What does it mean to scale up a business? (+examples)

Scaling up a business is about ensuring the organization can sustain its metrics while achieving great growth

Scaling up a business is about ensuring that the business can generate enough revenue and profits so the business can continue on its existing trajectory.

What does it mean to scale up a business?
To scale up a business means that the business is able to grow without losing profitability. Scalability also involves a business's ability to scale up or increase its size without compromising the quality of its products or services.

Scaling up an organization involves ensuring you can grow your business strategically. Scaling up a business is essentially expanding your business by acquiring additional resources and assets, such as customers and employees. 

The goal is to grow from “X” to “10X”, or “100X” or more.

The meaning of scaling up a business

Scaling up a business usually involves taking on more responsibilities and managing more people, but it also brings advantages that make it worthwhile. 

For example, companies can afford to hire better workers because they have more money to pay them. They can also afford to buy more extensive facilities or equipment because they have more capital than their competitors.

The two significant benefits of scaling up include:

  1. Increased revenue 

The more expansive your company becomes, the more people you can hire and the more customers you can attract. As your company grows, so does its ability to generate revenue from its services or products. It means that each employee can do more work which in turn increases revenue for everyone involved in the operation of the business.

  1. Deeper market penetration 

Having multiple locations or owning a larger portion of the market share allows businesses to reach out further into their markets than they could if they operated just one store or site or with lesser resources.

How to Scale a Business

How do you scale your business? There are many ways to scale a business such as speeding up organic growth, scaling by creative financial engineering or scale up by business acquisition. 

But what are some of the best ways to scale your business?

The best way to scale a business is through:

  1. New customer acquisition 
  2. Better serving current customers, and 
  3. Selling at optimal price points

To create the best company with a strong competitive advantage, the best way to scale a business is by focusing on the customer and building a fantastic product that solves their problem. This sounds simple, but it's the core.

Starting small, acquiring happy customers, product testing and gaining feedback is the true seed of scaling a business

Fortunately, there are a lot of great tools and technology that has made this much easier. For example, ecommerce platforms such as UltraCart and Shopify make scaling the order process very easy once the business model is worked out. Additionally, bing and Google Ads, native advertising platforms such as OutBrain and Taboola make driving tons of traffic to your store at scale faster than ever.  And there are more job boards and recruiting tools available today than ever before.  

Once you have all these “little things” worked out, you can start to think about how to gain more customers at a faster pace.

Here are they four general ways we like to scale a business:

  1. Gain new customers through more aggressive, superior marketing and advertising
  2. Sell more products to existing customers
  3. Increase your product or services prices
  4. Merge or acquire a business that has a database of similar customers 

What Makes A Business Scalable?

A scalable business can grow to meet the needs of its growing customer base. 

Scalability is a critical element in the growth of any business, especially when it comes to online businesses.

Here are two fundamental ways to determine whether a business model is scalable:

  • The revenue generated from each unit sold (revenue per unit) is higher than the cost of producing each unit sold (cost per unit). This means that there will be enough revenue to cover costs and make profits while at the same time generating enough profit to reinvest in improving its processes and products.
  • The number of units sold (n) should increase with time as more people buy your product/service. It means you need to improve your production capacity or sales team to continue attracting new customers even after all existing customers have bought from you. You also must ensure that your production process is not disrupted by external factors such as rising costs or labor disputes.

While many factors contribute to a business's scalability, specific characteristics make a company more scalable than others.

4 of the most common factors to consider before scaling a business:

1. Business Model

The business model is one of the most critical components of a scalable business. It is the set of processes and procedures that support the company's service or product offering.

2. Product

The product can also be considered part of a business model because it helps companies provide value to consumers.

3. Operations

Operations involve everything from sales, marketing, and customer support to shipping, finance, accounting, and logistics.

4. Infrastructure

Infrastructure refers to everything from information technology (IT) systems to physical infrastructures like buildings and transportation networks.

What Are Examples Of Scalable Businesses?

Below is a real case study of scaling up and increasing student enrollment for an online school

Your Strategic Marketing Partner has scaled many businesses through superior marketing strategies. 

