I’ve been having conversations recently about the concept of scale.
The way I see it, there are a few fundamental things you need to know in order to scale.
Business is about one single thing: profit
You don’t have to like it, but it’s true.
The two paths to profit are either:
- increase income
- decrease expenses
You can increase income by raising the price per sale, or by increasing volume of sales…or both.
You can decrease expenses, by the lowering cost of goods sold, or by decreasing labor costs. This can be achieved in a number of ways including lower salaries, offshoring, or by introducing automation to replace people with technology.
Scale is about being able to proportionately increase or decrease indefinitely without a loss of quality. Scale, requires improving efficiency.
If you are a service business, adding clients will eventually require you to add staff because at a certain point, the staff you have will run out of workable hours per week. In order to scale up, you’re going to need more people or more technology. And as you grow, both the technology and the people need to cost the same or less than what you are currently paying.
To keep your costs steady or cause costs to decline, you need to efficiently utilize resources. In order for people to operate efficiently, they need processes and systems.
So, if your goal is to scale, understand these criteria first:
- If you’re ever stuck, you need to either increase revenue, or decrease costs.
- In either case, start by thinking about your systems and processes, either through technology or outsourcing
- And when you really break it down, none of this can happen without sales