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?
- The FourWeekMBA Business Strategy Toolbox
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!
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