often have low ‘marginal costs’, which means that they can grow without any significant increase in operating costs. With anti-virus software, for example, once a programme is written then it makes no difference whether they sell 1 or 50,000 units- the code doesn’t change, and so this makes it a very scalable business because the marginal cost of the programme is close to zero.
3. Are there structural changes which can kick in as sales increase?
If you have to write bespoke solutions every time you get a contract from a new customer instead of having pre-written software that you can sell to anyone, for example, then you will need to hire programmers to freshly code each time you get a new contract. That can become problematic, partly due to labour costs and partly because you will end up having to deal with all sorts of operational issues such as organising a fluid workforce.
4. Will you be able to automate parts of the business as sales grow?
Can you get a computer to perform some bits of the job? Estate agents have been particularly ahead of the game in this area. Property finding websites such as rightmove.co.uk and zoopla.co.uk can email you regular updates of properties for sale in your chosen area and at your chosen price, a far more efficient way of finding out what has just come on the market than having to call a dozen estate agents every day. And traditional estate agents such as Foxtons and KFH now have interactive maps on their websites which show you at a glance exactly where all their properties for sale and for rent are located, a vast improvement on getting an estate agent to drive you around the area while you are trying to match up a pile of printed sales particulars and a battered A to Z street map.
In summary, even if you are not able to take advantage of your start up’s inherent scalability from day one, the important thing is that the potential is there for you to tap into at some point – so that either you or a future owner of the business, can take advantage of it.