Maybe you’ve just had the big business idea that’ll change your life. Or maybe you’re five years down the road and already noticing a few hiccups in your process. You might be dealing with miscommunications between teams, software tools that aren’t pulling their weight, or workflows that crumble when you see new growth. Whether at square one or a little further along, you’re looking to build a scalable business that can grow for years. But how is it done? And what are some of the pitfalls you should watch out for?
Put simply, scalability is the ability to adapt to increased demand. The term can be applied to a number of fields, and it’s usually a reflection of how flexible a system is when handling massive growth. It’s often used to describe how well a computer system can deal with a sudden increase in demand, since these systems often rely on a limited amount of resources.
Ever had a “the server took too long to respond” error when visiting a website? Often, that’s due to a sudden influx of website traffic — increased demand — showing that the website’s servers aren’t very scalable.
Scaling a business can be an exciting yet challenging time. As your company grows, how do you ensure it can handle the increased demand without compromising quality or profitability? Understanding scalability is key.
In this article, we’ll dive into what scalability means, why it matters for businesses, and how you can build a scalable company poised for growth.
What Is Scalability?
Scalability refers to a company’s capacity to adapt and perform well as workload and demands increase. It’s the ability to handle expanded output or load without adding resources, straining systems, or diminishing performance.
A scalable company can:
- Efficiently meet rising customer demand
- Increase output and sales
- Grow revenue faster than costs
- Leverage economies of scale
Scaling allows a business to grow sustainably A company that scales well can maintain or even improve profit margins as workload and production ramps up
Why Scalability Matters
Scalability has become increasingly important in today’s global and digital marketplace. New technologies make it easier than ever for businesses to acquire more customers, enter new markets, and scale their operations.
Companies that don’t focus on scalability early on often struggle to keep up with sudden growth They end up facing bottlenecks in production, logistics, talent, and other areas.
On the other hand, building scalability into your business model and processes from the start allows you to pursue growth opportunities smoothly when they arise.
According to McKinsey & Company, two-thirds of value creation occurs when a company penetrates a large share of its target market. This requires scaling up successfully.
Challenges with Scaling a Business
Many companies run into trouble when trying to scale up. Common issues include:
Losing Focus
As a business grows, it’s easy to lose sight of the core mission and market. Trying to be too many things to too many people diffuses focus and makes sustainable scaling impossible.
Outgrowing Resources
Sudden growth can strain finances, infrastructure, and talent. Important processes like hiring and onboarding new employees may not be robust enough to support expansion.
Compromising on Talent
In rapidly scaling companies, there can be pressure to hire anyone just to fill roles. Lowering the talent bar early on creates a ripple effect that’s difficult to undo.
Accumulating Tech Debt
Technical debt refers to the implied cost of scaling systems and tools that are quick and convenient but not optimal. This debt will need to be addressed down the road.
Moving Too Fast
Growing too quickly can be just as dangerous as stagnating. Rapid scaling can lead to uncontrolled sprawl and poorly integrated operations.
How to Build a Scalable Company
Creating a strategic scaling plan is crucial to growing sustainably as a business. Here are some key areas to focus on:
Clearly Define the Business
Before attempting to scale, make sure the core business model – including target customers, products, and processes – is well-defined and aligned on by leadership.
Invest in the Right Team
Don’t compromise on early hires. Bringing on skilled people who align with the company’s values and vision is key for propagating an effective organizational culture.
Codify the Culture
Write down and actively reinforce the behaviors, norms, and unspoken rules that embody the company’s cultural values. This helps maintain consistency even through periods of rapid team growth.
Structure Roles Thoughtfully
Create leverage for the founders by building out specialized roles and management structures. Hire or develop leaders to own decision-making in their domains.
Upgrade Systems
Pay down technical debt incrementally. Replace duct-taped tools with robust and thoughtfully integrated systems suited for scale.
Control the Burn Rate
Keep fixed overhead low and costs flexible early on so you can ramp up without a huge capital burden. Make financing align with growth plans.
Expand Deliberately
Be intentional about growth opportunities. Methodically move into new products, services, markets and geographies in ways that align with long-term strategic goals.
Examples of Scalable Companies
Some companies are shining examples of scalability done right:
Amazon
Amazon’s logistics and distribution systems are designed for elasticity to smoothly handle enormous spikes in order volume like Prime Day. Robotics and automation boost scalability.
