When Demand Begins to Increase, Entrepreneurs Know That’s the Call for Scaling. Here’s How to Respond to It.
Hello Aluxers. According to the UN’s Trade and development body, in 2018, 1.4 billion people shopped online. In 2017 an estimated value of $23.8 trillion in e-commerce sales were made globally. Digital businesses are a big pie, and those that do well in the game have a good product or service offering and are able to scale fast and enjoy a good slice of the pie.
In 2018 Amazon enjoyed a $277 billion slice, while China’s Alibaba feasted on a supersized $866 billion slice. If you’re in the digital business game then this article will help give you some ideas to scale up and increase your profit. If you’re thinking of starting a digital business, then keep this advice in mind in your planning to be able to easily shift gears as you grow.
This topic is really close to our heart, and some of these are the methods we used to scale Alux into the business it is today. Even if you don’t have a business yet, stick around to the end and we’ll give you a great way to start earning today.
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Just like you’d go for scaling when there are more valuable customers to serve, why not go for the video when there’s this new valuable information to absorb:
With this in place, let’s dive right into the article.
Growth vs Scaling
First, you need to understand that scaling a business and growing a business are very different things.
If you hire someone new for customer support, you are not scaling your business, you’re growing it, to keep up with the demand. That new employee won’t double your profit but there will be linear growth and it will help the company to keep up with demand. This goes for adding human talent as well as technology or capital.
Scaling up is the difference between the small fry and the big guns like Amazon and Alibaba. Scalability is being able to serve 1 customer or a million customers without adding resources, or very little. Scalability is what can exponentially grow your profit without having to add effort. For example, if you collect email addresses it takes the same amount of time to send one marketing email as it does to send millions if you automate the task.
For digital businesses to succeed, scaling is a must.
Let’s continue to grow your buzz-word vocab with a more in-depth look at the type of scaling you might need to plan business growth. The first is Vertical scaling.
Vertical scaling is the process that will take your business to a more robust and more appealing place. This is often automating processes in customer services making it easier and simpler for your customers to use your product or service. Introducing AI to trouble shoot the most common problems or questions your customers have.
Or, expand your market offering, if you think of the photo sharing app Instagram adding video, this was a game changer that took over video sharing app Snapchat’s market. The decision was an instant hit with Instagram users, and the demise of Snapchat.
What do you think the next market expansion will be for an app like Facebook? Well we have intel that “facebook dating” is on the horizon. So Vertical Scaling maximises the business you do with existing customers by offering them more or new services or products.
Next up, how to scale a digital business horizontally. Here a digital business enters a new market but is still able to leverage their well-known brand and current infrastructure. Think of the expansion of Uber to UberEats if you will. This was a brilliant move. They already had the software and the drivers on their database, plus a large customer base that could naturally migrate from using a driving service to take-out delivery.
Scaling With New Tech
Companies that look to new tech to scale their business can increase sales and market by making it easier to access their product or service. An example of this is Ikea’s reaction to the Covid-19 pandemic lockdowns.
When many countries went into hard lockdown to contain the pandemic it had a direct impact on people being able to see test furniture in their awesome big showroom retail stores. This didn’t stop Ikea from selling couches to their customers. They quickly adopted AR to let the shopping continue.
Ikea rolled out an Augmented Reality App which allowed you to select furniture and see exactly how it would look in your home exactly where you want it in your home. It was a brilliant way to make it easier to visualise the Ikea products despite being unable to come to go into a store and see the physical object.
This kind of scaling means Ikea just needed to make one investment in an App and they could do more sales, a lot more affordable than building new stores, plus they didn’t need to stop trading during Covid.
You Can’t Scale Humans
A digital business doesn’t grow exponentially if you keep having to employ more people directly correlating to the volume of sales. In other words, if you want to build websites you will eventually hit a maximum that you can make on your own. And you will need to hire another developer. But they can also only do the work of one human, and then you’ll be hiring again. This doesn’t allow you to scale and get more profit for less effort.
How you can scale a business, like website building, is by changing the business model slightly. You could create website themes that are sold multiple times on websites like WordPress. You create the website template once, and you can keep earning for it endlessly, while you spend your time making something else that generates income.
Scaling Through Other Companies.
Partnering up might be the way to scale your company fast by piggy backing on their consumer base. Take HomeDepot as an example. A few years back they partnered up with Uber to deliver Christmas trees over the holiday season. A simple service offering to their clients that made a huge difference and drove both tree sales and Uber usage.
It doesn’t have to be such an obvious partnership. Ever installed something like an anti-virus software? And before you have read the fine print you clicked next and installed 3 more software products? It’s annoying, but a great way for companies to get their products out there, and it must work, because they keep doing it!
Taking Over Another Company
Mergers and Acquisitions are a way that digital businesses can add to their service offering and scale up at the same time. Sure, it’s generally the larger businesses playing in this league, but the same idea can be used in start-up tech companies too.
If you cast your memory back to 2013 when Snapchat was all the rage, Facebook offered $3 billion on the table to access their already built video sharing technology. Snapchat famously declined, only to disappear into irrelevancy when Instagram rolled out their Stories function.
They should have merged to scale up.
The ultimate goal for many start-ups is to get bought by an established company. This comes with great benefits and an injection of resources and knowledge. It also allows the start-up to continue focusing on their product offering while the big business takes care of the admin.
You might consider it a “sell out” but most would consider it a leg up onto the shoulder of giants, where the view is a lot sweeter, and the ground a lot more stable. And it doesn’t always have to mean giving up complete autonomy.
Someone famous for acquiring small business is the panel of Shark Tank. If you wish you had the guidance of a big time business leader, then check out some great advice from Mark Cuban:
Breaking Down a Business
There will be times when it doesn’t make sense to scale a digital business by adding on, but rather by breaking down. But this isn’t a bad thing, there are times when the sum of the parts equal more than the whole, and this is a good time to break down a business.
Perhaps you have built up a great website building platform. On the platform you offer a stock image service free to those who pay for your website service. There could come a time when this initial “free” offering turns into a product that could be individually packaged and reused as its own separate Stock Image website. This can often happen with companies that offer specialist products and offer free training, soon they could separate and monetize the training.
Build to Scale
If you’re reading this article because your head is swirling with great ideas of digital businesses, then this piece of advice is especially important to you. In your initial plan make sure that you are considering scaling and how it would work. At what stage of your business model can you see that you will need to implement some of these business scaling techniques?
Building to scale makes it a lot easier and smoother to transition than if you have to retro-fit scaling solutions into your existing company. It’s not impossible, but it can come with snags.
Remember that when starting a new business, it doesn’t have to be a completely unique or groundbreaking idea. What separates the successful from the unsuccessful is good execution.
Adding when and how to scale into your plan will secure your success.
Here’s a useful article if you’re planning to learn more about building a successful business. Scaling too fast is just one of the 15 Reasons Why Businesses Fail.
What is the best digital business partnership or tech addition you have ever seen?