How to scale a business
Scalability of a business means a business can grow with taking less or no additional expense. There will be some limit to scalability and that limit can be increased by taking necessary action. For example, 1 person can pack 10 boxes in 1 hour by working less hard. If this 1 person can pack 20 boxes in 1 hour by working a bit harder then this packing process is scalable with no additional cost. If this 1 person cannot pack more than 20 boxes in 1 hour, then the limit to scalability is packing 20 boxes in 1 hour. This is where your scalability will incur additional expense.
Introducing an additional person or some standardization or automation may improve your scalability limit. For example, 2 people can pack 40 boxes in 1 hour. Adding a person has increased your packing capability from 40 boxes to 20 boxes whereby making this packing process scalable. The cost to have one additional person into the packing process is the additional expense to scalability.
Not every expense to scalability is acceptable and some cost is recoverable. Recovery could be tax reliefs or realized benefit. If labour is cheap then adding one person could be an acceptable expense to scalability. Whereas if the cost to labour is more compared to generated profit then this expense to scalability is not acceptable. For example, if the cost to hire a person is 30 pounds per hour and the profit you generate per day is less than 30 pounds, then this expense to scalability is not acceptable. At this point, under existing conditions, your business is not scalable.
Under the existing condition, you are paying 30 pounds per hour for 1 person to pack. This 1 person can pack 20 boxes in 1 hour. Your daily sales are not more than 20 boxes per day. In order to be scalable more than 20 boxes per day, you need to change your existing condition.
You could increase sales and see if the profit can pay for hiring an additional person to pack. This involves investing more on marketing and sales. This does not eliminate the need to pay 30 pounds extra to 1 extra person if daily sales were to increase over 20 boxes. The success of this action purely depends on marketing and sales team being successfully generating more sales to hire an additional person to work 1 extra hour.
You could standardise the packing process and see if it can increase the packing 20 boxes per hour scalability limit. Let us say, a person walks 3 meters left to grab a packing paper and walks 5 meters right to a table and moves 4 meters back to press a button that cuts the paper. This person takes another 5 minutes to roll the paper around the box after which he walks 6 meters to another place where he prints a label. He now walks back 6 meters to a table and pastes the label on the box. He carries the box 30 meters outside and stacks on the floor for delivery service to pickup. Standardise the packing process involves making the person walk less. Maybe this person could get preprinted shipping labels with the box he is packing. Understanding the workflow in a process will help you reduce the time and effort involved in doing it. Here in this example if you could optimise the moving parts in one streamlined motion then you could easily increase the packing 20 boxes per hour scalability limit. This method may not involve additional cost at all. This method directly depends on the feasibility of performing the optimized action.
You could try to automate the packing process. This method will have a very high initial investment. This investment could have a tax relief. This cost will also come up as a realized savings. Let us say it takes 1500 pounds to setup automation. With this investment the 1 person does not have to do more work but may need to monitor the process. This means the 1 person can do something else for this time billed, may be support customers by answering questions. In case if your investment in automation can eliminate this 1 person then the 30 pound per hour he bills will start recovering after 50 days. The 1500 pounds would be the cost 1 person paid 30 pounds for 1 hour for 50 days. This method has an initial investment cost but can recover the cost sooner. The only risk is when the automation setup does not work. Automation purely depends on eliminating redundant tasks. If these redundant tasks change or if there are no redundant tasks then your investment will be a sunk cost.
You could avoid the packing process or outsource the packing process to the experts. Process changes in every walk of life. There is nothing that stays the same. Most businesses fail because they are stuck with the investment they made years ago. These businesses cannot change this automated process now because they have not yet recovered the invested cost. Say for example if your process changes within 50 days of investing 1500 pounds. Your business will be reluctant to change the automated process. When you are in a business you must let the experts handle specific parts of your business so that everything runs on maximum efficiency. In the case of packing, you need to outsource your packing to someone who is an expert in packing and shipping. Now by doing this you are encapsulating yourself from all the nitty-gritty and daily challenges in packing. Finding the right packing and shipping partner helps you grow exponentially without any scalability limit.
- Determine what is blocking scalability
- Try to overcome the block by standardizing the process
- If not able to overcome the block then reduce its effect
- Find ways to eliminate the block or transfer the risk
- See if investing in automation helps eliminate the risk
- See if outsourcing helps transfer the risk