How to Build a Business Model Designed for Scalability

July 20, 2017
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What do Apple, Google, Amazon, and Disney have in common? While they are now some of the largest and most successful organizations on the planet, these brands all started out very small. In fact, each of these businesses actually began in a garage but over time they all grew from their humble beginnings to the industry dominating giants they are today.

While you might think these examples are outliers, rags to riches business stories are more common than you’d think. Starbucks, Molson, Whole Foods and many other household names follow the same underdog story.

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This then begs the question: how do you take your business from $5 to Fortune 500? The answer is simpler than you might think. You see, each of the brands mentioned above designed their business models for scalability, which helped propel them to the heights they’ve reached today. By building your own scalable business model, you can make sure that you’re not just ready for rapid growth but can actually help your brand drive it.

What Does a Scalable Business Model Look Like?

Scalability is a term that gets used in a variety of contexts. At its core, however, is a simple question: “What would happen to your brand if you experienced a period of tremendous growth?” Would higher demand from customers strain your ability to provide quality products and services, or would a surge in traffic actually help your business model, turning out a better customer experience as a result?

Scalability definition: a system that maintains or increases performance under increasing workload

Answering these questions will reveal just how scalable your business model really is and show you where there’s room for improvement. Although there are many ways to integrate scalability into your brand, we’re going to focus on three key ideas.

1. Scalable Business Models Do a Lot With a Little

A scalable business model leverages its available resources with remarkable efficiency. Whether it’s physical, financial, or human resources, scalable brands know how to get the very most out of their assets. Efficiency is the cornerstone of building a scalable business model because when rapid growth is the goal there is simply no room for waste.

In the early stages of a business, employees may complete tasks in an inefficient way as they work to find, learn and perfect optimal processes. These inefficiencies don’t hurt much at the start because the business isn’t producing very many products. However, as the brand grows and required production grows along with it, the effects of inefficiency can add up very quickly. In other words, wasting two minutes building a chair isn’t so bad but wasting two minutes on each chair in a 250,000 order is almost a year of production wasted.

WhatsApp is a great example of a small team that scaled their business quickly

When it comes to efficiency driving scalability, there is one example that stands out above the rest: WhatsApp. In 2014 Facebook acquired Whatsapp for a cool $19 Billion, an impressive achievement for the chat application. What makes it even more impressive is that WhatApp only had 60 employees! That’s right - the 19 Billion dollar organization served 900 million users with fewer employees than your local Walmart. WhatsApp prides itself on minimalist design, beautiful simplicity, and an unrivalled level of efficiency, and these values helped scale the brand in a big way. It’s this same kind of thinking that can help make sure your brand is ready for growth as well.

2. Scalable Business Models Don't Break Under Pressure

Building a scalable business model isn’t just about avoiding inefficiencies as you grow. It’s also about building a business model that can survive higher usage rates in the first place. While inefficiencies might slow your brand down, a break in your business model could shut you down entirely.

When customers wait because of high traffic, they're experiencing a scalability issue

We see high traffic breakdowns in successful businesses all all the time. Have you ever had to wait a while for food in a packed restaurant? Long wait times and poor service definitely weren’t an intentional part of their customer relationships, but when the restaurant fills up their business model breaks down. Another great example of a scalability issue is Black Friday. Over the years, this shopping surge has been responsible for breaking Macy’s website, crashing Dell’s servers, and crippling Walmart both in store and online - all in just 24 hours.

These breakdowns put a ceiling on the growth these brands can experience which disrupts their ability to scale. Each of these examples prove that when traffic rises, your customer experience better rise to the occasion, too. Amazon is a great example of what it means to be prepared for these types of surges. Not only do they consistently soar through the increased demands of Black Friday, but they are also a noted innovator when it comes to delivering value to a large number of customers at a time.

 

 

In this video we get an inside look at one of Amazon’s fulfilment centres - a technological marvel filled with assisting robots that are so smart they can remember where thousands of products are in a giant warehouse, so strong they can lift more than 700 pounds of product and so efficient that Amazon processes 629 orders per second on Cyber Monday. Amazon isn’t just ready for a surge in traffic - they’re betting on it. Amazon teaches us that if a brand can set up the infrastructure to handle large spikes in demand, they’ll clear the way for rapid growth.

