How to Make Your Business Scale-Friendly
Scalability is one quality experienced investors look for in potential businesses, says Shark Tank investor Daymond John. If your business model requires you to acquire more staff and more capital to handle increased sales, you’re probably going to find yourself outspending your profits. But if you can use automation, outsourcing and cost-cutting to manage your growing enterprise, your business has better potential to scale up to big profits. Here are three key ways to keep your business scalable and your company profitable.
Automation is a fundamental strategy for promoting scalability. It enables your company to be more productive without hiring more employees. With today’s technology, automation can be applied to virtually any business process:
- Business intelligence and analytics tools enable companies to interpret historic data and project market trends without the need for large market research operations.
- Three-dimensional modeling tools streamline research and development of physical products by reducing the need to build physical prototypes.
- Virtualization tools can perform a similar function for digital products and services by allowing simulations, e.g., web designers use wireframe tools to develop website prototypes.
- On-demand production models enable scaled production, as illustrated by the on-demand publishing industry and 3-D printing of machine tools.
Automation can also be used to scale up management and customer service operations. For example, web-based project management tools enable project managers to oversee operations remotely with minimal time investment, allowing one manager to oversee more projects effectively. Digital communication tools, such as VoIP systems, can support scalable customer service by allowing additional service lines to be added without the need to invest in more equipment.
Like automation, outsourcing enables companies to scale up operations without the expense of hiring more full-time staff. There are two main factors to take into account when deciding whether or not it’s advantageous to outsource a business task: the competitive advantage the task represents and the company’s internal capability for performing the task efficiently.
If a company possesses the internal capability to perform the task efficiently and if the task brings a competitive advantage, it makes sense to keep the task in-house. For instance, if you’re an accounting firm, it makes sense to do your accounting in-house.
On the other hand, if your company doesn’t have the internal capability to handle accounting and you’re not trying to compete in the accounting space, it makes sense to outsource it. For example, if you need to develop a computer software app to be competitive, but you don’t have an internal IT staff to develop the app yourself, it makes sense to outsource your app development. Accounting, IT, copywriting, design work, marketing, logistics and customer support are processes that typically can be outsourced.
Scaling Down Costs
A third way to achieve scalability is to cut costs. Automation and outsourcing can both contribute to lowering costs, and can also work in conjunction with other cost-cutting strategies. Here are some of the fundamental cost-cutting strategies that have been successfully deployed by companies around the world:
Using a virtual office can reduce the cost of renting office space. Some common methods of expense trimming include using less space, using more energy-efficient utilities, shifting from physical printing and mailing to electronic document transmission and communicating remotely instead of spending money on travel.
Reduce production costs
This can be done by using less expensive materials or processes, or by cutting an unprofitable line of products. Apple has always focused on a small core line of products in order to maintain efficiency, for instance.
Focusing on profitable locations
Take Kohl’s for example. The major chain is currently closing 18 U.S. stores, while simultaneously opening 21 in other locations. CEO Kevin Mansell says the locations that are closing were selected due to overall sales and momentum, overhead costs and overlap with nearby stores.
By: Roy Rasmussen
Bio: Roy Rasmussen, co-author of “Publishing for Publicity,” is a freelance copywriter who helps small businesses get more customers and make more sales. His specialty is helping experts reach their target market with a focused sales message. His most recent projects include books on cloud computing, small business management, sales, and business coaching.