Recently, there’s been quite some buzz around “Scalable businesses”.  Founders want to capture new types of customers and also effectively adjust to market events and trends, all to increase output or revenue. These are truly interesting times for both businesses and customers we must say. 

But while much of the excitement is towards scalability, non-scalable businesses are also a remarkable model. This article breaks down scalable and non-scalable businesses to reveal their intricacies. We hope it helps you find what is just right for you.  

Scalable Businesses and Examples

Scalable businesses are a special type of business that can increase in revenue as demand from clients and customers increases. The business practically scales up or expands (so to say) to meet increased patronage and also generates higher revenue in the process. 

A good example of businesses that can quickly and easily scale are online or digital businesses. The reason is simply because of reach. As it turns out, the online environment has the potential to bring businesses before an audience in days, hours, or minutes. 

Business is sometimes a game of numbers, where the more people you approach with your product or services, the higher your chances of finding an interested customer. And when you factor in the internet, it results in explosive growth. 

Non-scalable Businesses and Examples

Non-scalable businesses are businesses that cannot scale, meaning that their revenue does not increase no matter how many clients are available in the market. In practical terms, these businesses do have what it takes to address growing market demands. 

Personal service businesses are non-scalable. Why is this so and what are personal service businesses in the first place? A personal service business or company refers to a limited company set up by a single individual to offer services to other businesses, companies, or organizations. This one individual plays the role of a solopreneur, serving as the only employee, director, and shareholder within the business.  

Such a business is non-scalable because it is represented by a single individual who can only attend to one customer or client at a time. For example, a plumber can only provide plumbing services to one client at a time since they cannot be at more than one location. This situation implies that the personal service business cannot scale up its delivery in the face of increased demand.  

Difference Between Scalable and Non-scalable Businesses

To make sure you have a good understanding of scalable and non-scalable businesses, we will be describing them in a tabular form. Hopefully, this will create a better picture of their dissimilarities. 

The most significant difference between a scalable and a non-scalable business is in terms of the marginal costs. The former (scalable businesses) can increase their output without significant operational charges or costs - often aided by technology. On the other hand, non-scalable businesses cannot increase their scale of operation without incurring humongous costs. This limitation impacts their willingness to grow in the first place.  

Factors to Consider When Choosing Between a Scalable and Non-scalable Business

From the table, it is evident that scalable businesses, as well as non-scalable businesses, have distinct characteristics in terms of profitability, ease, and more. Bearing this in mind, we will outline four factors to consider before choosing a scalable or non-scalable business.  

Market Demand:

Market demand for a product is the willingness and likelihood that a majority of customers in a given market will purchase such a product. Demand is a huge factor when choosing between a scalable and non-scalable business. 

The reason for this is simple. Non-scalable businesses do not need high demand. A small but consistent level of demand will fit just well for the personal service business of an electrician, plumber, and so on. On the contrary, a scalable business is meant to fly - metaphorically. They are built for demand so much that they may be considered to fail if they find themselves in a market where demand is low. 

Initial Investment:

In trying to establish themselves in a market where there is high demand, scalable businesses might have to perform research with cutting-edge tools, try out different business models, or create and maintain partnerships and other types of business relationships. 

These activities bump up the cost of initial capital for such businesses. It buttresses our difference table above which states that startups or scalable businesses are expensive to launch, maintain, and grow. Nevertheless, economies of scale can be applied within startups by spreading investment amounts through the cost of goods. 

In summary, a scalable business attracts high capital whereas a non-scalable business doesn’t. Your ability to make a huge investment is, therefore, a factor to consider when trying to decide between a scalable and a non-scalable business. 

Use of Technology:

Technology is, in many ways, the secret to scalability. We all know the possibilities that come with the use of technology, whether as entrepreneurs or everyday people. Sequel to this, businesses that are not technology-driven find it difficult to implement rapid changes or even maintain consistent output, talkless of ramping up such output.  

The decision to build either a scalable or non-scalable business should include assessing technical personnel, understanding the scope of technological work possible, and determining the precise tools and equipment needed. 

Long-term Goals:

The truth is that some founders are natural micropreneurs. This means they would want to keep their business as small and functional as possible. The long-term goals of such an entrepreneur cannot include increasing output. Instead, there’s more chance that they will focus on efficiency. For example, by attracting high-paying clients. 

Aside from your idea as a founder, you want to find out what others within your business think concerning growth and scalability. You must consider co-founders, employees, and stakeholders. Do they also buy into the idea of owning a perpetually small-sized business or did they join in hopes of seeing the business gain new ground in terms of market and physical location? 

If your inquiry returns that both you and your team are big on scalability, then you must know if this is part of your industry dynamic. Are there records of businesses in the same niche ever scaling? How did this happen? What specific aspects of operations were scaled to make it possible?  

These questions paint a picture and lay the foundation for your business scalability. 

Conclusion

Scalability goes beyond expertise or capability of founders but depends more on factors like the type of business and industry. One way founders can determine the scalability of their business is by using Marginal cost analysis. We will touch on this topic in another article. This article has covered the major differences between scalable and non-scalable businesses and should help you decide which one is best for you.

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