Entrepreneurs dream about it. Business schools write about it. Angel investors search for it, and venture capitalists drool over it.
It, in a word, is scale.
If your business has the potential to grow quickly, plan on becoming very popular.
“Scaling up” has become a cliché, and, as is the case with many overused phrases, its original meaning has become a little blurry.
For me, a business model that scales up has the potential to grow significantly without compromising the fundamental economics of the business.
If you want to know if your business has the potential to scale up, ask yourself if it could be 10 times the size it is now, and still maintain or grow its profit margin.
As you contemplate what it would take to be 10 times bigger, consider these basic ways to scale up a business:
Will your business concept work in another city?
For example, Mia and Jason Bauer started selling their $4 cupcakes on Manhattan’s Upper West Side in 2003. Realizing there were other well-to-do communities of people who might like to splurge on a pink lemonade or chocolate sundae cupcake, they expanded geographically.
Today the Bauers operate more than 30 Crumbs Bake Shop outlets across the United States. and bake more than a million cupcakes a month.
Could you transplant your business to another city and have it work just as well?
Do you have a brand that resonates with a specific audience? If so, you may have the raw material to scale up your business by selling more things to your existing customers.
For example, Richard Branson’s Virgin brand stands for giving customers an alternative to the fat, greedy or lazy incumbents taking advantage of them. Mr. Branson’s idea resonates with a certain psychographic, and he’s scaled up his concept to everything from train travel to mobile phones to credit cards.
What else could you sell to your most loyal customers?
If your existing infrastructure (staff, machinery, office space) could handle more customers without adding much to your variable costs, you have the ability to scale vertically.
For example, imagine a 200-room hotel that averages just 75 guests a night. It has the potential to scale up more than two times before it would have any significant infrastructure investments to make.
What would have to change in your company to handle 10 times the number of customers?
If your idea works in one culture, will it achieve the same success in other cultures?
For example, Charlemagne Mayot founded Paul Bakery in the city of Croix, France, in 1889. Given the French obsession with fresh bread (the French measure freshness in minutes, not days), it’s not surprising that Paul grew steadily over the last century and today is as ubiquitous in France as Starbucks is in the United States.
What’s more interesting is that the cultural appeal of fresh bread has scaled beyond France’s borders, and now Paul offers fresh French bread in 19 other countries, from Spain to the United Arab Emirates to Japan.
Would your idea cross cultural lines?
The beauty of having a scalable business is that you don’t actually have to do the hard work of scaling it up to attract the attention of outside investors or acquirers. The mere appearance of scalability can create a long line of people who want to buy all or some of your business.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He is the author of Built To Sell: Creating a Business That Can Thrive Without You, published by Portfolio Penguin.
Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzTReport Typo/Error