Discover the key to sustainable business growth as we debunk myths and explore effective scalability strategies.
Are you an entrepreneur with a fantastic new business idea? You’re filled with excitement, envisioning your idea taking off in the market. But there’s a crucial question: Can it truly grow and thrive?
Scaling your business means expanding without losing its core essence. It’s not just about getting bigger; it’s about sustainable growth that adds value at every step, a blend of art and science.
In this blog, we’ll explore common growth misconceptions and the importance of understanding your audience and managing scaling costs. Plus, we’ll share four secret strategies to unlock your idea’s full scalability potential.
Three steps to successful scaling
Scaling your idea or business involves three essential steps that you should grasp:
- Beware of Voltage Drop: When you expand an idea that worked well on a small scale, it can sometimes lose its profitability. For example, Theranos, a health-tech company, promised groundbreaking portable blood-testing technology but couldn’t make it a reality. They faked results to save face, leading to a massive downfall. So, make sure your idea can grow without losing its effectiveness.
- Know Your Audience: Understanding your target audience is crucial. Kmart’s failure with the Blue Light Special sales is a classic example. They standardized discounts without considering what their regional customers actually wanted. To scale successfully, you need to cater to your audience’s needs.
- Avoid the Cost Trap: As you expand, your goal should be to become more efficient and reduce costs. If your idea becomes more expensive as it grows, it’s a problem. Consider whether your budget can support scaling without compromising on essential elements. Arivale, despite initial success, fell into this trap when their personalized services became costlier as they expanded.
To sum it up, scaling is a tricky balance. Focus on improving the strong parts of your business, understand your audience, and control costs as you grow. With these foundations, you’ll be better prepared to unlock your idea’s scalability potential using the four secrets ahead.
Boosting growth with incentives: The first step to scaling
In our journey to scale up, it’s time to introduce the first secret weapon: incentives. Think of incentives as those gentle pushes that guide everyone in the right direction, from your employees to your customers.
Remember how Uber used to be? They had a no-tipping policy, which passengers loved. But then, things changed when Lyft introduced in-app tipping for drivers. Uber followed suit. More drivers joined, but it didn’t magically make the service better or drivers wealthier. Surprisingly, only 1 percent of passengers consistently left tips. However, this tipping saga revealed the incredible impact of adjusting incentives to suit your situation.
Now, let’s dive deeper into incentives. Usually, you do the work and then get rewarded. But what if you received the reward upfront and had to work to keep it? This is known as the clawback approach, playing on the instinct to hold onto what you’ve got.
Take Wanlida Group, a Chinese electronics manufacturer, as an example. They brilliantly used the clawback strategy, giving employees an upfront bonus they could keep if they met their weekly production goal. The result? Productivity soared by over 1 percent. What’s great about this approach is its universality; it works in various cultures and situations. Even small bonuses can inspire behavior change when viewed as something you might lose.
However, there are some things to be cautious about. First, people who’ve experienced a lot of risk may not be as bothered by potential losses. Second, ethics matter a lot. You can’t set unattainable targets that stress your team; you must deliver bonuses when your people achieve their goals.
Now that you see the benefits of using incentives in your business strategy, let’s move on to the next secret: thinking marginally.
Making better business choices with marginal analysis
Always think about the details.
You know those moments when you’re deciding between a candy bar and an apple at the store or choosing between a gym membership and a new apartment? That’s a cost-benefit analysis, a way of thinking that’s also handy for growing your business.
Thanks to the “marginal revolution” from the late 19th century, we now understand how to assess value without going too deep. Gold costs more than food because it provides more satisfaction, or “utility.” When running a business, you should practice this thinking. Just collecting data isn’t enough; you need to dig into it to find what works, what doesn’t, and where you can improve, similar to choosing an apple for better health.
However, this thinking comes with a tough aspect: mistakes. We all make them. When thinking on the margins for your business, you may realize you’ve already spent resources you can’t get back. It’s tempting to invest more to fix these mistakes, but that’s often not wise. You must be willing to cut your losses.
Admitting you’ve made a mistake can be challenging, but it’s worth it. Some businesses rotate employees to get fresh perspectives regularly and avoid staying stuck.
Take Lyft as an example. CEO Logan Green and his team noticed that Facebook ads were less effective than Google ads due to a failure to consider the margins. They shifted their budget from Facebook to Google, saving costs when COVID-19 hit.
Like Green’s team, you need to think about the margins to make positive changes in your business. Now that you grasp marginal thinking, let’s move on to the next scaling secret: knowing when to quit.
The importance of knowing when to quit
Winning sometimes means knowing when to quit. Recognizing when to stop is just as important as pursuing your best ideas. This may seem counterintuitive because we often hear advice about perseverance, but it’s closely tied to a concept called ‘opportunity cost.’
Opportunity cost means that when you choose one path, you’re giving up the chance to explore other possibilities. Smart quitting is all about using your time, energy, and resources wisely – it’s like making a good trade.
For example, consider John List, an author and economist. Imagine if he had pursued a career as a professional golfer. While golf might have been personally fulfilling, his skills as an economist enable him to have a more significant impact on his field and society. This doesn’t diminish the value of golf but highlights the need to recognize and utilize our unique talents. Sometimes, it’s crucial to realize when to quit one path and choose another that lets us make a more substantial difference in life.
Understanding when to quit isn’t easy. It means accepting that the time and effort you’ve already invested in something belong to the past. Those past investments shouldn’t influence your future decisions. Instead, focus on what you can do now and in the future to make the most of your resources.
In summary, recognizing when it’s time to quit is essential. Don’t be afraid to pivot toward something that could bring better and longer-lasting results. While letting go of an exciting but unprofitable idea can be tough, the benefits outweigh the emotional and practical costs. So, regularly assess your path, consider opportunity costs, and be ready to change course when needed.
Building a healthy company culture
Scaling your business is crucial for success, but don’t forget about growing your company’s culture too. Your culture, which includes your values and how people behave, can greatly impact your journey to success.
To build a culture that can grow with your company, follow three important steps:
- Avoid the Pitfalls of Meritocracy: Meritocracy might sound good, but it can go wrong. Look at Uber as an example. They claimed to reward merit, but in reality, favoritism and politics took over. This created a toxic workplace where only the most outspoken employees at the top were heard, leaving others feeling ignored and unappreciated. When combined with their aggressive culture, it caused talent to leave and scared off potential hires.
- Prioritize Trust and Teamwork: Trust and teamwork can create a healthier and more productive workplace. Netflix is a great example of this. They trust their employees to do their jobs without constant supervision. This trust leads to better performance and a positive atmosphere. Netflix also links compensation to overall success, encouraging cooperation and healthy competition. This strategy allowed them to grow without harming their business performance.
- Be Generous with Apologies: Mistakes are inevitable, but how you handle them matters. It starts with having a culture that values apologizing when things go wrong. For instance, Uber could have managed reports of serious driver issues better if they had sincerely apologized to their customers. Unfortunately, they didn’t, and their reputation suffered as a result.
Growing your company culture is crucial. It’s not just about the numbers; it’s about the people who work in the environment you create. A healthy and inclusive culture doesn’t happen by chance – it requires intentional and consistent efforts on your part.
In conclusion, by embracing the key elements of successful scaling – trusting your instincts, strategizing and delivering enticing incentives, adopting a marginal thinking approach, shedding ineffective practices, and cultivating a scalable company culture – you are ready to make your business growth strategy even stronger. With these essential steps in your arsenal, you’ll be well-equipped to unlock your business’s untapped potential.
Inspired by a book “The Voltage Effect”; John A. List”