Porter’s Points: How Well Do You Scale?

June 9th, 2009 by Sharon Larsen

Last time we learned about the importance of scaling and saw a couple of examples of businesses that are difficult to scale.  Today we learn about small businesses that do scale well.

 

 

So, what is an example of a business that scales well?

 

Let’s take a look at a gorilla: Microsoft. Bill Gates and his buddies built an amazing operating system, one time. Okay, they have delivered a gazillion versions, updates, and upgrades, but they built the basic thing once. They conducted beta tests and documented what worked and what did not. And, while still on the road to perfecting their Windows OS, they sold it millions and millions of times. What is their upward limit on how many times they can sell that piece of software? Infinite is high, but not too far off. Do they have to sell it themselves? Nope. Pretty much every PC maker sells the software for them.

 

Look, most of us won’t get the opportunity to create a Microsoft. But here’s the thing: I firmly believe there are opportunities for scalable success everywhere.

 

I personally favor businesses that involve digital assets. By digital assets, I mean companies that do not stock inventories of physical goods, but instead are based on software or technology. Digital assets are not prerequisites for scalable success, just my time-tested preference.

 

A good example of one of my favorite digital assets is a website. Several years ago during the height of the housing boom one of my partners and I built a website that collected mortgage leads. We found a nice picture of a house and created some meaningful content that would appeal to people in the market to buy a home. We added some useful tools the visitors to my site could use to calculate their mortgages and topped the site off with advertisements that provided links to take users to other sites. It generated revenue 24 hours a day via advertising and affiliate deals.

 

Every time someone clicked on the site, the company brought in money. This business scaled incredibly well. It turned out to be wildly profitable and made money with very little human involvement. We made money in our sleep!

 

Think about this. Once the website is programmed, set up, and running, do you ever have to hire a clerk to sit at the checkout register and collect money from every user? No. Do you have to worry about the eggs spoiling if they get too old? No. Do you have to worry about an employee making off with inventory? No. This is an asset built one time; and, if put together properly, it will grow quite nicely, without an army of employees!

 

Don’t get me wrong. I’m grateful for an attentive doctor and you better believe I turn to my lawyer’s expertise regarding my businesses and assets. This breed of entrepreneurship is simply not suited to my particular taste. First, it requires a tremendous amount of time, energy, and money to scale well; and, second, it requires constant care and attention.

 

When deciding what kind of business or profession you are trying to bootstrap your way into, make sure to evaluate your idea’s scalability as part of your deliberations. Do you want to be your company’s only source of oxygen, or do you want some left over to breathe life into other interests as well?

 

Porter’s Points – How Well Do You Scale?

 

  • I can’t think of a business that cannot scale; the matter to consider is “What resources will be required to scale it?” Know up front what those resources are and whether you can afford them.
  • The ideal for scaling a business is to figure out what you can accomplish with the fewest possible resources.

 

Beyond being able to scale your business, you need to know if it’s an asset or just a job.  More on that next time!

 

 

 

 

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