Last week I was talking to an entrepreneur and the idea of empire builders vs. lifestyle builders came up. After some discussion, she brought up a key question most entrepreneurs don’t think through: what’s the inherent scale to the business? Too often, entrepreneurs come up with a good idea, build a viable business, and only then realize that even if they build a great beachhead in their respective market, it’ll still be small business.
Here are a few thoughts on scale in a business:
- Consider if it’s a small, fast-growing market that will be large or a large, slow-growing market, or neither (most markets)
- Evaluate the geographic element of the business as many are local in nature and difficult to scale outside of the city or region
- Think through “share of wallet” and the opportunities to start small with customers and grow the account over time by expanding the existing product or introducing new products
Remember that market size is more important than most people realize and there’s an inherent scale to a business.
What else? What are some more thoughts on inherent scale to a business?
4 thoughts on “Inherent Scale to a Business”
Good topic David. Thanks for starting the conversation. With regards to a service based business the model must be scalable as well such that an increase in revenue does not require an equal increase in labor. Look for the opportunity to create services which are repeatable with decreasing amounts of labor through process standardization and automation.
What is your prediction for the future for entrepreneur on global field?
Based on my recent ATL involvement, this is our #1 problem. Too many businesses that lack the ability to scale. This in turn leads to lack of big exits and big VC commitments. It’s great to start small, but can your idea scale? If not, maybe you are not thinking big enough?
Not every business needs to grow massive however. VC’s will tell you otherwise but most businesses are lifestyle businesses which create a bunch of jobs and a solid income for the owner. I get those are not investable businesses, but they are very valuable all the same.