Dimensions of Scalability
Venture capital investment cases are supposed to scale — heavily. Heavily growing companies have great products and strong inbound demand — so customers want to get that product (!!). But is that all the magic? Yes and no — because I think that these companies outperform their peers regarding the ability to scale their business. From my view, this ability can be broken down into broadly applicable “dimensions of scalability” — this article briefly and non-exhaustively summarizes a few of the dimensions. Have fun!
*PRE-WARNING (!) MY VIEW IS BASED ON LEARNINGS I HAVE MADE MOSTLY WITH “TECH-STARTUPS” IN MY ROLE AT CAPNAMIC VENTURES*
To start with the obvious drivers for scalability, there are direct levers for each business unit in a company. Tech itself can achieve better performance — e.g. by using state-of-the-art libraries, languages or frameworks. Product is directly scalable through more products (and of course more product features) enabling the company to sell more at higher prices. Marketing can virtually boost demand entering new markets steered through the headquarter whereas sales can crack a new market by hiring a dedicated country manager. Eventually, service creates synergies by centrally handling the needs of customers.
Team — adding more people.
Every unit in the company grows by its headcount — more people enable more actions and eventually more business. In the same regard, the organization of teams is highly relevant and boils down to the ability to manage and execute — this is why leadership skills and transfer of responsibility are key to scale. For example, a founder team which installs a strong 2nd line leadership team scales by each new person added in the 3rd line and so on.
So highly scalable companies attract more people and are able to hire and develop more people (onboarding, compensation, career tracks, …).
Budget — spending more money.
Cash is king — especially when thinking about your internal budget. Budgets apply for every business unit and are very straightforward: licenses of software in use (which could mean more efficient operations), the SEA spend (which could result in more sales) or a booth at the most popular conference in the industry (which could lead to higher visibility in the market). But caution, a high budget does not necessarily mean more positive outcome.
So highly scalable companies can increase budgets for relevant areas because they have enough resources and/ or prioritize cash flows more strongly.
Processes — gearing up the machine.
We often talk about internal operations driving scalability when being geared-up like machines. Be it the efficiency of internal communication, the integration of internal tools, the way of implementing new processes across teams or the kitchen cleaning plan. Processes are defined, followed-upon, authorized and measured — and offer room for efficiency and automation. Especially, the processes across teams are key — e.g. the continuous rebound of customer feedback to the product team through sales and service OR the exchange of product material between product, marketing and sales.
So highly scalable companies follow the approach of “building machines” and focus on communication, i.e. installing processes which allow for a high degree of automation and unleash resources for strong communication.
Transition — creating value.
In the end, a company exists to create value. This value — from my view — fundamentally connects all business units. This is why the “connections” between business units foster scalability.
Let’s go through the graph from left to right: Tech decides on architecture, maintainability and compatibility of the technology the offered products are based on. E.g. the decision of where to host the services by tech enables product to create a certain product feature and vice versa. Additionally, product and marketing touch base on content about products, advertising them and gaining insights from the market. Very similar logic holds between marketing and sales: content for working on new opportunities or key accounts, the creation of leads (be it inbound or outbound) and the ability to qualify them enhances value. Finally, sales and service scale in the ability to deliver the product to the customer, working on upselling and refine pricing continuously.
*Caution* again — the transition of value is evident for all tuples of business units. Service and product should have a very close and scalable relationship too — they connect development and application of their very own product.
So highly scalable companies focus on the transition of value and the steady flow of information (which itself can be automated) between all business units.
So what? First, a company’s generated demand causes scalability. Second, scalability follows a logic applied to every area in the organization. Third, the dimensions of scalability for each unit build upon each other (tech<->product<->marketing<->sales<->service). When thinking about it, the transition of value between units is the real lever and holds for all combinations within a company. Keep on scaling!
