scalable-business-model

What Is A Scalable Business Model? Scalable Business Model In Nutshell

A scalable business model is one where the business can increase its productivity with the same input. A scalable business model is made of various scalable elements, such as: underlying profitability, ability to automate core processes as scaling is achieved, and a strong distribution network to build a solid business.

Understanding a scalable business model

The most successful companies of the modern era can leverage business model scalability to increase their profit. Companies with an online presence in particular are well suited to the model because the technology that underpins them is immaterial and can be scaled indefinitely. 

Consider the example of an online retailer selling coffee machines. The retailer could sell 2,000 machines one month and 20,000 machines the next, but the cost of selling an extra 18,000 machines does not rise in accordance with the increase in sales. In other words, the unit cost of each coffee machine declines as the business expands.

The scalable business model enables the company to grow without being constrained by its available resources. The model can also be effective in the offline world provided the company has a quality product or service that can be standardized and sold to multiple customers.

How can scalability be improved?

The scalable business model encourages businesses to be able to scale both internally and externally. This can be achieved in the following ways:

Leverage external resources

The most successful proponents of the model leverage external resources. For example, Uber takes advantage of cars and drivers while the Android operating system utilizes phone manufacturers and software developers. This is an important point since external resources will always exceed the internal resources a company has at its disposal.

Automate processes

An obvious point, but one that bears repeating. The more a business can automate its processes, the better it can scale. Amazon has a fleet of around 350,000 robots that automate aspects of order fulfillment and ensure the company can deliver on time.

Outsource where necessary

Scaling requires that the business also outsources tasks that are slow or expensive to perform internally. A competent and trustworthy outsourcing partner can help the business scale more efficiently – particularly if it has access to low-cost labor.

Scalable business model examples

The scalable business model is commonly found in the following industries:

Software

Microsoft is the best example of a software-based scalable model. The company develops updated versions of Windows and then sells the operating system to various hardware manufacturers who pay the company a licensing fee. Premium WordPress theme developers also work under a similar mode, licensing their creations to millions of website owners and bloggers.

Online courses

Another example where teachers and skilled or experienced individuals create online courses for others to undertake. Traditional forms of coaching are difficult to scale because the teacher must trade their time for money. However, online courses can be uploaded to various platforms and are popular with students for as long as the content remains relevant.

Franchising

franchising
Franchising is a business model where the owner (franchisor) of a product, service, or method utilizes the distribution services of an affiliated dealer (franchisee). Usually, the franchisee pays a royalty to the franchisor to be using the brand, process, and product. And the franchisor instead supports the franchisee in starting up the activity and providing a set of services as part of the franchising agreement. Franchising models can be heavy-franchised, heavy-chained, or hybrid (franchained).

This is also a scalable business idea because it enables the franchisor to expand their presence cost-effectively. The franchisee is responsible for building, equipment, and staff costs and must also pay an initial fee or ongoing commission. McDonald’s and Starbucks have used franchises to scale their businesses and expand rapidly around the world.

Key takeaways:

  • A scalable business model is one where the business can increase productivity with the same input. The model enables the company to grow without being constrained by its available resources.
  • Scalability can be improved by leveraging external resources, automating processes, and outsourcing tasks where necessary. For best results, the business should focus on both internal and external scaling.
  • Industries where the scalable business model is common include franchising, software, and online courses.

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