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.
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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
Google
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
Facebook
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
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
In simple terms, market validation is the process of showing a concept to a prospective buyer and collecting feedback to determine whether it is worth persisting with. To that end, market validation requires the business to conduct multiple customer interviews before it has made a significant investment of time or money. A transitional business model is an example of market validation that helps the company secure the needed capital while having a market reality check. It helps shape the long-term vision and a scalable business model.
Market orientation is an approach to business where the company focuses more on the behaviors, wants, and needs of customers in its market. A company will first target a niche market to prove a commercial use case. And from there, it will create options to scale.
In a tech-driven business world, companies can move toward market expansion by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
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.
Developing a successful business strategy is about finding the proper niche, where to launch an initial version of your product to create a feedback loop and improve fast while making sure not to run out of money. And from there create options to scale to adjacent niches.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
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.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
