If you want to scale your business, your starting place should always be your business model. Why? Because your business model is the foundation for all scalability. Simply put, if your business model isn’t scalable, by definition, you can’t build a scalable business.
For example, if your business is primarily dependent upon you and your efforts, by definition, your business can’t scale (i.e. you’re a limited resource with only so many hours available. If you can only handle ten clients at a time, you can’t handle 100 or 1,000 or a million). Likewise, if your business model depends upon a lot of customizable work, your business model can’t scale.
Or if your business model depends upon a lot of highly talented individuals, it’s difficult to scale because a) those people are usually hard to find and b) they’re usually expensive. Or if your business model has a linear relationship between revenue and cost, it’s hard to scale because scaling requires a lower cost per unit of acquisition (i.e. your profit margin needs to increase). Or if your target market is too small or extremely limited, you’ll be challenged in your ability to scale.
On the other hand, if you have a business model that’s easy to scale, for example a SaaS company (software as a service) where you might have a large development cost to create your software but then a minuscule cost per customer acquired (i.e. bandwidth and storage are cheap), then you can scale to a million users without a lot of additional infrastructure cost.
Now, before you give up all hope for your service-based business, there are a number of ways you can begin to tweak your business model to make it more scalable. One of the mistakes a lot of business owners and entrepreneurs make on this subject is that they think in absolutes—in other words, they use binary thinking—either you’re scalable or you’re not.
However, scalability is a scalable itself. On one end, there are unicorns out there like Facebook, Google and AirBnb. At the other end, there are totally unscalable business models like the solopreneur speaker or the solo attorney. However, most of us are somewhere in between those two points—and that should give all of us hope. No matter where you are on the scale between the unicorns and the solopreneurs, you can take your current business model and make it more scalable.
So, how can you do that? Well, by taking a look at each of the eight components of your business model and playing with each one until you find a MORE scalable version of your business. For example, if you’re leading a VAR (Value-added reseller) business and you currently customize on average 50% of your installs—if you could reduce that to only 10% customization, you’ve just made your business MORE scalable.
That said, here are the eight areas of a business model (my version) and a few quick thoughts about tweaking something in each area (Note: you don’t need to tweak all eight to be more scalable. You might tweak one or three or six of the eight. As long as the end result of your tweaking is a more scalable version of your business than your current business model, you’re on your way).
Note: Due to the length of this topic, I’ve decided to break this post into two parts. This week I’ll give you the first four. Next week you’ll get the final four. I realized that if I gave you all eight, it might feel too overwhelming. So, start with these four and next week you can finish the final four.
1. Your Target Market/ Ideal Customer
If you’ve been following me for any length of time you know I’m a huge fan of the phrase,
“The who always determines the what.”
Everything starts here. So, if you want to make your business more scalable, you might need to tweak your target market. For most business owners and entrepreneurs this usually means narrowing down your focus to a smaller target market/niche that you can specialize in and “own.” Trying to be all things to all people is a recipe for failure (or flat/minimal growth).
For example, trying to teach marketing strategies to anyone who has a pulse and money to spend is hard to market to. Trying to teach a subset of marketing skills, let’s say referral strategies, is much easier to market. And if you dig down a little more, teaching referral strategies to financial professionals is even more scalable. In fact, my friend, Bill Cates, has done just that.
To scale you have to find an identifiable group of people whom you can easily identify and become a hero to. So, how can you tweak your current target market to make it more scalable? Note: sometimes it’s easier to start with who you won’t target and then back your way into your target market.
2. Their Problems
As I said in last week’s post, if you’re in business, you’re in the problem-solving business. However, if you want to scale, you have to find an URGENT problem that a group of people desperately want a solution for. If you’re currently in the “nice to have” business, you’ll find it hard to scale because you’ll have to invest a lot of time and energy marketing to a group of people who you have to convince that they need your solution—which usually leads to a long sales cycle.
On the other hand, when you tweak your current business model to focus on an urgent problem that a specific group of people have, that’s when you can scale quickly because you won’t have to waste a lot of time convincing a significant number of people that they need to buy what you’re offering, they’ll just buy.
So, based on your who, what problem do your ideal customers urgently want solved? Remember, this isn’t about what they should want or might want, this is about what they urgently need/want. When you hit on that (which is your tweak), you’ll have a more scalable business model.
3. Your Solution
Once you’re absolutely clear that you’ve found a target market that can achieve your business outcomes and you’ve identified an urgent pain/want that you think you can fill, the next tweak is to come up with a more scalable solution to that problem.
Going back to the beginning of this post, if your solution requires a lot of custom work or a lot of highly skilled individuals to complete, it’s probably not a scalable solution. You want to find an elegant solution that you can consistently deliver either with normal people or with technology that isn’t overly expensive (like bandwidth and storage).
The problem with expensive technology is a cash/capital acquisition cost problem. For example, if for every thousand customers you have to buy a new expensive machine (let’s say $500K), the cost for customer #999 is relatively very cheap, the cost for customer #1,001 is very expensive.
But, the more important part of tweaking your business model is finding a solution that when you put it in front of real prospects they immediately say, “That’s what I’ve been looking for! I want to buy it now!” When you get that kind of reaction, you can scale fast. When you create a solution that people say, “Hum, that sounds interesting. Let me think about it,” you have a solution that will be difficult to scale (not impossible, just more difficult).
So, how can you either tweak or change your solution to make it a more scalable solution?
4. Your Competitive Advantages
Having a solution to an urgent want is great. However, that alone won’t make it scale. You have to figure out how to differentiate it from all its competitors so that your solution is the obvious choice in your market space.
In other words, you have to find a series of answers to the “Why should I buy your solution over all of the other options I see in this market space?” question.
Of the eight areas, this one should be one of the easiest to tweak. You can add something to your solution. You can subtract something from your solution. You can highlight something. You can quantify something. Etc. You just have to play with your solution and keep tweaking it until you can find a handful of competitive advantages that aren’t just a little bit better, but dramatically better than your competitors.
For example, Zyrtec doesn’t just say, “We’re better than Claritin!” they say, “We work two hours faster than Claritin.” Now, if you’re an allergy sufferer, two hours (or even 30 minutes) is a huge deal closer. So, that’s a great competitive advantage.
If you’re a realtor and you can save people time because it only takes your clients, 4.7 visits to find their ideal home (vs. 20-40 home visits) that’s a competitive advantage for time sensitive buyers who would rather make money than spend time looking at a boatload of homes. Or if you’re an ad agency and your clients normally get a 15X return on their investment with your firm, that’s a competitive advantage.
So, if you want to tweak your business model and make it more scalable, what competitive advantages can you discover (and market) that would drive a rapid influx of new customers into buying your solution? What would make your business the obvious choice in your market?
Well, there you go. The first four areas of your business model that you can start tweaking in order to make your business model more scalable.
Now, to help you play with your business model tweaks, I’m enclosing my version of a business model canvas (The WTG Business Model Canvas). There are several versions of business model canvases available for you to use. However, I think you’ll find this one the easiest to use (or at least I think so :-).
So, if you want to build a more scalable business, make sure you figure out what you need to tweak in your business model to make it more scalable. Do you need to tweak
- Your Target Market/Ideal Customer
- Their Problem(s)
- Your Solution
- Your Competitive Advantages
Once you start tweaking these first four, stay tuned to next week’s post where you’ll discover and play with the final four areas of your business model.
To your accelerated success!