Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
It all starts with a great product. Yes, but for whom?
“Great companies are built on great products.” ― Elon Musk
If you ask any entrepreneur who has survived long enough in the marketplace, they might all answer the same thing. While they will first focus on survival, they will also balance that with building a great product. There isn’t a better market entry strategy than having an incredible product. Yet, an incredible product for whom?
As we’ve seen so far, it all starts by identifying what’s the segment of the market that we want to tackle first to prove the viability of our product. And scale from there. For instance, when Tesla had to develop its first electric car prototype. Rather than starting by wanting to produce the cheapest electric car for everyone. It did the opposite. It started with a premium sports car, what would be called the Roadster, which targeted sports cars’ aficionados, who looked forward to something very unique.
From there Tesla built upon to develop cheaper models for larger market segments. In this specific case, it wasn’t easy at all to execute this plan. Yet it eventually worked out (after many near-death experiences) as Tesla slowly validated the market.
If Tesla had gone all-in with the grandiose plan of developing an electric car for everyone (which is instead a plan that became feasible only by 2020) this would have led to sure failure, with billions of dollars burned on the way?
Once the product has been validated. It might happen that the company still hasn’t managed to balance the various pieces of the puzzle to create a sustainable business model. The more innovative (meaning you’re operating in a new, developing market) is your company, the more time it might take before your business model becomes viable. In fact, as Steve Blank highlighted in his Customer Development Manifesto “Startups don’t fail because they lack a product; they fail because they lack customers and a profitable business model.”
Therefore, the first steps are really toward scaling up the business by tweaking the business model, as the product reaches its initial target market. Once the business model and product are aligned (this isn’t a linear process, and it might require years of trial and error), then the organizational design (or more precisely how you decide to structure your company to keep scaling) becomes extremely important. As Colin Bryar highlighted in his book, ‘Working Backwards: Insights, Stories, and Secrets from Inside Amazon’ “as Amazon grew, we realized that despite our best efforts, we were spending too much time coordinating and not enough time building. That’s because, while the growth in employees was linear, the number of their possible lines of communication grew exponentially.”
Therefore the long-term process looks something like this:
This means that for various stages of growth of the organization, you will need to focus on more and more aspects. The product will always be at the center. Yet, one thing is to have a product that works for a small segment of a market. Another is to have it work for larger and larger segments.
That won’t only change the product itself, as it scales, but it will also need a rebalance of how business models and organizations are structured. For instance, going back to the Tesla case, as a customer it might sound trivial that the company would finally offer a cheaper version of the electric car. Yet, this is a revolution that requires the company to reinvent everything from product development, design, manufacturing, supply chain, distribution, cost and profit centers, and therefore organizational structure!
Key Highlights
- Starting with a Great Product: Successful companies are built on great products. However, it’s essential to identify the specific market segment that the product is intended for. Targeting a specific segment first helps validate the viability of the product.
- Segmented Approach to Scaling: Companies often begin by focusing on a niche or specific market segment to validate their product’s potential. Tesla’s approach of starting with a premium sports car (the Roadster) targeted at enthusiasts validated the electric car concept before expanding to larger market segments.
- Balancing Product and Business Model: Validating the product is the first step, but a sustainable business model is equally crucial. Startups can fail not because of the product, but due to a lack of customers and a profitable business model. Scaling involves fine-tuning the business model as the product gains traction.
- Organizational Design for Scaling: As a company grows, coordinating becomes more complex. The number of possible lines of communication grows exponentially with the increase in employees. Organizational design becomes vital to ensure effective scaling without excessive coordination overhead.
- Phases of Growth and Focus: The long-term growth process involves shifting focus across various aspects. While the product remains central, different stages of growth require attention to business model refinement and organizational design. Scaling involves a continuous cycle of rebalancing these elements.
- Evolution of the Product: As the product scales to serve larger segments, it may undergo changes to cater to the needs and preferences of diverse customers. This evolution impacts various aspects, including design, manufacturing, supply chain, distribution, cost structure, and profit centers.
- Restructuring for Innovation: Scaling often requires significant organizational restructuring to accommodate new strategies and business models. For instance, offering a cheaper version of a product, like Tesla did, necessitates a comprehensive reinvention of multiple aspects of the organization.
