If you’ve watched the TV programme ‘Dragon’s Den’, you’ll know that ‘scalability’ is an important factor when it comes to investing in a business.
Scalability is all about having a business that delivers future rewards exponentially as a result of the time and money invested.
Without it, a business is going nowhere – and yet, many would-be entrepreneurs don’t stop to think how many years may be wasted in chasing a dream that will always be just that.
So, can scalability be achieved against all the odds? Or does there have to be an almost pre-ordained likelihood that it’s there from the start? And if scalability can be achieved when a fledgling business doesn’t appear to ‘have it’, what are the tools an entrepreneur can use?
The tired aphorism (and back-handed compliment) that Britain is ‘a nation of shopkeepers’ must stem in part from the realisation that so many people who achieve their dream of being self-employed are, in reality, setting up a ‘lifestyle business’.
Some would say that these aren’t ‘real’ businesses. If you can’t employ a dozen or so people in the first couple of years, you’ve probably got a lifestyle business on your hands that will never grow to the heights you dreamed of when you first set out on your glorious venture.
What are the pointers to look out for when you’re first starting out? Or when you may be tempted to go into partnership with someone? Or even become a business investor, Dragon’s Den-style?!
We’ve all heard of ‘economies of scale’. Applying the concept in real life does in fact have some correlation with a business that will grow through scalability.
We may be talking chicken and egg situations here, but business growth is closely tied-in with the ease with which labour can be added to the mix. It should also respond well to introducing automation and/or technology to develop the business and grow turnover and profitability.
You should also consider how responsive a business is to investment, and to adding geographical locations for more effective market penetration, whether that’s across England, the UK – or the world!
Another crucial input is marketing. Return on investment (ROI) is dictated by the potential returns that may accrue from a range of marketing activities.
Chief among these will be the sales function. ‘Elasticity of investment’ will also be affected by cultural and language issues if you’re planning to expand abroad. Distribution channels are obviously important; as are the potential margins you need to make the business viable.
Synergy and All That…
At the outset, vague notions such as ‘efficiency’ could become make or break in the scalability stakes. What you’re looking at here is how much productivity you can squeeze out of every pound invested.
Adam Smith, the 18th century economist, was ahead of his time when he talked about ‘division of labour’. Incremental profitability depends so much on breaking down business activity into its component processes and then consolidating and managing these functions to create a total product or service.
Synergy begets scalability, you might say. And maybe this is where the greatest clue lies in foreseeing whether a business has the potential for growth.
A frequently vaunted USP on Dragon’s Den – by entrepreneurs and Dragons alike – is being able to fill a niche in the market. This begs the question as to whether the product/service has more than mere novelty value? Is it ‘first to market’ – or a ‘me-too’ proposition that may nevertheless appeal in other ways?
There’s no doubt that the emotional appeal of your offering will play an important role in the scalability of an enterprise. Alongside this all-important emotional component, however, is the need to make a hard-headed business assessment that draws heavily on age-old marketing criteria.
Driving Piggies to Market
Marketing is a common sense activity. Timeless even. Here are some obvious questions to ask in pursuit of lasting success:
Is your pricing right? Does the product or service have wide and lasting usefulness, social cachet or style? Is the product life-cycle long enough to sustain, or add value to, the business?
Can it be developed to create a bigger stable of linked products? And, very importantly, is there enough meat on the bone to develop a strong and sustainable brand?
Mastering these elements will differentiate a lacklustre business from a real force in the market-place. There will of course be many unknowns that entrepreneurs and investors will have to confront along the way. That’s why it’s important to recognise red flags from Day One.
The experienced investors of Dragon’s Den usually make the right call when they decline to invest. They know all about scalability and elephant traps. Entrepreneurs would therefore do well to study what ultimately leads the Dragons to utter those very final words: “I’m out!”
About the author:
Mike Beeson is a copywriter and journalist. To find out more about his company, visit: http://buzzwords.ltd.uk/freelance-copywriting/financial-copywriter