Entrepreneurs are the lifeline of any nation’s economy. They create jobs, they elevate the quality of living by innovating products and services and they pay taxes which fuel the economy.
However, the worst thing that can happen to an entrepreneur is to get stuck in the trap of ‘Self-employment’ where you invest your time, money, skills on a profession which is unstructured and suffers from the inconsistency of effort and returns.
The true worth of being an entrepreneur, for the entrepreneur and the stakeholders of his business, is to be able to build a scalable business. Think about it, there is no value in it for the entrepreneur if he is stuck in the trap of self-employment. In self-employment most entrepreneurs don’t even pay themselves consistently because they are struggling for survival, leave alone growth.
So here are some basic rules on building a scalable business:
Size of the target market
The most basic questions for any business to answer are – “Who is my customer? Whose problems are my products or services solving? Whose needs are my products or services fulfilling?”
The key is to define a specific audience. When an entrepreneur claims that their products are services are required by everybody, you can be sure that nobody will buy them. It is imperative to know who exactly the target customer is.
Are you targeting the B2B or B2C segment? What is their demographic profile from the point of view of age, sex, gender, location, income, designation? What is the psychographic profile – their likes, dislikes, habits, beliefs, notions? This gives a clear direction to the business to know who its target consumer is.
Once this is clearly defined, the other critical question to answer as a business is – “How big is this market? How many potential consumers or buyers do the products or services have?” If the market for your products or services is not sizeable or is vastly distributed with a significant concentration of buyers, then you are wasting your time on a business which is not scalable.
Scalability of Distribution and Delivery
In most cases, entrepreneurs believe that they have a large audience to serve when they answer the first question – size of target market. But the true test of the scalability of a business model is when it can be defined how many customers the business can handle and how it can acquire a massive number of customers.
The questions to reflect are – Is the business a pure services model where the scalability depends on the number of people you can hire, train and deploy for the projects? In that case, the ability to invest into people’s salaries, infrastructure, skill development of people and the ability to acquire projects becomes the defining factor of scale.
Is it a tech product where the scalability depends on how many customers the business can acquire? Does scalability dependent on new product innovation where one needs to constantly add new offerings for the customers to keep buying from you? Or is does the business’ scalability dependent on setting up channel partners like franchisees, distributors, dealers, agents and affiliates?
Making your functions functional
Any business has 7 functions i.e. Marketing, Sales, Operations, R&D, Accounts, Human Resources and Management. In a scalable business, the entrepreneur has systems and teams in each one of the functions which keep the business moving forward and continuously evolving.
Scalability is not possible if everything is dependent on the entrepreneur. Every function needs to function consistently and simultaneously for the business to scale.
Build a 2nd line team of leaders who are functional experts
For the business to scale, it is imperative to have a 2nd line team of leaders who are competent enough to run the business functions without the business owner. Without a 2nd line team, the business owner will surely get sucked into day to day operations.
This puts a huge cost on the business, as the business owner’s time which should be dedicated towards growing the business is utilised in fighting daily fires, thus hampering scalability.
Build simple systems
The moment I mention the word ‘systems’, small and medium business owners start justifying saying – “Systems don’t work”, “Systems slow things down”, “Jugaad is the best system” or “People don’t follow systems”.
But here’s the thing – “If a system is slowing things down, then it is not a system and if a system is not simple, then it is not a system.” The challenge that most entrepreneurs have is that they do not have adequate knowledge about the topic of ‘systems’ and their idea of systems are the traditional sciences around process building and compliance which are actually outdated and are not agile enough for a small and medium business.
Systems are a necessity for scalability. No systems = no scalability.
Now I want you to take these 5 rules of building a scalable business and run with them. Acquire more skills and knowledge in these areas and I promise you that your game will change.