Case Studies
Company | Scaling Approach | Product/Market Segment | Balancing Product and Business Model | Organizational Design for Scaling | Phases of Growth Focus | Evolution of the Product | Restructuring for Innovation |
---|---|---|---|---|---|---|---|
Tesla | Started with a premium sports car | Enthusiasts | Validated electric car concept | Adapted organizational structure for growth | Shifted focus as it grew | Offered cheaper electric car | Comprehensive organizational overhaul |
Amazon | Began as an online bookstore | Book buyers | Fine-tuned business model | Designed organizational structure for efficiency | Evolved with different stages | Expanded product offerings | Continuously adapted |
Apple | Introduced the Macintosh computer | Creative professionals | Balanced product and business | Reorganized for global expansion | Adjusted focus over the years | Expanded product line | Established global presence |
Started as a search engine | Internet users | Developed advertising model | Created a matrix-based structure for innovation | Evolved with changing needs | Diversified into many areas | Fostered innovative culture | |
Microsoft | Launched MS-DOS operating system | PC users | Focused on software licensing | Reorganized to manage product portfolio effectively | Adapted to different eras | Diversified product range | Transformed through acquisitions |
Initially limited to Harvard students | College students and beyond | Monetized through ads and data analytics | Expanded teams to manage user growth | Adapted to global user base | Acquired Instagram and WhatsApp | Evolved into a social media conglomerate | |
Netflix | Began as a DVD rental service | Movie enthusiasts | Transitioned to streaming services | Expanded content library and international reach | Innovated with original content | Produced award-winning series and films | Pioneered online streaming |
Airbnb | Started as a platform for renting airbeds | Budget-conscious travelers | Created a two-sided marketplace | Enhanced customer support and trust-building features | Adapted to diverse markets | Expanded property types and experiences | Encouraged unique and local listings |
Uber | Initiated as a ride-sharing service | Urban commuters | Implemented surge pricing and driver incentives | Managed driver-partner relationships and safety | Adapted to regulatory challenges | Expanded into food delivery | Introduced new mobility solutions |
Starbucks | Opened its first coffee shop in Seattle | Coffee enthusiasts | Combined premium coffee with a unique experience | Established regional and global retail presence | Innovated with beverages | Expanded menu and merchandise | Created a third-place experience |
Airbnb | Started as a platform for renting airbeds | Budget-conscious travelers | Created a two-sided marketplace | Enhanced customer support and trust-building features | Adapted to diverse markets | Expanded property types and experiences | Encouraged unique and local listings |
Uber | Initiated as a ride-sharing service | Urban commuters | Implemented surge pricing and driver incentives | Managed driver-partner relationships and safety | Adapted to regulatory challenges | Expanded into food delivery | Introduced new mobility solutions |
Starbucks | Opened its first coffee shop in Seattle | Coffee enthusiasts | Combined premium coffee with a unique experience | Established regional and global retail presence | Innovated with beverages | Expanded menu and merchandise | Created a third-place experience |
Airbnb | Started as a platform for renting airbeds | Budget-conscious travelers | Created a two-sided marketplace | Enhanced customer support and trust-building features | Adapted to diverse markets | Expanded property types and experiences | Encouraged unique and local listings |
Uber | Initiated as a ride-sharing service | Urban commuters | Implemented surge pricing and driver incentives | Managed driver-partner relationships and safety | Adapted to regulatory challenges | Expanded into food delivery | Introduced new mobility solutions |
Starbucks | Opened its first coffee shop in Seattle | Coffee enthusiasts | Combined premium coffee with a unique experience | Established regional and global retail presence | Innovated with beverages | Expanded menu and merchandise | Created a third-place experience |
Airbnb | Started as a platform for renting airbeds | Budget-conscious travelers | Created a two-sided marketplace | Enhanced customer support and trust-building features | Adapted to diverse markets | Expanded property types and experiences | Encouraged unique and local listings |
Uber | Initiated as a ride-sharing service | Urban commuters | Implemented surge pricing and driver incentives | Managed driver-partner relationships and safety | Adapted to regulatory challenges | Expanded into food delivery | Introduced new mobility solutions |
Starbucks | Opened its first coffee shop in Seattle | Coffee enthusiasts | Combined premium coffee with a unique experience | Established regional and global retail presence | Innovated with beverages | Expanded menu and merchandise | Created a third-place experience |
Airbnb | Started as a platform for renting airbeds | Budget-conscious travelers | Created a two-sided marketplace | Enhanced customer support and trust-building features | Adapted to diverse markets | Expanded property types and experiences | Encouraged unique and local listings |
Uber | Initiated as a ride-sharing service | Urban commuters | Implemented surge pricing and driver incentives | Managed driver-partner relationships and safety | Adapted to regulatory challenges | Expanded into food delivery | Introduced new mobility solutions |
Starbucks | Opened its first coffee shop in Seattle | Coffee enthusiasts | Combined premium coffee with a unique experience | Established regional and global retail presence | Innovated with beverages | Expanded menu and merchandise | Created a third-place experience |
Related Market Development Frameworks
Stages of Digital Transformation
Platform Business Model Strategy
FourWeekMBA Business Toolbox
Asymmetric Betting
Additional business resources:
- Types of Business Models You Need to Know
- The Complete Guide To Business Development
- Business Strategy: Definition, Examples, And Case Studies
- What Is a Business Model Canvas? Business Model Canvas Explained
- Blitzscaling Business Model Innovation Canvas In A Nutshell
- What Is a Value Proposition? Value Proposition Canvas Explained
- What Is a Lean Startup Canvas? Lean Startup Canvas Explained
- What Is Market Segmentation? the Ultimate Guide to Market Segmentation
- Marketing Strategy: Definition, Types, And Examples
- Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
- How To Write A Mission Statement
- What is Growth Hacking?
- Growth Hacking Canvas: A Glance At The Tools To Generate Growth Ideas
Case studies:
- How Does Facebook Make Money? Facebook Business Model In A Nutshell
- Tesla Business Model In A Nutshell
- How Amazon Makes Money: Amazon Business Model in a Nutshell
- How Does WhatsApp Make Money? WhatsApp Business Model Explained
- How Does Google Make Money? It’s Not Just Advertising!
- The Google of China: Baidu Business Model In A Nutshell
- How Does Twitter Make Money? Twitter Business Model In A Nutshell
- How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
- How Does Pinterest Work And Make Money? Pinterest Business Model In A Nutshell
- Fastly Enterprise Edge Computing Business Model In A Nutshell
- How Does Slack Make Money? Slack Business Model In A Nutshell
- Fastly Enterprise Edge Computing Business Model In A Nutshell
- TripAdvisor Business Model In A Nutshell
- How Does Fiverr Work And Make Money? Fiverr Business Model In A Nutshell