What Types of Businesses Will Scale the Fastest and Easiest?
The answer is really about which “business models” scale faster and easier rather than which “businesses” in general. You can be in the same business as someone else but have a different business model that is far superior.
For example, if you are in the software business, you’d rather have a packaged product than be a custom software developer and your rather bill quarterly in advance than monthly in arrears.
The question of a scalable business model is one of the most critical questions that sets the stage for a really successful and profitable business and one that I learned the hard way. Therefore, it is paramount that you figure this out at the business plan stage.
The most critical aspects of a business plan that make it scalable are the following (it’s really important to focus on “easy to scale”, because that enables “fast to scale”):
Repeatable offering: The ability to sell the same offering over and over again to all customers with the same product or process content in a cookie cutter fashion
Scalable offering: The ability to create an offering once and sell it to an infinite number of additional customers with little or no incremental COGS or direct labor for each additional customer (think software, books, videos, digital music, etc.)
Scalable operations: The ability to increase the number of units produced and delivered and experience a decrease in the average overall cost of each unit (including G&A costs)
Scalable financial model:
Short cash cycle: The ability to get paid by the customer prior to, or at the same time as, you experience the cost of creating, selling, and delivering the offering which enables you to growth infinitely without external capital
Recurring revenue: The ability to develop a contractual, recurring relationship with the customer that creates more predicable revenue growth and higher LTV (lifetime value)
Less time to develop:
Fewer capabilities: Very few distinct internal capabilities or different business processes that are required to be developed to execute upon the opportunity
Short development timeframe: A very short amount of time required to bring the new offering to market (create, test, perfect, etc.)