Scaling is a question that every entrepreneur comes face to face with sooner or later – and hopefully soon enough. It doesn’t matter what vertical you are in, whether you’re a product or primarily a service, or if you’re in a capital intensive business or an operationally heavy one – opportunities to scale do come about eventually, even if a desperate need doesn’t, and along with it come choices and dilemmas.
This is from the point of view of a small business that has some revenues and might even be profitable, some challenges and could grow in one of many directions.
First up, it’s important to know the reason one’s trying to scale. Of course, at a very fundamental level it is to earn more revenue and profits, obviously, unless one’s primarily focused on valuation in the near term and nothing else. And scale not only leads to those directly, but helps you build more productive funnels, increase sales yield and the brand visibility and thus premium. Being larger might also mean you have more choices and offerings to take to the customer. But even when you’re happy with where the business is in terms of what it makes, scale sometime helps achieve other goals. It can even out business spikes, make you more robust and less dependent on a specific market segment. Having a certain scale also helps you plan a better organization and pay folks better since your business can support overheads much much better. It’s good to think about scale along these dimensions as well.
Of course, many assume scale is inevitable, without giving it much thought. However, like data, it can be a pointless or even counter-productive chase unless you know why you’re scaling – so the above context helps.
NextBigWhat produces content. And in this space, pageviews have typically been the dominant metric measured and chased by everyone. But deep down, we have had this thought for a while now that what accrues value to the brand is who’s reading, not how many, and stemming from this, the outcomes and decisions that get impacted because of the content.
The User Numbers Vs. ARPU Debate
The users vs revenue per user debate is an important one to have internally as you plan to scale. Your core offerings, your company DNA, the marketing strategy, your cost structure and even your survival will eventually depend on recognizing which is more important in your case. If you need 10,000 paying customers as the next step to be healthy enough as a business, why waste energy on chasing a 100,000? It also helps you to try and understand well what market segments you (or in some cases, your advertisers) are interested in, what appeals to these users and where you should allocate your resources.
BaseCamp famously removed the free option completely one day, and were very likely the better for this. Finally customer satisfaction is not about popularity in a large audience. Neither is growth.
Once you know what you want to scale and start taking steps towards that, measure. Nope, data is not everything, and you might not be watching all the correct metrics – but it still matters a lot if you’re to figure out if you are improving against the reasons you are scaling for, and take corrective action or trigger a plan-B in time.
The big risk as you start to scale are with your core product or service itself – sometimes in the rush to acquire too many users and customers, one tends to dilute the product, price it wrong, and market it incorrectly. At any point, all your efforts should not deviate from what’s needed for your targeted user persona. Another worry is when discounting too aggressively to garner market share creates a large revenue flux that’s unprofitable, unsustainable but because of its size, cannot then be ignored! It also does not help that the customers who come on board for these discounts are usually just bargain hunting; it does nothing either for your brand – and can indeed cause long term damage to it – or for any sort of stickiness or loyalty in your audience. E-commerce in the recent past is of course a huge example of this.
It’s smarter to keep revisiting the fundamentals of your business as you plan and execute scale. The target users, the USP you’re going to market with and that you need to market and message around, and of course profitability and financially sound decisions – these are important during any part of the business.
Think through scaling carefully around these criteria, and certainly not at the cost of any of them.