I know businesses I used to see when I was a young boy, that to date, almost three decades later, are still almost the same size and scale. These past couple of days found me wondering why such businesses never scale. Well, some entrepreneurs are okay running their businesses at the same scale without wanting them to grow, whilst others want their businesses to scale from day one. Of the latter, some succeed and others who are not lucky enough to succeed in scaling.
More important, before even thinking about scaling, business owners should always ask themselves why they want to scale. Is it to meet the demand of more customers across different regions, or is it a need to make more money? In this article, I will focus on businesses which would want to scale but are unable to do so because of various factors, which I will address.
In the dynamic and ever-evolving world of business, scaling up is often regarded as a crucial milestone for long-term success. However, not all businesses manage to break through the scale ceiling and achieve substantial growth. Many entrepreneurs, especially those running traditional businesses, have no idea that they can scale their business operations from one market to several markets in a region, leave alone scaling into a new country. While some enterprises flourish and expand rapidly, others remain stagnant, unable to replicate their initial success. This column aims to shed light on the reasons why certain businesses struggle to scale and explore the challenges they face.
Lack of Scalability in the Business Model
Not all businesses can scale. One of the primary reasons why some businesses fail to scale is an inherent flaw in their business model. For example, a self-employed tailor may not vision that their business can scale beyond them, to them employing multiple tailors in the same premise to expanding into another town. Certain enterprises are built around products or services that are difficult to scale due to limitations in production, distribution, or market demand. For instance, businesses relying on labour-intensive processes or those offering highly personalized services may struggle to scale up without compromising quality or customer experience. Most of these businesses might be brick-and-mortar businesses which require high upfront costs, to the extent that if the business owner does not have a vision beyond the upfront cost, they will be scared of scaling.
Insufficient Market Demand
A critical factor determining a business’s scalability is market demand. Even with a sound business model and excellent execution, if there isn’t a substantial market appetite for the product or service, scaling becomes a daunting task. In such cases, businesses often find themselves confined to niche markets or limited customer segments, unable to penetrate broader markets and expand their reach.
Funding plays a pivotal role in fueling growth and expansion, especially in businesses which rely on direct physical service to customers like barber shops etc. An owner of a barbershop may easily decide between maintaining one branch and increasing the demand in that branch, rather than scaling into multiple branches. Whether it is due to a lack of enough income, inadequate financial planning, or an inability to secure funding, the absence of necessary funds can impede a company’s growth ambitions and restrict its scalability potential irrespective of whether the business is capable of scaling. However, this might not be the case for other businesses. For instance, Solutech has been able to scale to 8 markets across Africa without needing upfront investment cost.
Leadership and Management Constraints
Often, the owners of a business are the impediment to the growth of a business. Effective leadership and management are crucial for guiding a business through scale. Yet, businesses that struggle to scale often grapple with leadership constraints. Business owners need to realise when their businesses have grown beyond them. This means that the knowledge and experience that an owner had when they started the business, is not necessarily the same knowledge and experience they need to scale the business further.
A good business has to overgrow the owner.
Inadequate management skills, resistance to change, or a lack of strategic vision can hinder a company’s ability to navigate the complexities of scaling. As they say, a good dancer should know when to exit the stage because if they overstay, then the dance gets boring. Additionally, an organizational structure that fails to adapt and evolve as the business grows can create bottlenecks and hinder the scalability of the business. Hence, businesses need to keep re-evaluating their leadership and management to make sure they are at par with the growth and vision of the business.
Operational Inefficiencies and Lack of Processes
As businesses grow, their operational complexities multiply. A business cannot serve 100 customers the way it used to serve 1 customer. It must improve its processes to be efficient, everyone in the organisation has to understand how the business operates and the actions to take at any given time. Inefficient processes, a lack of streamlined systems, and a failure to embrace technology can hamper scalability. Without scalable operations and robust internal systems, businesses may find themselves overwhelmed by increased demands, unable to meet customer expectations, or experiencing a decline in the quality of their products or services. For instance, a small manufacturing business serving 10 customers has to operate differently to accommodate the demand of 1,000 customers by investing in more human power, better production systems and technology, among others. Failure to do so will lead to bottlenecks in meeting demand from the customers.
Resistance to Innovation
Innovation is a crucial driver of growth, and businesses that resist change often struggle to scale. Adapting to market trends, embracing new technologies, and continuously refining products or services are essential for sustained growth. However, some businesses may become complacent or resistant to change, stifling their potential for expansion and leaving them behind in a rapidly evolving marketplace.
Scaling a business is a complex endeavour that requires a combination of strategic planning, adaptability, and execution. While some enterprises successfully overcome the challenges and achieve exponential growth, others remain trapped in a cycle of stagnation. Whether due to inherent flaws in their business models, limited market demand, inadequate access to funding, leadership constraints, operational inefficiencies, or resistance to innovation, these businesses find it challenging to break through the scale ceiling. Recognizing and addressing these obstacles is crucial for businesses aspiring to achieve sustainable and substantial growth in today’s competitive landscape.