Oct 6

Oct 6 Does it Scale?

Scale is often treated as the main measure of a business’s success.
This can sometimes be an unhelpful yardstick, as it is not always appropriate or applicable.
However, there is often significant benefit to creating a replicable business model - one which is not limited by a single individual, location or partner.
That is, the business is not dependent on a single buyer, and won’t collapse if a key person/founder were to walk away.
Replicability is important, not just because it allows the entity to grow and create more positive impact, but because it validates a model that can be emulated elsewhere.

Scale in Inclusive Business
This gets interesting when applied to inclusive business:
If an inclusive business can demonstrate how to establish a commercial, farmer owned enterprise, then other communities can follow their lead.
This leadership costs the original business nothing, and can help other communities lift themselves out of poverty.

So long as they aren’t encouraging a competitor to set up next door, the first enterprise builds the industry, and as they say, a rising tide lifts all boats.
The barriers these businesses face are rarely unique, so demonstrating a solution can inspire and empower farmers and investors across the world.

Scale in Social Enterprise
Whereas Inclusive Businesses are often focused on lifting one particular region out of poverty, most social enterprises are able to expand into other territories.

This makes the idea of scale even more appealing: if we can design the model to be scalable, imagine what we could do next?
We could set up shop in another city
We could expand overseas
We could have other retailers sell our products, or let other practitioners teach our content

For most entrepreneurs, this is a huge temptation – and a huge threat.
If it goes well, then we’ll make more impact, more money, change more lives, tell more stories and open ourselves up to more exciting opportunities.
If it doesn’t go well, we burn our brand, our resources and even our staff. We risk diluting our impact and reducing our credibility.

Should we scale?
This is a common question, and it comes back to Intent – the reason why we exist.
Is your intent centred in a particular geography or a particular group of people?
A great example is Brad Pitt’s Make It Right Foundation, dedicated to a specific social problem:
“Make It Right aims to build 150 safe and sustainable homes in New Orleans’ Lower 9th Ward”

The specificity is what makes it powerful.
No vague generalizations, just a clear commitment.

Brad saw a problem, and committed to rebuilding houses affected by Hurricane Katrina.
Ten years later, the foundation can start to look at what to do next, but only because the original job is done.

If your enterprise has a specific focus, then scale is a distraction.
You might be better off going deeper than going wider – doing more for each beneficiary, rather than looking for more beneficiaries.

For other groups, there are no boundaries.
If your aim is to eliminate plastic bags, then scale is your friend.
The more customers you reach, the more impact you have.

The same goes for most product based businesses, especially ones that can be sent via post.
Your supporters aren’t defined by their geography, so neither should your business.

Traps
Using the Business Model Canvas, we can spot three main traps that prevent an enterprise from being successful when scaled:

Do our customers scale?
Do many customers have an itch that your enterprise can scratch?
In a niche market, it’s easy to overestimate the amount of new customers who will value what you’re selling.
On a spreadsheet, it’s easy to ramp up sales and see profits increase.
Unfortunately, the market doesn’t work like that.

Do our staff scale?
Most enterprises start with a talented, passionate founding team.
These are the people whose blood, sweat and tears make the business successful.
The question is, does the business work without them?

If you open up interstate, your founding team can’t be in two places at once.
How good are you at recruiting and training replacements?

Do our circumstances scale?
What makes your business thrive?
Is it something that can be taught or photocopied?
If it’s something like your physical location or your startup grants, then it might be hard to replicate.

It’s easy to lose sight of what makes the magic happen.
When things are going well, you don’t notice the precise cause of your success.
When you open up a new location overseas, it might become painfully obvious that something is missing – and that can be a very expensive mistake.

New Customers vs New Products
Once you’ve decided to go for a scalable model, you’ll be faced with an interesting decision: do we sell the same product to a new audience, or a new product to our current audience?
For example:

Thank You could have tried to dominate the water market, but instead scaled through a move into muesli, soap and nappies.

Our first big TDi impact investment, a charter yacht in the Great Barrier Reef was going to scale by opening a crocodile farm, rather than a second boat (Far North Queensland is weird).

STREAT aren’t scaling through additional cafes, but by branching out into coffee roasting and their own bakery.

Ultimately, the decisions around scale are up to you.
They are essentially a series of tradeoffs, so it’s vital that you’re honest with yourself about what is most important.
Don’t let anyone tell you that you HAVE to go big, and don’t be afraid to grow your business.

If you’d like to read more about scaling up a company, I highly recommend The E Myth Revisited by Michael Gerber.