Startups

How to scale your startup: the tale of the bike and the condor

A boy playing with his father on a bike - it's obviously about scaling.

Before we talk about scaling your business, let’s take a second to admire this picture.

Cute kid, huh? Actually, he’s a monster.

Contents:

    He may not look impressive. But right now, even with his tiny limbs still developing, his mode of locomotion has just surpassed the majestic condor for raw efficiency.

    Let’s call him Daren. The kid, not the condor.

    Daren is riding a bike and, leveraging this advantage, is now joining his family as a member of the most insidious species on the face of the Earth. Thanks, bike.

    This should be surprising, seeing as the condor is the most efficient animal on a planet characterized by bottomless biological diversity and, without bikes, humans are quite unimpressive as far as locomotive efficiency goes.

    But you’re not surprised.

    That’s because it’s not the bike itself that’s the key. It’s the lever, of which the bikes pedals and gears are just one manifestation. And you’re very familiar with levers, and their power.

    For each unit of energy he exerts, Daren gets far more back in terms of force and motion than he’d manage without the pedals which connect to the lever.

    Steve Jobs was interested in this idea - yes, we’re getting to the techy part - and gave one of his most insightful interviews on the subject.

    “The computer is a bicycle for our minds.” Not bad. The computer helps us operate at a greater scale than before because it increases productivity. It takes less effort to do the same amount of work, or more.

    This captures the essence of scaling, which is rooted in finding extra efficiency that enables your business to do more while escaping the constraints of linear growth.

    This article will help you to be more like Daren; to t leverage the potential of technology to scale your startup and do it right. Would you like to scale your startup? Read on.

    What is scaling a business?

    There are two common views on what scaling is. Both are technically correct but only one is useful.

    The other is just a synonym for growth and, if that’s what you’re talking about, you can just say growth (i.e. increasing gross or net revenue).

    Easy.

    Scaling a business is a two-fold process that incorporates growth but is not reducible to it. Scaling involves:

    1. Creating the capacity to handle extra demand
    2. Generating that extra demand and converting it into revenue

      Do the first without the second and your efforts were pointless; why create the capacity for growth if you’re not going to try to draw in extra business?

    Do the second without the first and you find yourself in the exact kind of mess that makes articles like this one necessary; a nightmare combination of overworked employees, overburdened infrastructure, and disappointed customers.

    We’ll get more into the specifics later. But for now, the key thing to remember is that scaling involves both creating the capacity to handle increased demand and drumming up that demand. But hold on. How is this different from regular growth?

    How are growth and scaling different?

    Growth is broadly seen as a linear increase in revenue and generally follows investment.

    If you created a graph and placed investment on the X axis and revenue on the Y axis, you’d normally see a straight line.

    That’s because growth does not result from changes in the business model, or the operational side of how the business is run. It’s the product of spending money to make the company bigger.

    For example, let’s suppose that you have an app that depends on users to create content that they share with like minded connections. The draw of being part of a group with shared interests is your main draw for users. As more users arrive the attractiveness of the app should increase - at least theoretically.

    You then turn around and sell access to that community to advertisers, perhaps through an ad network. It’s a common business model.

    In this scenario, growth could mean investing in your own advertising to attract more users, since it is these users’ eyeballs/data that are your chief commodity. You’re effectively exchanging money for more product to sell.

    Since the user base increases in direct proportion to the amount you invest in advertising - assuming you don’t get lucky and you start getting a significant number of downloads from word of mouth - growth will follow that linear pattern we described earlier.

    It’s like running a bakery and just buying more cake to sell. You’ll make more profit if you sell it all and the amount will not grow exponentially. Your margins would remain stable.

    By contrast, scaling is more like changing the way your bakery produces the cake to make it more efficient, enabling growth without substantial increases in spending.

    For example, you could fiddle with the recipe to find cheaper ingredients, look for different sources of flour and eggs, all of which would make producing more cake increasingly practical.

    You could also optimize the workflow of your bakers, perhaps by narrowing the focus of each of them to specific, repeatable tasks. That way, if you get a surge in orders, your bakers can keep up! In this approach, you don’t have to actually hire more bakers to meet growing demand.

    But if you did, you’d probably significantly expand your productive capacity.

    That’s scaling.

    Whether to aim for a traditional growth strategy or opt for a scaling approach will depend on your business model and the market environment.

    Other important factors may include the financial status of your business. For example, are you able to borrow money to fund expansion? If so, traditional growth may be a viable option for you.

    However, in general there are both advantages and disadvantages to growing compared to scaling. We’ll compare each of these options now.

    Advantages of traditional business growth
    • Continuous growth in revenue
    • Potentially less risky
    • Easier to predict and manage
    Disadvantages of traditional business growth
    • Requires investment, which might come directly from revenue or other sources of income, such as borrowing
    • Can take longer than scaling
    • Potential profits may be lower than scaling
    Advantages of scaling
    • Can yield returns faster
    • Often results in unanticipated efficiencies in operations as processes are refined
    • In most cases investment isn’t required, reducing potential objections from shareholders or other internal parties.
    Disadvantages of scaling
    • Can be risky as you’re making changes to processes central to how your business operates
    • The effects can unpredictable, which is generally true when making alterations to large systems

    Scaling a business example

    Google may be the closest the tech industry was able to come to a perfectly scalable business in the late 90s and early 2000s.

    Google have scaled expertly because they realized that if any changes incur greater costs then, with the enormous scale at which they operate, the lost revenue could be astronomical in size.

    As a result, Google keeps its focus on hyper efficiency and reducing the costs of key business processes where possible.

    In the words of Todd Underwood, a Google reliability engineer, their costs must grow in a “sub-linear fashion” (i.e. better than is achievable with the traditional growth model).

    One way Google has achieved this is from taking a long, hard look at its sourcing operations. For example, rather than buying off-the-shelf routers it was actually more cost effective to manufacture their own, given how many ports they would need.

    Scaling your business: conclusion

    Ready to get started moving your business forward? Drop us a line and let us know what challenges you’re facing. There’s a good chance we can.

    2021-10-0810 mins

    Alexander Smithers

    Hello! I'm the head of content at Develocraft. I'm also a startup guy (no joke)! I've worked with a lot of them and learned so much. I'm here to help you by sharing that knowledge. I'm always open to collaborations. Find me on LinkedIn.


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