For example, Your Strategic Market Partner recently worked with a niche online school offering a wide product selection, serving a very specific target audience. 

Our first objective was to identify several Key Performance Indicators (KPIs). Over time, we carefully monitored these KPIs and established a reliable set of marketing metrics and internal benchmarks that guided the marketing department. 

In this scenario, we kept careful records that let us learn from 24 months of metrics, at any given time. With each passing month, we measured online and offline metrics such as:

  • Website visitors 
  • Customer sources 
  • Lead conversion rates 
  • Enrollment conversion rates 
  • Enrollment counselor conversion rates for training purposes
  • Customer transaction history 
  • Advertising spend 

Our second objective, and because this school did a large portion of ecommerce and online transactions, we also did strenuous forecasting models and inventory management models in order to ensure ample inventory was on hand at every stage. 

Third, we tested our marketing hypothesis that if we increased our marketing budget by “X”, we were confident in knowing that this would reliably produce a factor of “5X”.

For example, we learned that when we increase our marketing budget by $1,000, we had confidence it would produce $10,000 in sales revenue.

And, when we increased our marketing budget by $10,000, we had confidence it would increase our sales revenue by $100,000.

We tested this vigorously and embedded this process into our marketing campaigns. Always testing small, and then carefully scaling up bigger.

As we regularly ramped up our marketing budget, we found that this produced the need for more support staff to address inbound telephone calls and to handle customer enrollments and support needs.

In this example, one marketing strategy we deployed to scale up the business was pay per click advertising (PPC). This advertising source was one of many that reliably brought us targeted traffic and generated lead flow that reliably brought in a steady stream of leads and new course enrollments. 

The big take-away in this example of scaling a business was this: 

We didn’t increase marketing spend by 10X overnite. We did increase marketing spend by over 1,000% over the course of 24-36 months. This allowed the support staff, operations team and administration department to gradually and reliably meet the needs of the growing customer base.

This strategy scaled up the business from less than 30,000 students to nearly 500,000 by taking a strategic, long term approach to scaling the business. Ironically, taking a long term strategic approach produced a relatively rapid increase in growth. 

Some common examples of scalable businesses include:

Online Retailers

Online retailers have increased over the past decade as consumers have become increasingly comfortable buying products from their homes and offices. As online retailers grow, it becomes easier for them to provide new features and services that will appeal to new customers and keep them coming back for more.

SaaS Companies

Software as a service (SaaS) companies have become popular because they offer the technology at an affordable price without requiring users to buy expensive software licenses or support contracts. These companies typically offer their software via an internet connection and charge for customer support through phone calls or email exchanges instead of monthly fees.

As these businesses grow, they can offer additional features and services that allow them to attract more customers who want more features or services than they initially offered

Large Retailers

The likes of Walmart and Amazon (annual revenue of over $100 billion) sell products at low prices and receive high volume from their customers. They can expand their operations with little cost because they can rely on economies of scale and take advantage of economies of scope.

Small Businesses

Smaller businesses like GoDaddy provide domain registration services through its website at affordable prices, allowing them to continue operating even as competitors compete for customers.

They can expand their operations with little cost by leveraging brand name recognition and customer relationships.

Micro- enterprises

Micro-enterprises such as Etsy, the online marketplace where individuals can sell handmade items, provide unique products made by independent artisans at affordable prices while growing in size by attracting new customers through word-of-mouth marketing.

Wrap Up

What makes a business scalable is its ability to grow without losing profitability. 

Scalability involves a business's ability to scale up or increase its size without compromising the quality of its products or services.

Scalable businesses have the potential for growth and expansion, which is essential for companies that want to keep pace with changing market conditions.

References

  1. When is more better? The impact of business scale and scope on long-term business survival, while controlling for profitability: https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.568
  2. How to Scale a Business: https://www.score.org/blog/how-scale-business
  3. Measuring business model innovation: conceptualization, scale development, and proof of performance: https://onlinelibrary.wiley.com/doi/abs/10.1111/radm.12186
  4. Leading and Organizing a Business Model Innovation Factory: https://onlinelibrary.wiley.com/doi/abs/10.1002/9781119205234.ch8 
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