Uber
With just an app and no need to maintain physical fleet inventory, Uber can easily scale up drivers and riders in a region to match demand.
Slack
Slack’s team communication tool is built on a flexible cloud infrastructure that allows quick expansion of storage, bandwidth, and features to support user growth.
Facebook uses predictive analytics to estimate future usage spikes. Network capacity, data centers, and servers are scaled up proactively to provide consistent performance as more users join.
Airbnb
Airbnb’s platform model means inventory scales up as more hosts join. The review system builds trust to facilitate interactions between strangers, reducing the need for quality oversight.
Signs Your Business Isn’t Scalable
How can you tell if your company isn’t scaling well? Watch out for these warning signs:
- Slowing revenue growth
- Rising customer acquisition costs
- Plateauing production capacity
- Poor cash flow
- Loss of agility and control
- Declining product quality
- Mounting technical debt
- High employee turnover
- Decreased customer satisfaction
Scaling a Business Takes Strategy
Scaling a business sustainably requires forethought, discipline, and commitment. By focusing early on building scalability into your model, systems, and team, your company can smoothly seize growth opportunities that arise and create lasting value.
What has your experience been with scaling up a business? What lessons have you learned or challenges faced? Share your insights below!
What is a scalable business?
If you follow the definition of the word scalability, then a scalable business is one that can handle growth. Not just a sudden spike in growth, but sustained growth over time, too. In sectors that are dominated by rapidly-growing startups — like tech — scalability is a huge differentiator. A business that initially outpaces its competitors but isn’t scalable might completely collapse given a long enough window. Or it’ll go through rounds of layoffs.
A business can only be made scalable purposefully. Sure, scalability might not be the first thing on your mind when you’re working on a new business idea in your garage, but eventually it’ll become a problem you need to deal with. When you go from a team of one to a team of 10, you’ll run into situations that’ll challenge your business’ scalability. And it’ll happen again when you grow from 10 to 50, and so on. If you make your business scalable early, it’ll be able to handle these speedbumps.
So how do you do it?
Spend as little as you can
Spending money and recruiting aggressively was the name of the game for most tech startups in the past few years. But if the latest rounds of layoffs are anything to go by, it seems like this wasn’t the right approach. Now building a scalable business doesn’t mean you have to be profitable right away, but you do need to keep a careful eye on your cash flow (and burn). That way, you’ll have a bigger war chest when your business suddenly needs to scale rapidly. If you can’t cut costs, you can look for ways to spend more efficiently on things like SaaS tool licenses.
When you’re starting small with big dreams, you quickly have to learn which corners you need to keep and which ones you can cut. In software development, that’s how technical debt happens; teams focus on fixing a problem now rather than finding the best way to fix it. Then, when they have more time, they go back and pay that debt down. All teams can learn from this approach. Focusing on the boxes you absolutely need to check off rather than obsessively checking them all means you’re managing resources in a more scalable way.
If you’re here, you’ve already started this work! Trying to build a scalable business is just like any other challenge; you need to know what you’re up against. By researching the risks, you’ll know where your business is prepared to scale and where it’s not. That way, you can put resources where they’re needed. You can also create regular risk reports to track how prepared your business is for these risks over time.
What is Scalability | Explained in 2 min
What is a scalable business?
Scalable businesses also have consistent brand messaging across their divisions and locations. A lack of brand enforcement sometimes causes companies to lose sight of their core value, thus decreasing scalability. Yahoo is an example of this. After the company scaled up quickly, it lost sight of its core business and suffered as a result.
What is scalability in business?
Scalability in the context of business is an organization’s capacity to maintain or improve its performance concerning profitability or efficiency as its sales volume or workload increases. It is the ability of the organization to increase capacity to meet sudden surges in demand.
Why is a scalable company important?
Scalability is an important factor in a company’s success because it allows a business to grow and generate revenue without being held back by its structure or lack of resources. As a scalable company’s sales volume increases, it can maintain or boost its efficiency instead of imploding.
Why is scalability important for a tech company?
Successfully implementing scalability can increase your company’s profit margins and increase efficiency. Tech companies can scale quickly because of a lack of physical inventory and software-as-a-service (SaaS) model, which produces goods and services in software that people can purchase and download from websites.
