Every business needs to grow in order to be successful and therefore, even before an entrepreneur begins to give shape to their idea, it is important that they come up with a scalable business model in order to ensure long term sustainability in the market.
If you look at all new age businesses, particularly the tech-enabled ones, they are in a position to scale up much faster (sometimes, even overnight!) as compared to traditional asset-heavy businesses and this quick scalability gives them a definite edge over others in the market.
Capital-intensive approach to business expansion is a big ‘No’
Investing more on infrastructure, network, manpower and R&D in today’s still recovering economic scenario is a tough proposition and very risky since scaling up would involve huge costs and time in setting up the necessary infrastructure and resources. The growth in such businesses is usually linear.
Highly scalable businesses on the other hand, grow exponentially. They are not weighed down by the same sales-cost growth relationship as linear models. Instead, as sales increase, costs stay flat, allowing for higher levels of profit over time. Businesses with high scalability grow with lower capital requirements, making them more efficient, and therefore, more attractive to investors too.
Asset Light businesses have the greatest potential for scalability
Being asset light means lower operating costs and risks. The focus here remains on creating value through the business. The management is therefore able to focus on core risks and opportunities and manage them well, thereby extracting maximum value in the process.
Moreover, an asset light company has the flexibility to expand its reach to a new location at the simple click-of-a-button, increase the number of partners in its network and thus expand its capacity and reach to achieve scalability. Through the modes of outsourcing, asset sharing and licensing, such companies can focus their time and resources on R&D, forming strategic alliances for greater synergies and bringing out innovative products. So, asset light organisations are able to achieve scalability and multiply revenue with minimal incremental cost.