“Highly scalable business models” are the four magic words to quickly hook most venture investors, but what does this mean?!

In essence, scalability means how easy the business is growing. Now this raises a new question, if scalability refers to the “ease of growth” then what decides the “ease of growth”?

There are two things that need to be considered for the business to generate incremental growth: the amount of capital and the kind of human resource.

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  1. The amount of capital that the business model needs for marketing or building infrastructure – i.e. building retail stores, a power plant or developing a website.
  2. Which human resources does the business need to generate incremental growth? On the one hand, simple tasks require people, who do not need to have high educational qualifications, i.e. packers in warehouses, delivery men etc. On the other hand, for complex tasks, people with high educational qualifications and much experience are required, i.e. experts.

 

Scalability patterns

Some simple examples of scalability patterns for attaining increased returns to scale are:

  • New distribution channels (e.g. retail online/offline);
  • Release capacity constraints (e.g. standardize product);
  • The outsourcing of investment (e.g. ecosystem creation);
  • Allowing partners to work for free (e.g. Groupon).

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In response to one of the most common questions asked by entrepreneurs, Patrick David shares a formula on how to scale your business with this insightful video.

[Video: How to Scale Your Business Model]

Yet, 90% of new ventures that do not attract investors fall into the “valley of death” and fail to get back up within the first three years. Why? Professional investors, such as Angels and Venture Capitalists, prefer to invest in highly scalable business models.

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