Business Scaling: Validating Your Product At Scale

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	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 Concepts	Description	When to Apply
Business Scaling	Business scaling involves expanding operations to accommodate increased demand and grow revenue without significantly increasing costs. It typically requires strategic planning, infrastructure development, and resource allocation to support growth.	– When experiencing rapid growth or increased demand for products or services – When seeking to capitalize on market opportunities and expand market share – When preparing for international expansion or entering new markets – When aiming to increase revenue and profitability through growth strategies
Organizational Growth	Organizational growth focuses on expanding the size, capabilities, and reach of a business to accommodate increased demand, enter new markets, and achieve strategic objectives. It involves scaling operations, adding resources, and developing infrastructure to support expansion.	– When expanding into new geographic regions or markets – When diversifying product or service offerings to reach new customer segments – When seeking to increase market share and competitiveness in the industry – When preparing for mergers, acquisitions, or strategic partnerships
Scalability	Scalability refers to a business’s ability to handle growth efficiently without compromising performance or increasing costs disproportionately. It involves designing systems, processes, and infrastructure to accommodate increasing demand and workload seamlessly.	– When designing or redesigning business processes and systems to support growth – When evaluating technology solutions to ensure scalability and flexibility – When preparing for surges in demand or seasonal fluctuations in business activity – When optimizing resource allocation and capacity planning
Market Expansion	Market expansion involves entering new geographic regions, demographic segments, or industry verticals to grow the customer base and increase market share. It requires market research, strategic planning, and adaptation to local market dynamics and customer preferences.	– When saturating existing markets or facing limited growth opportunities – When identifying untapped market segments or niche markets for expansion – When diversifying revenue streams and reducing dependency on a single market or customer base – When seeking to capitalize on emerging trends or market shifts
Operational Efficiency	Operational efficiency focuses on streamlining processes, reducing waste, and optimizing resource utilization to improve productivity and profitability. It involves identifying inefficiencies, implementing best practices, and leveraging technology to enhance operational performance.	– When experiencing bottlenecks or inefficiencies that hinder scalability and growth – When aiming to reduce costs and improve profit margins – When optimizing supply chain management, production processes, or service delivery – When implementing lean principles or continuous improvement initiatives
Strategic Partnerships	Strategic partnerships involve collaborating with other businesses, organizations, or stakeholders to achieve mutual goals and create value. It enables businesses to leverage complementary strengths, share resources, and access new markets or capabilities more efficiently.	– When seeking to expand into new markets or industries through strategic alliances – When accessing specialized expertise, technologies, or distribution channels through partnerships – When enhancing innovation and competitiveness by pooling resources and capabilities – When pursuing joint ventures or co-development initiatives
Capital Investment	Capital investment involves allocating financial resources to fund growth initiatives, infrastructure development, and strategic projects. It may include investments in equipment, technology, facilities, or human capital to support business expansion and drive long-term profitability.	– When funding expansion initiatives, such as opening new locations or launching new product lines – When investing in technology upgrades or infrastructure improvements to support scalability – When seeking funding from investors, venture capitalists, or financial institutions to fuel growth – When planning for mergers, acquisitions, or strategic investments to expand market presence and capabilities
Customer Acquisition	Customer acquisition focuses on attracting new customers and expanding the customer base through marketing, sales, and customer engagement strategies. It involves identifying target audiences, creating compelling value propositions, and implementing effective marketing campaigns.	– When entering new markets or launching new products to attract new customers – When implementing targeted marketing campaigns to reach specific customer segments – When optimizing sales and marketing processes to improve conversion rates and customer retention – When leveraging digital marketing channels and social media platforms to expand reach and engagement
Talent Acquisition	Talent acquisition involves recruiting and hiring skilled professionals to support business growth and expansion. It requires identifying talent needs, sourcing candidates, and implementing effective recruitment strategies to attract top talent and build high-performing teams.	– When scaling operations and expanding the workforce to meet growing demand – When entering new markets or launching new business initiatives that require specialized skills – When building a diverse and inclusive workforce that reflects the organization’s values and goals – When implementing talent development and retention programs to support long-term growth and sustainability
Risk Management	Risk management involves identifying, assessing, and mitigating risks that may impact business growth and performance. It includes strategic planning, contingency planning, and implementing risk mitigation measures to minimize the impact of potential threats on the business.	– When expanding into new markets or launching new products with inherent risks and uncertainties – When facing industry disruption, regulatory changes, or geopolitical instability that may affect business operations – When developing crisis management plans to address potential emergencies or unforeseen events – When conducting risk assessments and scenario planning to anticipate and mitigate potential threats to business continuity and resilience