3. Scalable Business Models Thrive on Network Effects

Growth is one of the primary goals for almost any business but while all brands chase it, it actually helps some businesses much more than others. For most brands, more customers and higher traffic provide an opportunity for higher earnings. However for some brands, growing is actually the very force that helps create a more valuable product for their customers. This principle is known as the network effect.

Network effects can help a business with scalability

The internet is perhaps the most popular example of a network effect but it is far from the only one. Social media sites like Facebook, Twitter, and Instagram are completely dependent on network effects. Think about it: Instagram would be pretty useless if you were the only one on the platform, but it starts to become more worthwhile as more of your friends and favorite celebrities join in.

While the above examples all demonstrate the value of one-sided networks, brands like Netflix help us explore two-sided network effects. Netflix serves two different “customer” groups that create value for each other. There are viewers like you and me who turn to the streaming service to binge watch our favorite movies and TV shows. On the other side of the coin, however, are the content producers who create these movies and shows and use Netflix as a channel to distribute their content to users. The more viewers using Netflix, the better the service is for a content producer as they can reach a larger audience. At the same time, more content producers gives viewers more shows and videos to choose from.  In this way, both members of a two-sided network depend on each other. 

Members of a two-sided network depend on each other to scale quickly

If there’s one brand that understands the impact network effects can have on scaling a business it’s Apple. They’ve used the power of network effects to drive growth in almost every area of their business model. Take the iPhone, for example. Whenever a user sends a message to another iPhone user, it automatically switches from SMS to iMessage. These users can then create iMessage groups but only with other iPhone users - a powerful one-sided network as these groups become more valuable when more of your friends can participate in the conversation.

Apple also uses a two-sided network effect inside of the Apple App Store where developers and users create value for each other. The more users there are on the service, the larger an audience developers will be able to create for; the more developers there are developing apps for Apple, the more cool apps are made available for end users.

Apple has built a scalable business model using network effects

Apple’s multiple network effects work together to create a powerful bandwagon effect that helped catapult the brand past competitors like BlackBerry. By taking advantage of network effects in your own business model, you too can create the growth you need to scale your business.

 

How a Rewards Program Can Help Scale Your Business Model

When looking at examples like Apple, Amazon, and WhatsApp, scaling your business model might come off as a fairly intimidating task. However, it’s important to remember that even the biggest household names started small. One of the best ways to get started on scaling your business is with a rewards program, and here are three reasons why.

1. A Rewards Program is a Scalable Way to Build Customer Relationships

First and foremost, a rewards program is the most scalable way to build genuinely strong customer relationships. In the early stages of your business you might be able to build relationships with warm smiles and firm handshakes, but can that strategy survive a huge surge in traffic? A rewards program represents personalization on the largest possible scale because each customer can receive their own valuable rewards and still feel like they’re one in a million - even if they’re one of a million. Rewards programs are the personal greeting that, just like Amazon’s warehouses, won’t buckle under pressure.

Customer commitment is one part of reward psychology, our guide has the rest.

2. A Rewards Program Is an Extremely Efficient Tool

Secondly, rewards programs allow you to harness WhatsApp’s level of efficiency to help fuel your growth. Launching a rewards program can take as little as a few hours but allow your brand to reap the benefits for years to come. As soon as it is set up a rewards program goes to work as both a customer acquisition and retention tool that adds value at every point in your customer experience. It’s working even when you’re not, and that’s the kind of efficiency that helps scale a brand quickly.

3. A Rewards Program Creates a Network Effect

Lastly, a rewards program creates a very powerful network effect. You can actually make your rewards program more valuable as more people join by using the data they provide to strengthen your reward offerings. If lots of customers are redeeming your free shipping rewards but not as many are using your percentage off coupons, you’ll know to offer less transactional rewards in the future as your target market isn’t as interested in them. The more customers you have in your rewards program, the more accurate your data will be and the faster you’ll be able to make decisions. You won’t just be ready to handle rapid growth -you’ll be ready to benefit from it, just like Apple.

To build a rewards program that scales like the world's best brands check out our free guide

Building for Scale Never Fails

Some of the biggest brands on the planet came from very humble beginnings but were able to grow quickly because they were designed for scalability. By creating a business model that is exceptionally efficient, stable under pressure, and takes advantage of a network effect or two, you can build a brand that’s more than ready to grow quickly. After all, building for scale never fails.