Updated on August 15th, 2022
Scalable Business Model – it’s the one thing that entrepreneurs dream of. But how achievable is this business model really? To do this, you might need to compare traditional business models with online business models. What is a scalable business model?
A scalable business model is a business mechanism where you can grow profits without fixed or variable costs becoming a limiting factor. They often require lower levels of barriers to entry and reduced customer service requirements. They keep it simple with fairly homogeneous products and split testing makes it easier to determine business decisions.
Traditional bricks and mortar stores require massive amounts of capital investment and they’re also gradually falling out of favour with consumers. The convenience of online shopping shows no signs of abating.
Inputs aren’t a Limiting Factor with a Scalable Business Model
Businesses that employ a scalable business model can always obtain the resources that they need at a reasonable cost.
Preferably this availability would be unlimited.
Let me guess I’m hearing you say that unlimited inputs don’t exist.
Well, infinite resources in a working sense are a thing in the online world. Say that your idea involves promoting products through email marketing.
If you use Google advertising to generate sales and you’re making a profit on each sale burn from my perspective at least, that business is infinitely scalable.
This is because the incoming sales leads are potentially unlimited.
Develop Human Resources that you can Trust.
Developing the ability to trust others is critically important in a growth business.
Adopt the attitude that you have to lose trust in others not that you have to develop trust in others. This will help you to build a team quickly and scale fast.
The criticality of teams in an online business cannot be emphasised enough. As an entrepreneur you simply won’t have time to do everything yourself.
Bring on virtual assistants (VA’s) as early as possible in your journey. This will invariably require time for training and documentation but the payoff is so well worth it. Sites like Upwork can help you to recruit your team of VAs.
Take time when recruiting your VAs to make sure that you can work with their personalities. Give them small pieces of work to do and compare the results.l to find the right candidate.
Avoid Overregulated Industries
Regulation can put a massive break on scalability. Think of the banking industry where you need all sorts of licenses and bureaucratic manoeuvering to expand.
Furthermore building codes and local municipal regulations can slow you down if you want to start a business with a factory or retail shop.
Generally an online business is going to be a better option because there are less governmental hoops to jump through. You will still need to comply with such regulations as the Americans with Disabilities act or the European GDPR.
Split-Testing of Alternatives
The best scalable business models lend themselves easily to testing alternatives for profitability.
For example with a dropshipping business you can test advertising and product combinations until you find a winner. With blogging or affiliate marketing you can try many different types of ad combinations and targeting before you scale up.
Testing is the lifeblood of a scalable business model. The advantage of testing is that it allows us to see what’s possible with a new product or service without risking a lot of capital.
Scaling Google or Facebook Advertising
Many scalable online businesses using Pay-Per-Click (PPC) advertising on Google or other platforms such as Facebook advertising in order to scale up their sales.
There’s a whole methodology to this approach. The aim of many email marketers is to acquire email lists of warm sales leads for free.
This involves trying to match the advertising cost of new leads with some basic level of revenue so that there’s a neutral cost to acquiring the lead. The aim here is to build a database of leads which can then be used to market products to in the future. This future marketing can then become essentially almost 100% pure profit.
Aim for Minimal Customer Service Requirements – scalable business model
Very few of us are in love with customer service. In fact many of us despise it. There is good reason for this as it can be a particular drag on our time as entrepreneurs. Customer service is also really expensive to outsource.
What’s the answer?
The best thing that you can do might be try avoiding customer service altogether in your scalable business model. One way to do this is by focussing on affiliate marketing which has absolutely no customer service requirements.
Another business model that has minimal customer service is content creation including training course creation. You’ll still need to interact with your audience to some extent but not the type of often annoying inquiries that you tend to get with retail operations.
Keep it Simple When Scaling
Your ability to scale a business depends upon how homogenous the product is. When you find a good product / marketing mix combination through your testing, stick with it.
The fast food chain In-n-Out Burger does this really well. They stick to a small menu of their best products and they do those products really well.
Same with your business. Find out the products that you do the best and stick with them. Make those products the ultimate that they can be and customers will keep coming back.
A homogenous product makes it so much easier as there is a reduced span of focus for the entrepreneur.
Summary – scalable business model
To most entrepreneurs, a scalable business is the ultimate dream. Just by adding more inputs you can make more money. What isn’t more attractive?
The reality is that there’s usually limitations on material inputs, finances and human resources. Additionally many industries face high levels of government regulation.
There are however many ideas & opportunities especially in the online business space where scalability becomes very possible.
Frequently Asked Questions
Are all business models scalable?
While it is possible with the right amount of money and resources the reality is that funds are usually limited. So not all businesses are easily scalable.
What limits the Scalability of a Business
Stretched management is a big factor. Large businesses require a focused and devolved team that can attend to the growing needs of the organisation. This can be more difficult than it seems as it requires you to attract talented people.
What are the most scalable business models?
Generally without doubt the most scalable business is an online business selling an informational product. You don’t need distribution channels or premises with many online businesses.
Why is Scalability Important?
Without scalability a business can’t grow. This might be okay for some people who are happy with a small business but the majority of business owners would like to see growth in their prospects.